U.S. Must Play a More Active Role in Regulating Climate Finance to Protect Global South

October 16, 2024

U.S. Must Play a More Active Role in Regulating Climate Finance to Protect Global South

New report recommends financial and trade reforms to improve data and accountability on financial flows and help close the climate finance gaps in Africa, Latin America, and Asia

WASHINGTON, D.C. - U.S. policymakers must play a more active role in addressing the immense climate challenge faced by nations in the Global South by promoting safe, equitable, and racially just financing for the green transition and curbing harmful practices and impacts by U.S.-regulated institutions, according to a new report released today by Americans for Financial Reform and Public Citizen.

The reportentitled "Consequences of U.S. Climate Financial Regulation and Investment on the Global South," lays out how U.S. companies and financial institutions have too often created negative environmental and social impacts in the Global South, and it recommends financial and trade reforms to enhance accountability, inclusivity, and transparency of financial flows toward countries in the Global South and to spur equitable and just climate investment.

"U.S. financial regulators must begin to take the climate impacts on the Global South into account across the board as they make policy decisions for U.S. financial institutions and capital markets," said Alex Martin, policy director for climate finance with Americans for Financial Reform. "The best way to mitigate climate-related financial risks in an equitable and just way is to take into consideration the voices of a wide range of stakeholders in the Global South about what they actually need to execute a just climate transition."

"Outdated trade rules and the insidious investor-state dispute settlement mechanism present formidable obstacles for countries of the Global South," said Iza Camarillo, research director with Public Citizen's Global Trade Watch."We must take action to remediate this immediately, our planet can't afford to wait."

Background: Many countries in the Global South are disproportionately vulnerable to climate impacts driven in large part by the extractive activities facilitated by policymakers, corporations, and investors in the United States. As climate change accelerates, so does the urgency of climate investment and support for loss and damage payments to countries that face heavy sovereign debts and constrained public finances.

Greater financing, however, is inadequate. The United States should also design U.S. financial policy and regulation with Global South outcomes in mind and co-create with civil society representatives from the Global South. Financial rules and accountability over investment flows are necessary to minimize further harms and to marshal the level of resources to fill the yawning investment gap needed for a just transition.

The report makes recommendations to U.S. financial regulators and policymakers in the areas of:

• Mandatory implementation and disclosure of science-aligned net-zero transition plans for large companies and financial institutions, including climate investment and aid to the Global South;
• Oversight of the voluntary carbon markets;
• Green finance mechanisms and standards;
• Enhanced corporate disclosure of climate-related impacts in the Global South;
• Accounting and audit reform for climate-related impacts, environmental liabilities, and asset retirement obligations;
• Corporate value chain due diligence and liabilities;
• Bank capital surcharges based on financed and facilitated greenhouse gas emissions;
• Technical assistance and technology transfer;
• A "climate peace clause" that would exempt climate rules from trade rule challenges;
• Removing Investor-State Dispute Settlement from trade agreements
• International Financial Institution reform;
• Loss and damage payments; and
• Sovereign debt relief.

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