Speech

Remarks of the Managing Director at the Finance at Countdown Event

October 12, 2021

Mr. Vice-President, Excellencies, Colleagues, Friends.

It is a great pleasure and an honor to address you today. My only regret is that I cannot be there with you in Edinburgh.

In 30 days-time—less than 50 miles away, in Glasgow—COP26 will reach its conclusion.

That is one month for world leaders to make a choice.

Either we choose now deep reductions in greenhouse gas emissions in the coming decades—or we choose severe, widespread, and irreversible damage to our planet, with grave human and economic consequences.

If those are our options, is it really a choice? The right path forward is so clear.

It doesn’t mean it is easy. The right choice requires the total transformation of our economies and our way of living. And that entails vast financing needs.

IMF staff estimate that we need additional global investments of $6 to 10 trillion in the next decade to reach net-zero targets. At the same time, we have to deal with global adaptation – so critical for climate-vulnerable countries – that could require some to $3 trillion and counting.

Mobilizing such sums is a massive undertaking, especially as we are still grappling with another global crisis. But it is the best investment we can do for our present and our future.

The world sees that. Sustainable funds—and climate funds in particular—have grown faster than conventional funds in the recent past. Just last year, climate-themed funds grew by about 50 percent.

This growing popularity means more capital is available to firms with a high sustainability rating, boosting their bonds and shares issuance. It means increasing support for green shareholder resolutions. Just think—there are activist investors now on the boards of major oil companies, pushing for changes to their climate strategy.

Unfortunately, the climate fund sector may be growing but it is still too small. In 2020, these funds accounted for only $130 billion out of the roughly $49 trillion—that’s barely one quarter of one percent of the global investment fund market! And that has to change.

For the investment fund sector to play a bigger role in driving the transition to low carbon and resilient economies, policymakers must urgently step up.

Some actions can start next month at COP26.

First, we need a critical price signal to redirect investment and innovation to clean technologies and incentivize energy efficiency.

And this price signal has to be predictably stronger—in our estimate by 2030, we need an average global price of $75 per ton of CO2, way up from today’s $3 per ton.

To accelerate progress, IMF staff has proposed an international carbon price floor, with prices differentiated by development levels and accommodation of non-pricing approaches.

For example, where a carbon tax is politically tricky, regulations, emissions trading, and feebates provide an alternative.

Second, we must strengthen the global climate information architecture to correctly manage physical and transition climate risks and allocate capital efficiently.

That means, we need better data, better disclosures, and better sustainable finance classifications, including taxonomies.

These important steps would accelerate capital flows by improving transparency, boosting market confidence, strengthening oversight, and reducing “greenwashing.”

We work with the Financial Stability Board and many others to bridge data gaps and develop a global set of disclosure standards.

We also work with the OECD and World Bank on high-level principles for sustainable finance classification to help align investments with climate goals.

And our Financial Sector Assessment Programs are increasingly looking at how climate-related risks can impact financial stability and resilience.

This is important groundwork, but more needs to be done and faster. And COP26 is an opportunity to agree on the next steps.

Third, the international community must play a more important role in financing global climate actions, particularly in developing countries with limited access to financial markets.

This role starts with meeting the Paris commitments to provide $100 billion a year in climate finance for the developing world.

But we also need to expand our financing options—build more ways to get more money where it is most needed.

At the IMF, for instance, we are working on magnifying benefits of the new allocation of $650 billion in Special Drawing Rights. One promising option we are exploring with our members is channeling some of these SDRs to a new Resilience and Sustainability Trust. This Trust could help low-income and vulnerable middle-income countries to increase resilience for a sustainable recovery.

Let me conclude.

As the latest IPCC report has told us, the consequences of unchecked climate change would be an unlive-able planet and untold human misery.

Unless we act.

Today, we still have a choice. But the window is closing, and COP26 presents our last, best hope for an agreement that would save us, and make us more prosperous.

Thank you.