Comments at the G20 Leaders Summit on the Indonesian island of Bali suggest that developed countries will respond to calls for major financial reform made at COP27 in Egypt.
In their Bali declaration, G20 leaders acknowledged ‘the urgent need to strengthen policies and mobilize financing’, including by ‘significantly increasing support for developing countries’.
They also expressed interest in making better use of IMF reserve assets known as ‘special drawing rights’ (SDRs) to assist vulnerable countries experiencing severe debt-stress, because of factors such as climate change and the pandemic.
SDRs can be allocated to countries on a quota basis in times of hardship. Developed countries can voluntarily channel their SDRs onwards to developing countries, which can then use them to pay down their debts to the IMF or convert them to hard currency.
The language on SDRs in the G20 declaration was somewhat more muted than many developing country negotiators at COP27 would have liked.
It states that leaders would ‘explore viable options’ for developed countries to voluntarily rechannel SDRs to developing countries through multilateral development banks, while noting that voluntary rechannelling pledges amounting to US$81.6 billion have already been made.
June meeting on financial reform
However, comments by French president Emmanuel Macron in his press conference after the G20 summit were more forthright than the declaration, and are likely to be greeted warmly by developing country delegations at COP27.
Mr Macron revealed that Paris will host a conference next June that will seek to develop "a new financial pact with the South", with a strong focus on the use of SDRs as a means to direct finance to developing countries.
The conference will also work on the reform of international financial institutions, and will aim to ensure climate vulnerability and loss and damage are not ignored in the international financial architecture, he said.
The conclusions of the conference will then feed into the next meeting of G7 leaders, Mr Macron said.
Mr Macron also noted that France had launched a finance initiative at COP27 with Barbados, which will also involve the African Union, India (which has the 2023 G20 presidency) and Japan (the 2023 G7 presidency).
Prime Minister of Barbados, Mia Mottley, has been a longstanding advocate for reform of the global financial system, through what has become known as the Bridgetown Initiative. In his speech to COP27 early last week, Mr Macron praised her "courage, ambition and inspirational character".
The conference scheduled for Paris in June to examine options for financial reform will not be starting from scratch.
A high-level expert group on climate finance co-chaired by Vera Songwe and Nicholas Stern released its report on ‘scaling up investment for climate and development’1 at COP27, which includes discussion of the potential role of SDRs.
Phase-down of coal
Another significant inclusion in the Bali G20 declaration is a statement that leaders recognise the importance of speeding the transition towards low-emission energy systems, including by ‘accelerating efforts towards the phasedown of unabated coal power’.
The phrasing – which echoes words used in the COP26 Glasgow declaration – is an advance on the somewhat more qualified wording in the 2021 G20 declaration.
However, action at the G20 summit on coal phase-down was not restricted just to stronger wording in the final declaration.
On the sidelines of the summit, an alliance of countries known as the International Partners Group (IPG) launched a $20 billion Just Energy Transition Partnership with Indonesia, which aims to speed its transition away from coal.
The IPG is led by the US and Japan, and other members include Canada, Denmark, the EU, France Germany, Italy, Norway and the UK.
Under the terms of the Just Energy Transition Partnership, which follows a similar $8.5 billion Partnership signed last November between the IPG and South Africa, Indonesia will aim to peak its power sector emissions by 2030, with the goal of reaching net-zero power sector emissions by 2050.
The Partnership also aims to ensure at least 34 percent of all Indonesia's power generation comes from renewables by 2030, which would roughly double renewables deployment over the course of this decade, compared to current plans.
The $20 billion – to be mobilised over three to five years – will comprise public and private finance, with the private sector participants set to include major financial institutions.
Mr Macron noted that the partnership concept had been instigated at COP26 "when we decided to support a number of countries to phase out coal".
Partnerships with South Africa and Indonesia have now been put in place, "and we will continue the work", he said.
Meanwhile, in Sharm el-Sheikh, it’s unclear what wording on coal and other fossil fuels will be included in the final documents from COP27, with some economies seeking a reference to phasing down all fossil fuels.
Norton Rose Fulbright is represented at COP27 by Anne Lapierre and Elisa de Wit, along with Johannesburg-based head of the Norton Rose Fulbright Africa team, Gregory Nott, and Cape Town-based senior associate James Ross. Norton Rose Fulbright is providing regular client updates from the talks.
G20 Bali leaders declaration
Macron press conference video
Finance for climate action: Scaling up investment for climate and development