Putting Development First: Climate Change and the International Financial Architecture

There is a vanishing window to limit global warming to 1.5 degrees Celsius. Meeting this urgent challenge will require a tremendous mobilization of resources for a major investment push toward new economic growth paths that are low-carbon, socially inclusive and climate- resilient. This challenge is all the more urgent given that intersecting crises of the early 2020s set back many of development gains in poverty reduction and education. Meanwhile, climate-related hazards continue to intensify and estimates of the economic cost of inaction on climate change are increasingly staggering.

Over the past four years, the Task Force on Climate, Development and the International Monetary Fund, a Southern-led consortium of think tanks across the globe informed by technical papers and policy analyses, has advocated for an investment-led approach to support countries in achieving their development and climate change goals. Countries need affordable, long-term finance to pursue nationally-led green structural transformations and build resilience to climate risks. These long-run growth paths need to be calibrated to maximize short-run fiscal and financial sustainability. Such an alignment will require the global financial safety net (GFSN) and the broader ecosystem of development finance institutions to work together through coherent governance.

Given the need for this systemic perspective and the persistent gaps in the existing system, the Task Force’s new strategy report doubles down down and expands its mandate to include both the GFSN and development finance institutions combined, and moving forward the Task Force will be called the Task Force on Climate, Development and the International Financial Architecture.

An investment-led, development-centered approach to climate change will require international and domestic financial institutions to:

• Embrace and play a central role in mobilizing public and private finance;
• Align investments with green structural transformation growth paths; and
• Ensure climate finance and climate policy are fiscally sound and financially stable.

It is of paramount importance that the international financial architecture be reformed to enable the green structural transformation necessary to limit climate change to 1.5°C and to advance adaptation and resilience, thereby strengthening the growth and development prospects of the Global South and the world economy as a whole. To this end, the reinvigorated mission of the Task Force will be to advance an agenda of development-oriented climate policy in the international financial architecture through rigorous empirical research, policy engagement and strategic communications.