Time to lead: priorities for the G20 on the eve of COP26

At the G20 finance ministers meeting in July, UN Secretary-General António Guterres called on wealthier nations to step up to their responsibility to help developing countries address climate change, noting that “from the Caribbean to the Pacific, developing economies have been landed with enormous infrastructure bills because of a century of greenhouse gas emissions they had no part in.”

The G20 countries, whose leaders are meeting this weekend in Rome, collectively account for 90% of global GDP, 80% of international trade, two-thirds of the global population and 84% of global greenhouse gas (GHG) emissions from fossil fuels.  

When the G20 countries take bold steps, they have the potential to make an impact: a report by the World Resources Institute from September 2021 suggests that the latest round of nationally determined contributions (NDCs) and legally binding net-zero target would reduce projected global warming from 2.8°C to 2.4°C if implemented in full. This is largely due to the 2030 and 2050 targets from several key G20 countries. Argentina, Canada, the EU, the UK and the US have submitted enhanced 2030 NDCs, while Canada, the EU, Japan and the UK have announced legally binding net-zero emissions targets by 2050. 

Even as climate change impacts escalate, disproportionately affecting the poorest and most vulnerable people, the climate commitments of the G20 still fall far short of what is needed. With COP26 in Glasgow just days away, Climate Action Tracker classifies the commitments by Argentina, Canada, the EU and the US as highly insufficient or insufficient for limiting global warming to 1.5°C. Other G20 countries still have to meaningfully enhance their NDCs in the lead-up to COP26, while two countries, Brazil and Mexico, have actually reduced their ambitions.  

Closing the climate finance gap

The G20 is also falling far short on climate finance, which wealthier countries are committed to providing to developing countries under the Paris Agreement and is essential to achieving a low-carbon and climate-resilient future. The pledge formalized in 2010 to mobilize at least $100 billion per year by 2020 for mitigation and adaptation in developing countries has yet to be met.  

The EU notes that it is the largest source of public climate finance in the world, but although it has steadily increased its support to developing countries from 2016–2019, its self-reported contributions grew by just under 15% to €23.2 billion (including the UK’s share). Contributions have been very uneven between members of the EU, with Germany and France playing a larger role, and similar-sized countries such as Italy and the UK not pulling their weight, with the latter cutting its Official Development Assistance spending. In the meantime, numerous reports have shown that even $100 billion would be nowhere near enough: annual finance needs for adaptation alone are estimated at $70 billion and are projected to reach $140–300 billion by 2030.

As a grouping of the world’s most powerful economies, the G20 has unparalleled resources to tackle the climate crisis and a moral responsibility, as embodied in the principles of the Paris Agreement, to contribute its “fair share”, both in terms of mitigation effort and finance. Figure 1 shows how much high-income G20 members have actually contributed in recent years.

Delivering finance to the countries that need it most

A remarkably large share of high-income G20 countries’ climate finance has gone to middle-income G20 countries. Though climate finance should certainly be directed towards accelerating the low-carbon transition and assisting the climate vulnerable in these countries, more efforts are needed to direct climate finance towards the world’s poorest and most vulnerable nations. As shown in Figure 2, about $1 in $7 committed in 2015–2019 went to Brazil, China, India or South Africa (BASIC). At the same time, members of the Alliance of Small Island States (AOSIS), many of which face existential threats from climate change, received just 2.1%. Least developed countries (LDCs) received 20.8%, but that is dwarfed by the scale of their needs, as they are home to more than half of the world’s extremely poor people and generate just 1.3% of global GDP.

A closely related concern is debt. The latest analysis from the Organisation for Economic Co-operation and Development shows that from 2013–2018, the share of loans in total climate finance provided by developed countries rose from 52% to 74%, while the share of grants decreased from 27% to 20%. The Covid-19 pandemic has further increased debt burdens, limiting the ability of poor countries to make urgent progress on climate change adaptation and sustainable development. The G20 has agreed to temporarily suspend debt service payments until the end of the year, but longer-term solutions are needed.

Ending finance for fossil fuel projects

It is crucial for G20 countries to stop direct and indirect financing of domestic and overseas projects that entrench fossil fuel dependency. As the Energy Policy Tracker highlights, G20 countries have directed more new funding to fossil fuels (more than $315 billion) than clean energy (around $280 billion) since the beginning of the Covid-19 pandemic.  

Some positive signals have recently begun to emerge: the 2021 Production Gap Report highlights that Multilateral Development Banks and G20 development finance institutions holding a combined total of over $2 trillion in assets have adopted policies that exclude fossil fuel production activities from future finance and in a significant step forward, China, Japan and the Republic of Korea have recently pledged to end financing for coal power plants abroad. G20 countries now need to continue to build on this momentum to keep the 1.5°C limit in sight. 

An agenda for action

Taking the lead on climate finance on the eve of COP26 is very much in line with the G20’s mission to “promote cooperation to achieve stable and sustainable world growth that benefits all”. Four priorities arise from our analysis:

1. Significantly scale up climate finance commitments to meet the overdue pledge to mobilize $100 billion per year and start narrowing the gap between developing countries’ needs and actual finance flows, increase commitments to meet the needs of the developing countries in line with UN demands, and achieve a balance between adaptation and mitigation spending.
2. Earmark a large share of this new and additional finance for the most vulnerable countries, especially LDCs and Small Island Developing States, recognizing the urgency of their needs.
3. Commit to providing a majority of international climate finance as grants, reducing loans and equity, particularly for adaptation, which drew only one-twelfth as much finance as mitigation in 2019–2020. In this respect, debt-for-climate swaps should be investigated as possible solution to increment finance, building on developing countries’ conditional NDC pledges, as proposed by G20 members Argentina and South Africa ahead of COP26, could also be beneficial.
4. Stop financing fossil fuel development altogether, both domestic and overseas, bolstering financial support as needed to ensure that all countries can adopt cleaner alternatives.

We offered similar recommendations in the lead-up to the G7 summit in June and have since seen steps in the right direction. However, slow and incremental progress is not enough. Representing the most powerful economies in the world, the G20 is well positioned to catalyse the global transformation needed. Time is short and the livelihoods and well-being of hundreds of millions of people are at stake.