“While there are countless solutions to tackling what has been described by the UN as the “existential threat” of our times, it is not fully clear how these solutions would be paid for” UN News 2021
Climate change and natural disasters present an ongoing threat to our planet, causing significant human and financial losses. Projections suggest an investment gap of approximately $15 trillion by 2040 in global infrastructure and $4.1 trillion by 2050 for meeting climate change, biodiversity, and land degradation targets. The Global Risks Report 2022 from the World Economic Forum highlights these issues as top global risks. Furthermore, the United Nations warns that climate change could drive an additional 100 million people into poverty by 2030.
Despite these alarming figures and the increasing urgency to address climate change, international discussions, such as those within the G-20, have been largely unproductive. Governments worldwide are not meeting the agreed annual $100 billion target investments in climate change that were set at the Paris meeting in 2015. The forthcoming UN climate summit in the UAE (COP28) might be another flop[1]. Although organizations like the World Bank Group (WBG) and other Multilateral Development Banks (MDBs) are increasing their climate-related investments, they constitute only a small fraction of global Foreign Direct Investment (FDI) flows.
This paper proposes a new strategy to address this financing gap: implementing a Financial Transaction Charge (FTC) and establishing a new international bank to manage the funds raised. An FTC is a charge applied to the buying and selling of securities like stocks, bonds, derivatives, and other investments. These transactions occur daily in vast volumes[2], presenting a significant revenue generation opportunity.
Financial Transaction Charge (FTC) – The implementation of an FTC offers several advantages. Firstly, it is politically unbiased and universal. Secondly, it could raise significant funds for combating climate change, natural disasters, and pandemics. Moreover, the FTC would be sustainable and continuously replenished, depending on financial transaction volumes. Additionally, it could potentially discourage high-frequency trading, given that the charge would apply to each transaction, regardless of size. Importantly, this charge would be progressive and contribute to mitigating income inequality. Furthermore, it would facilitate global participation in addressing environmental challenges as it would be collected from major stock exchanges worldwide. Finally, high income traders could now argue and claim that they largely participate in the combat against global concerns.
However, the introduction of an FTC is not without controversy. Critics argue that it could increase transaction costs and decrease asset prices, potentially harming savers, and investors, and ultimately impacting economic growth. They also suggest it could prompt a shift of transactions to other, less taxed exchanges. These concerns, however, may be mitigated by the progressive nature of the FTC and its global implementation.
Universal Source of Funds – The proposed strategy includes creating an International Bank for Global Resilience (IBGR). This institution would be governed by a Board of Directors representing multiple country governments, with an equitable distribution of voting power and a President and staff experienced in environmental and health issues. Affiliated with the United Nations, the IBGR would operate according to the rule of law. Its mission would be to finance climate change, natural disaster, and pandemic projects, using funds from the FTC.
The IBGR would support the financing of projects in all economies. Funds would be allocated in the form of loans or grants based on various factors, including the income level of the country and the urgency, size, and cost of the project.
Lastly, it is essential to ensure stringent governance and transparency in all operations of the IBGR, with comprehensive guidelines on fund management and regular audits to maintain accountability and trust. It is crucial that the governance and ethical strategy of the IBGR project a strong institutional image and ensure the transparency of its operations.
While recognizing the challenges and complexities of establishing a new large international institution like the IBGR, the proposed approach seeks to combat the looming environmental crises through sustainable and significant financial resources. Given the urgency and scale of these crises, the time is ripe for radical, effective solutions. Thus, despite potential political interferences and control difficulties, it is crucial to move forward with innovative strategies that will ensure a sustainable future for all.
Conclusion – In conclusion, the proposed strategy of levying an FTC and establishing the IBGR could offer an equitable and universal solution to the current environmental financing gap. The anticipated benefits of this approach outweigh the potential problems, and it could be the transformative step needed to mobilize the necessary financial resources to fight environmental degradation and ensure the continued viability of our planet. It is now time to shift away from outdated paradigms and embrace bold solutions that serve the greater global good.
[1] FT May27, 2033 – Is COP28 destined to be a flop? Camilla Hodgson and Alme Williams
[2] e.g., more than $1 trillion in stocks and bonds – collectively referred to as securities – is traded on a business day at the NY Stock Exchange
KEYWORDS Climate Change, Financial Transaction Charge, International Bank for Global Resilience, natural disasters, resilience
