Paris summit: First step toward new global finance system?
June 23, 2023
The "summit for a new global financial pact" could be seen as just another international meeting coming on top of regular climate conferences of parties (COP) and gatherings by the G7 and G20, the world's seven and 20 most advanced economies.
For two days, the Palais Brongniart, a neoclassical building that used to house the stock exchange in the center of Paris, was filled to the bursting point with the roughly 1,500 participants, including 40 heads of state.
The summit was so heavily attended that most journalists couldn't get accreditation and had to follow events via an online livestream.
But France's President Emmanuel Macron insisted at the closing press conference that the summit was a watershed moment.
"These two days have allowed us to build a new consensus for the planet. We have come up with a document detailing a shared political view structuring the way toward a profound reform of international financial architecture and governance," he said.
"This summit is designed to build unity amongst the members of the international community regarding our response to the double challenge we are facing: the fight against inequalities and climate change," Macron added.
Some concrete results
According to the meeting's closing statement, developed countries have now achieved their target, declared in 2021, to transfer $100 billion of their special drawing rights (SDR) to developing countries. SDRs give access to currency held by the International Monetary Fund (IMF) which can be exchanged against money.
Participants at the summit said that a 2015 goal set for 2020 — to provide $100 billion to support climate action in developing countries — was likely to be reached this year. They also promised $200 billion of additional lending capacity over the coming ten years. And participants agreed on the restructuring of $6.3 billion of debt held by Zambia, which defaulted in 2020. Participants equally set up a new biodiversity fund.
Meeting 'could represent a turning point'
Olivier Damette, professor of economics at the University of Lorraine and associate researcher at the Paris-based Climate Economics Chair, agrees the meeting could indeed represent a turning point.
"The world is facing multiple crises. Poverty and public debt have skyrocketed over the past few years, also because of the COVID-19 pandemic. More and more developing countries are on the verge of default, climate change is increasingly showing its impact and there's a loss of trust in national and international institutions," he told DW.
"For the first time, leaders now came together to talk about all these different challenges at once — earlier summits treated the topics separately," Damette added.
He emphasized the current international financial institutions were no longer equipped to deal with such a situation.
"The World Bank and the IMF, created after the 1944 Bretton Woods agreement, are located in the US, led by the US and the G7, and very much have a top-down approach," he said.
"But poorer countries need to be part of the decision process — why would they otherwise fight climate change which is largely caused by wealthier countries, whereas developing countries feel their priority needs to be the fight against poverty?" he continued.
Damette thinks one specific result of this summit shows wealthier nations have understood they need to get developing countries on board.
"The participants agreed a climate resilient debt clause should be created, which is very good news as poorer nations are often those hardest hit by the impact of climate change," he emphasized.
New financing scheme extended at Paris summit
Claire Eschalier, project manager at Paris-based think tank Institute for Climate Economics that was consulted by the government to prepare this summit, thinks it's logical to apply more of a bottom-up method.
"Most financing went in the past to specific projects whereas it should have supported a more systemic approach to have a larger impact," she told DW, adding that the so-called Just Energy Transition Partnerships (JETP) were a first step in the right direction. Under this funding scheme, wealthier nations financially support fossil fuel-dependent developing countries on their path towards clean energy while addressing the transition's social consequences.
Three JETP were concluded since November 2021 — with South Africa, Indonesia and Vietnam. Senegal became the fourth JETP country at this week's Paris summit.
"This is a very interesting pilot scheme through which donor countries can focus more on developing countries' specific financial needs," Eschalier opined.
Isabelle Albert, climate resilience venture capitalist at Paris-based Wind Capital, concurs the summit has produced some tangible results.
"It's positive that the SDR transfer target will now be reached and that participants agreed to set up a biodiversity fund, as ecosystems such as the Amazon rainforest are crucial to preserve our climate," she told DW.
"This can help re-establish some trust, although developing countries are still waiting to see materialize other commitments by wealthier nations such as the amounts promised at COP15 in 2009," she added.
'History will tell if the summit was a success'
But Albert thinks it's too early to assess the outcome of the meeting.
"This is a first step into the right direction, but summits like this one are there to lead the way — history, the coming months and years, will tell if we'll be able to achieve a just transition," Albert said.
"Let's hope today's agreement will help make the COP28 taking place in Dubai later this year a success after the meager results of COP27 in Egypt last year," she added. At COP27, nations failed to commit to the measures necessary to limit global warming to 1.5 degrees Celsius until 2030.
President of Kenya William Ruto shared this cautious optimism.
"We want to have a different conversation and we are happy that this conversation has started in Paris," he said during the final press conference.
Edited by: Michaela Cavanagh