Mapping the political economy of the global financial system

World banknotes collection mixed on table, top view
World banknotes collection mixed on table, top view

We stand at a critical juncture. The global economic recovery from the COVID-19 pandemic is volatile with divergences across and within countries. Whilst we have made rapid strides in tackling the crisis in terms of vaccine development, the majority of the world’s population remain unvaccinated and many developing countries are suffering from severe second waves of the pandemic.

Global warming – resulting in further widespread humanitarian and planetary suffering – could reach up to 3 degrees this century if current policies and financial flows remain as they are. Climate finance has reached record levels, yet still falls significantly short of the trillions required for the decarbonisation of our societies over the coming decades. Fundamental transformation of the global economic and financial system is essential to tackle these interrelated health, economic and climate challenges.

E3G’s political economy mapping of the global financial ecosystem takes stock of opportunities and challenges for systemic economic and financial reform for climate safety across several key countries and institutions. It aims to better understand countries and institutions’ positions on key aspects of fiscal and monetary policy, and financial regulation, analyse the interactions between these venues, show the main champions and blockers of a progressive climate finance agenda, and assess opportunities for green reforms over the next 12-24 months.

The mapping’s interim report has identified a three-pillar agenda for systemic financial reform for the G7 and G20 to champion for the remainder of 2021 and 2022:

1. Greening the recovery in developed economies

  • Setting more ambitious green spending targets/establishing minimum green spending floors and committing to the rest of the budget adhering it to the EU-defined concept of “Do No Significant Harm”
  • Developing green public finance management tools (e.g green budgets and procurement policies, and auditing mechanisms or bodies to evaluate these)
  • Ending all public fossil fuel financing
  • Establishing long-term financing strategies for decarbonisation and linking them to NDCs

2. Enabling an inclusive, green, global recovery

  • Increase official development assistance support to 0.7% of GDP, with a strong focus on health and climate
  • Improve access and flexibility of climate finance
  • Replenish the multilateral climate funds (GCF & CIFs)
  • Recapitalise the MDBs and demand a higher share in concessional finance for adaptation and energy transition
  • Provide debt restructuring as necessary and (temporary) suspension of debt payments to improve fiscal space for recovery, linked this to climate vulnerability & climate-debt swaps (as suggested by WB and IMF).
  • Agree on a common position on SDR reallocation
  • Eliminate financing of fossil fuels in public banks

3. Implementing structural financial reforms for climate safety

  • Collaborate to agree on a joined-up approach to defining norms and standards, including definitions of green investments, in order to send strong signals to markets and avoid regulatory fragmentation;
  • Improving the coordination role of central banks and regulators: update mandates to reflect climate imperative; employ new tools and methods: evaluate the risk of “brown” activities for supervised entities, etc;
  • Promote mandatory disclosure regimes and transition plans for supervised entities at the G20 level
  • Promote full integration of prior work done in the area of sustainability reporting within the forthcoming work done by the IFRS on green reporting standards. In particular, promote the double-materiality approach to sustainability reporting, recognizing that relevant sustainability reporting needs to account for a firm’s impact on the planet, people and environment
  • Enhance monetary-fiscal coordination

Read the interim report in full here.

Country-specific political economy mappings

As part of the ecosystem mapping initiative, E3G has also worked with a number of local partners to develop country-specific political economy mappings. You can find summaries of the mappings below:

E3G will continue to work with its partners to promote the policies above and push for a climate-safe world, including a series of convenings to discuss opportunities and challenges of financial reform in some of these specific countries (e.g. China, Japan, Indonesia).


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