Last week, E3G and ECCO wrote about what the final G20 Finance Ministers’ meeting of 2021 should achieve to close the gap to climate safety, noting expectations were quite low.
Unfortunately, the outcome was underwhelming, though it leaves space for regulatory reform in 2022.
The communiqué endorsed the political agreement for a global minimum tax on multinationals and the capacity to reallocate their profits across countries. This is the number one achievement of the G7 and G20 Finance Tracks in 2021 – and one that shouldn’t be understated. It shows that when they wish to, finance ministers can still deploy diplomatic capacity into key multilateral fora to deliver strong solutions that improve socioeconomic outcomes for everyone.
The biggest missed opportunity is the absence of any agreement or coordination effort on the quantity and quality of public spending. The communiqué speaks to the need to “continue to sustain the recovery”, but still makes note of the need to preserve “long-term sustainability of public finances”. It also includes timid language on the need to identify “the most appropriate policy mix to move towards low-greenhouse gas emission economies, taking into account national circumstances”.
Instead, we need strong public investment strategies connected to climate and development goals, through establishment of green spending floors, best practices on green and social public budgets, and procurement strategies. Building consensus on what the policy mix can and should achieve is the basic function of the G20 Finance Ministers track. In fact, this is one of the fundamental reasons why this forum was established in the first instance.
Critically, the meeting also missed the opportunity to address key gaps and provide solidarity measures to the most in need, and therefore risks undermining trust in an effective multilateral response:
- Beyond reaffirming existing multilateral efforts like ACT-A and COVAX, commitments on vaccine solidarity were poor – concrete steps may still be taken at the G20 Finance-Health Ministers meeting on 29 October.
- There was no mention of the 100 billion and how to close the gap. Finance Ministers are taking neither responsibility nor ownership of UNFCCC climate finance despite their critical role in it, in particular on multilateral financial flows and MDBs and IFIs shareholding.
- Language on MDBs more generally sent no sign of additional financial firepower going into Glasgow.
- On a positive note, Finance Ministers asked the IMF to scale up its Poverty Reduction and Growth Trust lending capacity and to launch a new Resilience and Sustainability Trust with the World Bank. This aims to help developing and vulnerable countries with long-term financing and reduce risks, stemming from pandemics and climate change, to balance of payment stability. Notably, Finance Ministers also supported the channelling of SDRs through MDBs. However, despite all the time and energy poured into the SDR policy debate in 2021, no amount, no date, sense of urgency, or details as to how the RST would actually operate, were provided.
The best result at the G20 Finance Ministers obtained pertains to sustainable finance.
The communiqué endorsed the G20 Sustainable Finance Roadmap and the Synthesis Report prepared by the Sustainable Finance Working Group (SFWG), giving direction to forthcoming G20 presidencies and G20 members.
However, the Roadmap itself is rather weak on certain important aspects. It is helpful that it acknowledges the need for international coordination on approaches to identify and align investment with sustainability goals to prevent both green and SDG-washing. Yet, instead of strongly encouraging all G20 members to develop such an approach (to adopt green and social taxonomies, and develop a clear, common global framework for them) it limits itself to encouraging G20 jurisdictions to refer to a set of broad and voluntary principles when developing their own taxonomies. The Roadmap’s language is more prescriptive and precise on disclosures, with an explicit endorsement of the IFRS Foundation’s work to develop internationally consistent and comparable sustainability disclosure standards for enterprises. However, the focus remains on disclosing sustainability-related information that is relevant to enterprise value-creation. In other words, it does not explicitly call for the IFRS Foundation’s work program to adopt the double-materiality approach, whereby firms would also disclose information about their own impact on a range of sustainability factors.
All in all, this meeting did not provide the political impetus for the financial and institutional reforms needed for climate safety going into Glasgow and 2022. As we begin four consecutive emerging country G20 Presidencies, it is essential this forum rethinks its mandate, increases ambition, and demonstrates legitimacy by delivering financial reforms that benefit developed and developing countries alike. The G20 Leaders Summit and country leadership, from Italy and France, could provide the last chance to close some of the gaps identified in the run up to COP26.