Germany steps up on climate finance and seeks overhaul of World Bank

Germany has positioned itself ahead of the forthcoming UN climate summit to lead G7 countries on the issue of “loss and damage” funding for poor countries worst affected by global warming, as it reported its highest ever international climate financing commitments.

The federal ministry for economic development on Thursday committed to an increase in funding through a G7-backed financial agreement between Germany and the V20 group of vulnerable nations.

Despite the European energy crisis that has hit Germany hard and prompted an extension of the use of fossil fuels and nuclear energy, the country is keen to demonstrate that it will keep to its climate goals after taking over the G7 presidency this year.

Germany’s agreement with the V20 group, dubbed the Global Shield, akin to an insurance fund, is distinct from longstanding calls by the world’s poorest countries for compensation for the effects of greenhouse gas emissions by the rich, through a global loss and damage financing facility.

Jennifer Morgan, Germany’s climate envoy, told an FT Energy Transition conference this week that the Global Shield plan was tailored to provide a quick financial response after disasters, to allow assistance “on the ground immediately”.

Morgan also supported calls for a change in the leadership of the World Bank and its action on climate-related finance, after president David Malpass recently declined to say whether he believed in climate science. He later changed his position after pressure from key shareholders including the US and Germany.

“We would like to have a leader of the World Bank who understands climate science, and the urgency, and scales up [finance] and with a focus on integrating adaptation and climate into pretty much everything,” Morgan told the FT conference.

“We think that its time to have the bank led by someone that prioritises the climate crisis, who has internalised what this means for developing countries, and is ready to do everything they can to move it forward.”

The issue of loss and damage funding, to help the developing countries put in place measures to cope with extreme weather events, was “going to be on the agenda forever,” she said, “because of the fact the impacts are intensifying”.

It is expected to remain a sticking point at the COP27 meeting in early November as richer nations push back against shouldering financial responsibility for the effects of climate change.

Germany, Europe’s largest economy, has doubled its climate finance for developing and emerging economies since 2015, when countries drafted the Paris agreement to limit global warming to below 2C at worst, and ideally 1.5C. Temperatures have already risen at least 1.1C in pre-industrial times.

Of the €5.34bn it provided last year, half went towards climate change adaptation and half to mitigation. President Olaf Scholz in June announced that Germany would increase its commitments to €6bn by 2025.

In 2015, rich nations promised to mobilise $100bn a year to support poorer nations by 2020, but continues to fall short, at $83.3bn at last count.

The US and EU rejected calls for a new loss and damage financing facility at COP26 in Glasgow last year and pushed back again when the debate arose at UN climate talks in Bonn in June.

In a statement last week, V20 chair and Ghana’s finance minister Kenneth Nana Yaw Ofori-Atta said the group’s debt service payments amounted to $500bn over the next four years and that pre-arranged funding was critical to ensure they did not increase their debt burdens.

“It’s important to recognise that we do not ask for charity,” he said. “What we need is stronger economic co-operation through Climate Prosperity Plans between the developed world and the climate vulnerable countries of the world.”

Last month Denmark became the first country in the world to offer loss and damage compensation to countries affected by climate change, pledging around $13mn of support.