Climate Finance success requires resource reallocation of unprecedented scale & speed: $5 – 7.5 Trillion per annum in this decade… which means reallocating 33-50% of global annual financial flows.
At COP26, the Glasgow Finance Alliance for Net Zero (GFANZ) put together financial institutions representing $130 Tr. assets supporting delivery of 1.5C NetZero by 2050, but it will take 3-5 years for investors and banks to re-gear to reach the above annual flow. Given the 10-12 years of carbon budget left to keep our chances for 1.5C pathway, we suggest an internationally coordinated financing mechanism to catalyse Climate Finance via IMF’s long-term bond issuance, with proceeds directed to countries’ public agencies to invest in prioritized Climate Change mitigation and/or adaptation projects. Two potential ways to organize this mechanism:
- The 2016 essay* attached below suggested an underwriting of these IMF bonds by main central banks on a “Green QE” exercise to be sterilised later in time with tax commitments by recipient countries. This mechanism involves QE and not private finance, but would add to countries’ Debt/GDP ratio (at that time, prior to Covid-19, both levers had some room for many countries, but now probably not).
- The 2021 paper attached below proposes an evolved public-private mechanism based on creation of Special Drawing Rights then sold by countries into an IMF’s SPV to collateralise bond issuance. This mechanism would not add to countries’ Debt/GDP ratios and would speed up ESG funnelling of private investment from pension funds, life insurance companies and sovereign wealth funds (full detailed presentation available upon request).
(*Top-20 special citation by European Commission President / McKinsey Global Institute’s 2016 essay competition)
