Trade, climate and finance: Breaking the silos to drive ambitious, inclusive action

As trade ministers engaged in the Coalition of Trade Ministers on Climate, we know that failure to move beyond a business as usual scenario in the global trading system is not an option. We need to act now for climate action and sustainable development.

To meet the Paris Agreement goals, we must transform the way we produce, consume, transport, invest, trade and finance climate change mitigation and adaptation. We need to shift away from unsustainable production and consumption, carbon-intensive goods and services, and high-emissions logistics and transportation.

At the same time, we must harness and promote the development and trade of products that are sustainable, including those that will be a vital part of climate solutions. We must also intensify our efforts on sustainable energy systems – boosting access to clean energy, tripling renewable energy capacity, doubling energy efficiency by 2030, and transitioning away from fossil fuels at a global scale.

At COP28 in December 2023, governments reaffirmed the crucial role of international cooperation in addressing the climate crisis – the same goes for the role that trade can play.

Moving beyond business as usual will also require extraordinary public and private investment. This is why climate finance is one of the top issues on the global climate agenda. It is also why the Paris Agreement calls for making finance flows consistent with a pathway towards low greenhouse gas (GHG) emissions and climate-resilient development.

For developing countries in particular, issues of trade, finance, development and sustainability are intertwined and require coherent approaches. Countries that are the most climate vulnerable face the most formidable challenges, especially the least developed countries and small island developing states, where the rising frequency of natural disasters is already unleashing devastating impacts on livelihoods and vital economic sectors such as agriculture and fisheries. They need to invest more in economic recovery after climate shocks and in boosting their resilience – but they are doubly challenged as they grapple with low investment in their economies.

Whether the focus is on climate action and climate-resilient development or sustainable trade, we know that finance, capacity building and technology transfer are critical enablers.

Trade too can be an enabler for mitigation, adaptation, and resilience. Trade is a vital tool for spurring investment in production and diffusion of goods and services key to climate action and sustainable economies, generating resources needed to address socio-economic challenges, and ensuring food security.

The Coalition of 60 trade ministers, launched a year ago, have made it their top priority to work nationally and internationally with ministers of climate, environment, finance and development, and to build partnerships with stakeholders to foster climate action. In Davos this week, the Coalition is hosting a ministerial roundtable to spur a first exchange of views on the nexus of climate, trade and finance in order to break silos and identify opportunities for cooperation and collective action.

The Coalition is looking at a range of solutions that could support developing countries in a fair transition to sustainable trade, and promote greater synergies with climate finance. Trade ministers can also champion efforts by public and private export credit and trade promotion agencies to promote net-zero, sustainable trade finance, and fostering cooperation on government procurement that can help scale-up climate solutions, including in most vulnerable countries. We can support ongoing efforts to reform the global financial system for climate and sustainable development goals, and identify trade-related contributions, opportunities and innovative approaches arising from such reforms

We also need to reflect on how trade and trade cooperation can serve as catalysts for finance and investment in climate change mitigation and adaptation, and climate-resilient development. We need to explore how to use trade and trade policies to advance the development, diffusion, accessibility and uptake of goods, services and technologies that can contribute to climate action, and to foster sustainable investment in supply chains. A key priority is to accelerate renewable and clean energy access, including in ways that developing countries can compete and thrive in the green transition.

Finally, we should boost cooperation on the nexus of climate, trade and fiscal policies including on carbon measurement and pricing mechanisms that maximise climate benefits while minimising trade distortions and addressing fairness concerns. We should also examine the role of public funding, including subsidies that potentially harm climate and development goals.

Breaking down silos is not just about exchanging ideas; it is about identifying opportunities to work together across ministries and countries and then taking concrete, coherent actions that make a difference. The Coalition is taking a first step in this direction by aligning trade and finance with the global climate agenda and working collaboratively as a necessary condition to achieve impact.

This article is without prejudice to the views of other members of the Coalition of Trade Ministers on Climate.