BRUSSELS, 19 April, 2012: A new Eurodad report reveals how rich nations are using a complex web of private funds and financial intermediaries to wiggle out of pledges to provide $100 billion a year to help developing countries cope with the devastating effects of climate change.
“Overreliance on the private sector could spell disaster for the world’s poorest,” said Javier Pereira, who authored the report for Eurodad, the European Network on Debt and Development. “Leveraging money through financial intermediaries cannot be used as a substitute for providing sufficient public resources directly to countries who, through no fault of their own, are suffering most from global warming,” he added.
A commitment by the world’s richest nations, and biggest polluters, to mobilise $100 billion a year by 2020 was one of the few concrete achievements of the Copenhagen Climate Change summit in December 2009. Governments, however, have failed to meet their interim commitments and are now looking to use much smaller amounts of their own money in order to leverage private funding to make up the bulk of the $100billion.
The idea is that development banks and financial institutions, such as the European Investment Bank and the International Finance Corporation, use public money to invest in financial intermediaries working in developing countries to attract private investors. By investing in an African bank, for instance, they believe they can trigger flows up to ten times higher than the initial investment.
While Eurodad’s report acknowledges that supporting private-sector investments can have a useful, if limited, multiplier effect on public funds, it casts serious doubts on claims made about their leveraging potential and reveals that it is often impossible to know where the public money ends up.
“These tools only work with very large and mostly Northern companies and the investments are unlikely help those who are most in need,” Pereira added. “The average size of the loans provided by the IFC is above € 15 million and it’s just not possible to pretend that investments of this size will help smallholders in developing countries cope with climate change.”
Eurodad says that international development institutions should make sure financial intermediaries are more transparent and accountable; their investments have to be properly integrated into the national strategies of developing countries; and they must be used effectively to help those most at risk adapt to climate change, notably through support for small, local businesses, rather than Northern-based multinationals.
“We are not suggesting developed countries and international organisations should stop using financial intermediaries altogether, but given the evidence this should only be a small part of the solution,” said Eurodad’s Director Jesse Griffiths.
The report, “Cashing in on climate change? Assessing whether private funds can be leveraged to help the poorest countries respond to climate challenges” is available at: http://eurodad.org/files/integration/2012/04/CF-report_final_web.pdf
For further details or comment, contact:
Javier Pereira, Eurodad policy and advocacy officer, on firstname.lastname@example.org or Tel: + 32 2 894 46 47; Mobile: +32 488 570 654; or
Jesse Griffiths, Eurodad director, on email@example.com or Mobile: +32 491 429 697 (in Washington DC).
Eurodad (the European Network on Debt and Development) unites 49 non-governmental organizations from 19 European nations working on issues related to debt development finance and poverty reduction.