Yesterday, as part of Climate Week NYC 2020, representatives from 11 governments gathered virtually for the inaugural meeting of the Climate Finance Leaders Forum, a new initiative of the Under2 Coalition.
This initiative originated after several members expressed interest in the work of the Coalition of Finance Ministers for Climate Action, a group of 52 countries working together to align their financial policies and practices with the Paris Agreement. Our members recognised an opportunity to demonstrate leadership in a vital sector to advance the transition to a net-zero carbon future.
As with all work undertaken by the Under2 Coalition, the priorities of the forum are led and determined by the state government participants. Through this initial meeting, we have begun to explore the ways in which we can support our governments in using financial levers to achieve their climate change targets.
States and regions are significant contributors to spending and investment related to climate mitigation and adaptation. According to a recent report by the OECD and United Cities and Local Governments:
- State and regional governments account for nearly one quarter of public spending, and in federal countries represent up to half of government spending.
- State and regional governments play a major role in public investment, contributing up to half of public investment in 36 countries.
- Yet, subnational governments only generate about 15% of public tax revenues on average.
Importantly, subnational governments can leverage both their public spending and regulatory powers to increase private investment in climate mitigation and adaptation measures.
With most of the globe now facing a sudden and likely prolonged economic downturn, state and regional governments will also need to manage economic stimulus packages. As witnessed during the 2009 financial crisis, such large public investments can shape industries for years to come.
According to one study, the world will need $50 trillion of investment in technologies to reach net-zero by 2050. The more we delay our action, the higher the cost will be, increasing the urgency with which all relevant stakeholders (national, subnational, businesses) should channel private and public investments into sustainability related measures, policies and sectors. In 2015, realising the need for climate finance, governments agreed to mobilise $100 billion per year by 2020 to support developing countries in their climate action. The OECD’s most recent estimate suggests flows of ~ $71bn in 2017. As we face more severe impacts of climate change, the size of the financing gap grows to include adaptation and disaster recovery.
The Under2 Coalition recognised this reality and began developing the Climate Finance Leaders Forum before the onset of the pandemic and current economic crisis, but these developments have only increased our members’ commitment to leading in green finance. Due to the pandemic, countries are mobilising trillions of dollars to avoid or ease the devastating effects of Covid-19 on the economy, societies and environment. Despite this clear opportunity to invest in a sustainable future, only a small percent of the global combined $11.8 trillion fiscal stimulus has taken into account environmental conditions.
The Under2 Coalition has already called on national governments to align recovery strategies with a 1.5°C- trajectory and the Climate Finance Leaders Forum is another platform through which our members will explore ways to leverage financial tools to meet their climate goals.