What happened?
On 23 and 24 June, France hosted the New Global Financing Pact summit in Paris. Barbados and India were the co-hosts. Heads of state, officials from international organizations, NGOs, and activists attended the event. In his address, host Prime Minister Emmanuel Macron stated the intended result of the summit, saying: "Policymakers and countries shouldn't ever have to choose between reducing poverty and protecting the planet." The two-day summit saw officials deliberate upon climate change, climate financing, reforms of multilateral financial institutions and the impacts on economies due to the pandemic and wars. 

What is the background?
First, delayed promises and climate debt. Several countries have taken the pledge to achieve net-zero emissions by 2050. However, studies show that climate action continues to lack commitment. For instance, during COP15 in Copenhagen in 2009, developed countries decided to collectively secure USD 100 billion every year by 2020 to assist climate projects in developing countries. In 2020, the OECD reported that the net amount raised was USD 83 billion. Macron reiterated the commitment to this scheme, saying that he is "confident" of the target being reached this year. A March 2023 UN report titled 'Tackling debt and climate challenges in tandem' showed that the debt crisis in developing countries was aggravating climate change. 29 out of 69 poor countries plus lower-middle-income countries that defaulted are at crossroads of high debt and climate vulnerability. The report called for the restructuring of global financial systems. With natural disasters increasing in number and intensity, climate-vulnerable nations find themselves borrowing money for relief and reconstruction. 

Second, the hesitant private sector. Twenty-five per cent of global climate investments happen in South Asia, Latin America, and Africa, which have some of the most ecologically vulnerable zones. Countries here can access loans only after agreeing to several conditions. Further, the tax structures within low and middle-income countries and weak institutional frameworks deter private companies from investing in green schemes. The private sector cannot quantify the risk and benefits they could face in these countries regarding climate change impacts. Additionally, the inability to forecast high returns makes them cautious about investing.

Third, the North-South divide. Presently, the countries of the Global North are responsible for the accumulation of high atmospheric emissions. Historically, the US has emitted the highest share of carbon, followed by EU countries and China. In comparison, the countries of the Global South have contributed a significantly lower percentage of emissions. However, the numerous climate pacts today tend to focus on the actions taken by the Global North. The two sides end up shifting blame, with questions on climate justice factoring in.

What does it mean?
First, the Global South gearing up to fight climate change. Barbados' Prime Minister Mia Mottley, who has emerged as a new voice leading the call for climate action, called for a "total transformation" of international institutions. Her Bridgetown Initiative was an important agenda at the event. It is a five-point proposal that addresses climate financing, global inequality and poverty in developing countries while providing possible solutions incorporating global financial institutions. The carbon footprint of the Global North is over 100 times greater than the Global South. However, emerging economies face the brunt of climate change while industrialized nations are better equipped, technology and finance-wise, to deal with it. 

Second, the relevance of contemporary financial institutions. Contemporary global institutions like the World Bank and the IMF were products of a post-World War II rebuilding effort. Since then, the world has undergone massive changes, including pandemics, shifting geopolitical relationships and a worsening climate. Moreover, these challenges have had a disproportionate impact on the developing and under-developed nations. The inability of global institutions to help alleviate their troubles, coupled with the dominance of developed countries within these institutions, has slowly chipped away the trust in them. A look at the policies of these institutions also reveal that they have exacerbated the debt crisis in poor countries. This has increased the call for institutional reforms over time.