The climate crisis is worsening, witnessed in more extreme weather events, biodiversity loss and environmental degradation. However, it is not all of humanity but rather capitalist elites, primarily from the Global North, who are the main cause of the climate crisis. They did so on the back of centuries of colonial exploitation in the Global South, the populations of which are now most vulnerable to the effects of climate change.
As the world struggles to respond, the concept of ‘climate finance’ has emerged as a crucial component of global efforts to address these challenges. However, as we explore in this article, and based on my recently published longer paper, a critical examination of climate finance reveals deep-seated inequities in it.
Neocolonial dynamics in climate finance
‘Climate finance’ refers to those flows of investment directed towards climate mitigation and adaptation measures – from building flood defences to renewable energy infrastructure. It is a vital component of the international response to the climate crisis, as seen in the negotiations at the United Nations Framework Convention on Climate Change (UNFCCC) Conferences of the Parties (COPs). However, the needs and applications of climate finance differ markedly between Global North and South.
In the Global North, climate finance is needed for decarbonising industrialised economies, shifting towards renewable energy and transforming consumption patterns. In contrast, the Global South requires finance that simultaneously achieves climate adaptation and mitigation alongside socioeconomic development that creates jobs, reduces poverty and improves health and education, all while increasing independence from the North.
In the context of these needs, the prevailing narrative among global governance institutions like the IMF, UN and World Bank emphasises the role of private finance in driving the global green transition. Private capital is considered essential for mobilising the trillions of dollars needed annually to finance the green transition. However, this risks reembedding old problems rather than solving those intended.
For hundreds of years, capitalist elites in the Global North have exploited the Global South in ways that continue to reverberate in dynamics of economic dependency and vulnerability today. Yet as private finance under market-based financial capitalism is de-risked by the public sector and pushed as the solution for sustainable development financing in the Global South, this risks replicating those dynamics of dependency and vulnerability we see elsewhere.
Not only does it cost more in the Global South than the North to attract investment, while levels of investment pale in comparison to actual need, but the dominance of market-financial logic means that unsustainable risks are piled onto already vulnerable countries. For example, the majority of climate finance is provided in the form of loans rather than grants, increasing the debt burden on Global South countries and limiting their capacity to invest elsewhere. Through mounting debts denominated in foreign currencies, such countries become more vulnerable to instabilities in the global system, particularly changes in US monetary policy, which lead to significant shifts in capital flows and exchange rates, and with it, the value of those debts.
A clear example of this is Kenya. The Kenyan government has borrowed significant sums over the last two decades, much of which has been used to fund infrastructure development, including low-carbon energy infrastructure. However, now – after recent hikes in US interest rates that have increased the cost of their dollar-denominated debts – the country is experiencing a financial crisis, with the costs of debt repayment as a proportion of government revenue reaching 59 per cent in 2023. While the Kenyan government struggles to force through legislation to bring in fiscal austerity, the IMF and World Bank circle, eager to impose their ‘structural adjustments’.
Structural challenges, alternative solutions
In such ways, the current structure of climate finance risks reinforcing patterns of dependence and exploitation. The result is a continuation of neocolonial-era dynamics under a new guise, where Southern countries remain economically subordinate and vulnerable to global market fluctuations. Addressing these issues requires a range of interventions at different scales and timelines.
In the short term, this would involve debt cancellations and significant increases in grant-based climate finance, which the Global South would be able to allocate according to their needs without interference, reflecting an important effort towards climate justice.
Medium term, there is a need for new financial institutions that prioritise public good over private profit and for Global South countries to have more policy space and autonomy. Democratic and public-oriented financial institutions, such as development banks and cooperative banks, could play a crucial role in financing sustainable development in the Global South. Such countries should also be supported by implementing policies that enable them to shape and control capital flows, direct investment and protect growing industries.
Finally, we need to see a fundamental restructuring of the global financial architecture, as part of a broader package of policies to improve sovereignty (energy, food, technological and financial) in the Global South. Part of the calls for a ‘Bretton Woods 2.0’ moment to overhaul our international financial institutions to support sustainable development, would include expanding the International Monetary Fund’s Special Drawing Rights (SDR) allocations, increasing emergency liquidity provisions for Global South countries, and regulating destabilising flows of capital.
In the face of the intensifying climate crisis, there are options to make the global green transition also just. The urgency of this is great, particularly for Global South countries also in dire need of sustainable development and independence. Yet on our path, the dominant approach to crucial interventions like climate finance risks only entrenching neocolonial power structures and deepening global inequalities. Big changes are needed, and we need to start now.
Stefan Zylinski is a Global Political Economy PhD student at the University of Bristol. His research explores how the macro-financial architectures of capitalism are shaping the green transition, with a particular focus on the Global South.
Coloniality dressed in green: in its current form, climate finance risks becoming a new tool for colonial rule by Stefan Zylinski is available on Bristol University Press Digital here.
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