How do we finance and safeguard sustainable development when public budgets are shrinking, multilateralism is challenged and climate disasters arrive faster than mitigation and adaptation can keep pace? These are central challenges addressed by the Fourth Financing for Development Conference (FFD4) in Seville, Spain. It brings together representatives of governments, UN agencies, multilateral development banks (MDBs), development finance institutions and civil society leaders to deliberate from all angles how to reform financing for development. Negotiators have produced a text for adoption: . Here I unpack what is in it for climate:
Zooming into key topics in the Compromiso de Seville
The central challenge framed in the outcome document is to close a multitrillion dollar funding gap to achieve the sustainable development goals (SDG). Leaders are promising to achieve this by overhauling the international financial architecture, creating breathing room in countries’ budgets, while also recommitting to multilateralism. The commitment also includes targeted support for the most vulnerable country groups such as Least Developed Countries (LDCs) and Small Island Development States (SIDS).
To leverage domestic as well as international public and private finance, leaders highlight a need for more aid effectiveness, broadened tax bases, more transparent, gender- and climate-sensitive budgets, and the empowerment of sub-national authorities. The Compromiso calls for simplified regulations to support Micro Small and Medium-Sized Enterprises (MSMEs) as engines of development.
Donor countries once again pledge to provide 0.7 per cent of their gross national income to (ODA). In the face of huge financing needs, developing countries increasingly work together through “South-South” cooperation – this is encouraged by the outcome document. MDBs and Development Finance Institutions (DFIs) are called to significantly increase their lending capacity through several avenues. One is “hybrid capital”, which refers to the blending of public and private money to increase lending amounts for sustainable development. Additionally, it calls on the International Monetary Fund (IMF) to leverage its toolkit to support climate-vulnerable economies. Members of the IMF hold small reserve assets, so-called (SDRs), which can be transformed into credit, when needed. Most developed country members let SDRs sit unused, but if rechanneled via MDBs, it can make available additional funding for sustainable development.
Debt sustainability and the recognition that the current system is not fit for purpose take a centre role in the discussions. The outcome document supports several initiatives bolstering countries’ liquidity and debt sustainability in the context of external shocks, easier pay-back terms and longer time windows for loans as a way to ease pressure on highly-indebted countries.
A good “Compromiso” for the climate?
The Compromiso admits the world is falling short on climate action and stresses the urgency to scale finance for mitigation, adaptation and resilience. It furthermore underscores the need to mainstream these considerations in fiscal programming and tools. Central climate-related elements in the Compromiso were slightly strengthened compared to earlier versions of the text responding to the concerns that climate issues would be deprioritized.
For instance, the outcome text from Sevilla picks up last year’s political signal from COP 29, endorsing a pathway to USD 1.3 trillion and tying in the formal “” negotiations under the UN climate convention. In this context, the Compromiso also refers to Loss and Damage and calls for replenishment of the climate funds.
A significant shift is the strong emphasis on pre-arranged financing solutions, i.e. instruments that are put in place before (climate-related) disasters strike. This shift can be attributed to the relentless work of climate vulnerable country groupings such as the pushing the agenda. The Compromiso calls for investments in scaling up disaster risk reduction and disaster risk financing to safeguard development gains. Governments are urged to embed climate and disaster analysis in fiscal plans, expand local insurance markets, catering to farmers and MSMEs, and scale additional tools like catastrophe bonds.
The Compromiso pushes fresh tools to keep climate shocks from turning into negative debt spirals. It champions climate-resilient debt pause clauses that freeze repayments the moment a predefined climate shock, e.g. cyclone or drought, hits, urging creditors to make such clauses standard practice and not let it affect a country’s credit rating, which previously lowered its uptake.
Outlook - Implementation of the Compromiso
Despite the inclusion of climate-related elements, some countries preferred to reserve more in-depth climate discussions for the UNFCCC. Nevertheless, the Comromiso provides added value by highlighting issues that are not receiving much attention, including within the UNFCCC, such as addressing the debt-climate nexus or pre-arranged finance. As with non-binding UN declarations like the Compromiso de Sevilla, success hinges on whether ambition can be translated into action. A formal stocktake in 2029, only a year shy of the SDG target 2030, will reveal if tangible progress has been made. Urgency and even further ambition are key. Needless to say, the delivery of the Compromiso has to go hand in hand with raised ambition and follow through on the UNFCCC climate finance agenda and other agendas to deliver the promise for development and climate.
