The Cape Town Compact: A New Era of Global Climate Justice and Cooperation Forged at the 2025 G20 Summit

Introduction: A Watershed Moment in Global Diplomacy Under African Skies

The air in the Cape Town International Convention Centre crackled with a palpable tension that reflected the gravity of the moment. For three intense days, the world’s most powerful leaders had engaged in what many described as the most consequential negotiations of our time. As the final hours of the 2025 G20 Summit approached, the atmosphere grew thick with a mixture of exhaustion, anticipation, and the lingering scent of late-night coffee that had fueled the marathon sessions. Outside, the majestic silhouette of Table Mountain stood as a silent witness to this pivotal chapter in human history, its flat top seeming to hold the weight of the world’s expectations.

Then came the moment that would define a generation. South African President Cyril Ramaphosa, his voice weary yet brimming with profound emotion, brought down the gavel. What followed was not merely applause but a cathartic release—a wave of relief that started as a ripple among delegates and swelled into a thunderous, sustained ovation that seemed to shake the very foundations of the convention center. Delegates from nations rich and poor, from carbon-dependent economies and climate-vulnerable islands, rose to their feet in a rare display of unified purpose. They had just ratified the most ambitious climate finance agreement in history: a $150 billion pledge over five years to support the world’s most vulnerable nations in combating a crisis they had done little to create.

This extraordinary moment represented the culmination of South Africa’s presidency of the G20—a year-long diplomatic marathon built on the African philosophy of Ubuntu, which translates to “I am because we are.” The Cape Town Compact, as it immediately became known, marks nothing less than a watershed moment in global cooperation. Yet the journey to this agreement was fraught with conflict, compromise, and moments of near-collapse, while the path ahead—toward transforming these promises into tangible change—remains steep and uncertain. This is the comprehensive story of how this landmark deal was forged, what it truly means for our planetary future, and whether it can ultimately deliver on its transformative potential.

The Backdrop: A World in Peril and South Africa’s Visionary Ubuntu Presidency

The road to Cape Town began over a year earlier, when South Africa assumed the G20 presidency on December 1, 2024. This was a moment of profound historical significance—the first time an African nation had held this influential role among the world’s major economies. From the outset, President Ramaphosa’s government signaled a fundamentally different approach to global governance. They chose a theme that was both a moral stance and a strategic framework: “Building a Resilient, Inclusive, and Sustainable Future for All: Our Shared Humanity, Our Shared Prosperity.”

The global context into which South Africa stepped could not have been more dire. The world was still reeling from a cascade of interconnected crises that exposed the fragility of our international systems:

A Climate System in Collapse: The preceding year had witnessed an unprecedented number of billion-dollar climate disasters that transcended geographical and economic boundaries. Catastrophic flooding in Pakistan had displaced millions, while relentless droughts in the Horn of Africa pushed communities to the brink of famine. Ferocious wildfires across the Mediterranean, North America, and Australia had destroyed ecosystems and communities alike, making the abstract threat of climate change a terrifyingly concrete reality for populations worldwide.
The Great Finance Divide: Developing nations found themselves caught in an impossible predicament—drowning in debt while facing existential climate threats. The COVID-19 pandemic had forced many countries to take on massive loans to support their citizens and economies, and now rising global interest rates were diverting precious resources away from healthcare, education, and climate adaptation toward servicing foreign debt. A devastating UN report revealed that over 50 developing countries were spending more on debt repayment than on climate action and health combined, creating a vicious cycle that prevented investment in resilience.
Geopolitical Fractures: Ongoing conflicts and strategic competition between major powers had created a deep trust deficit that threatened the very foundation of multilateral cooperation. Previous international meetings had ended in embarrassing deadlock, with leaders unable to agree on even watered-down final statements. The very concept of global cooperation seemed like a relic of a more optimistic era.

South Africa’s approach was to fundamentally reframe the conversation. Instead of focusing on narrow national interests, their diplomats worked tirelessly to emphasize our shared vulnerability and interconnected fate. They argued persuasively that a climate-destabilized world, riddled with inequality, was inherently insecure for everyone. The stability of global supply chains, the predictability of markets, and the very fabric of international order depended on lifting up the most vulnerable. This philosophy of Ubuntu became the silent heartbeat of the negotiations leading up to the summit, informing every proposal and breaking numerous deadlocks.

The Genesis of a Global Deal: From Academic Research to Diplomatic Breakthrough

The conceptual framework for what would become the Cape Town Compact didn’t emerge spontaneously from the summit itself. Its origins can be traced through a complex web of diplomatic channels, academic research, and grassroots activism that converged at precisely the right historical moment to create the conditions for breakthrough.

The Academic Underpinnings: Data Driving Diplomacy

In early 2024, a consortium of research institutions from across the Global South published what would become a foundational document for the negotiations—the “Global Climate Equity Report.” This comprehensive study provided the empirical foundation for the Compact’s financial targets and structural design. The report meticulously documented several critical patterns:

The disproportionate impact of climate change on tropical developing nations, despite their minimal historical contributions to greenhouse gas emissions
The growing “adaptation gap” between available funding and actual needs for climate resilience
The compelling economic argument for preemptive climate resilience investment versus the staggering costs of post-disaster reconstruction
The gender-differentiated impacts of climate change, with women and girls in developing countries facing particular vulnerabilities

This research became the intellectual bedrock of the developing world’s negotiating position, arming diplomats with hard data to counter arguments about affordability and priority. The report’s finding that every dollar invested in climate adaptation could generate four dollars in economic benefits proved particularly influential in persuading skeptical finance ministers.

The Diplomatic Marathon: Building Consensus Through Listening

Throughout 2024, South African officials embarked on what they termed a “global listening tour,” visiting over 40 capitals to understand specific concerns, constraints, and aspirations. This unprecedented consultative process allowed them to craft a proposal that addressed the diverse needs of various blocs:

Small Island Developing States (SIDS) facing existential threats from sea-level rise and increasingly powerful storms
Least Developed Countries (LDCs) with minimal infrastructure to withstand climate shocks and limited fiscal space for investment
Middle-income nations with emerging green industries but limited access to affordable financing and technology transfer
Resource-rich developing countries seeking to ensure that the green transition would not simply become another form of resource extraction

This granular understanding of on-the-ground realities enabled the South African presidency to design a mechanism with multiple entry points and tailored solutions rather than a one-size-fits-all approach. It also built unprecedented trust between the presidency and various negotiating blocs, creating a reservoir of goodwill that would prove crucial during the most difficult moments of the summit.

The Pre-Summit Drafting Process: Words Matter

In the months leading to the summit, negotiators engaged in painstaking line-by-line review of what would become the Cape Town Compact. The language around historical responsibility proved particularly contentious, with developed nations resisting any phrasing that might imply legal liability for climate impacts. The breakthrough came with creative compromise language that acknowledged “common but differentiated responsibilities and respective capabilities” without creating explicit liability.

Similarly, the definition of what constituted “climate finance” required extensive negotiation. Previous agreements had been undermined by conflicting definitions and accounting methods. The Cape Town Compact established a unified reporting framework with third-party verification to ensure transparency and consistency.

The Breakthrough: Deconstructing the $150 Billion Climate Finance Package

The headline figure of $150 billion is undoubtedly historic, but the true significance of the Cape Town Compact lies in its intricate architectural details. This is not a simple pledge of aid; it is a sophisticated financial architecture designed to address the systemic failures that have plagued previous climate finance initiatives.

Where the Money is Coming From: A Multi-Track Approach

The funding is not sourced from a single pot but is structured through an innovative blended finance model that leverages different types of capital for maximum impact:

Public Grants ($45 billion): Direct contributions from the treasuries of developed G20 nations, making up 30% of the total. This portion is crucial for grants-based projects that do not add to debt burdens, such as building early warning systems for storms, restoring protective mangrove forests, and supporting community-based adaptation initiatives. These grants are particularly targeted at the least developed countries with limited capacity to take on additional debt.
Concessional Loans ($75 billion): Low-interest, long-term loans provided through multilateral development banks (MDBs) like the World Bank, African Development Bank, and Asian Infrastructure Investment Bank. These “soft loans” have grace periods of up to 10 years and interest rates far below market value (0.5-1% compared to commercial rates of 5-7% or higher for developing countries), making them manageable for recipient countries. The loans are specifically designed to fund larger infrastructure projects like renewable energy plants, climate-resilient transportation networks, and urban adaptation initiatives.
Leveraged Private Capital ($30 billion): The package includes sophisticated mechanisms to “de-risk” private investment in developing countries. Public funds are used to provide first-loss guarantees, currency hedging instruments, and political risk insurance, encouraging private pension funds, insurance companies, and asset managers to invest an estimated $30 billion in climate-resilient infrastructure and renewable energy projects in emerging markets. This element is crucial for scaling beyond what public finance alone can achieve.

Where the Money is Going: A Balanced Approach to Adaptation and Mitigation

A key victory for developing nations was the allocation structure, which finally addressed a historical imbalance in climate finance. Historically, funding has disproportionately favored mitigation (reducing emissions) over adaptation (coping with impacts), as the former often offers more profitable investment opportunities and clearer metrics. The Cape Town Compact mandates a 60/40 split:

$90 Billion for Adaptation: This larger share is dedicated to helping communities prepare for the impacts of climate change that are already locked in. This includes funding for climate-smart agriculture techniques, seawalls and coastal protection, drought-resistant water systems, urban heat island reduction, and managed retreat and relocation programs for communities in low-lying coastal areas. A significant portion of this funding is directed through local institutions to ensure community ownership and appropriate design.
$60 Billion for Mitigation: This portion supports the transition to green energy systems, including utility-scale solar and wind farms, distributed renewable energy for rural communities, modernizing national power grids, energy efficiency programs, and supporting the development of green hydrogen and other future industries in the developing world. This component recognizes that developing countries need support to leapfrog the fossil fuel-intensive development path taken by industrialized nations.

Groundbreaking Innovations in the Deal

The Compact introduced several novel mechanisms that set it apart from previous agreements and address long-standing grievances of vulnerable nations:

Climate-Debt Suspension Clauses: In a major win for vulnerable nations, the deal includes provisions for automatic debt payment freezes for countries hit by a major climate disaster. This mechanism, inspired by similar clauses that had been implemented by the World Bank with 14 countries, allows governments to immediately redirect resources toward emergency response and recovery without triggering a sovereign debt crisis or damaging credit ratings. The triggers for activation are based on objective metrics like the percentage of population affected or economic damage relative to GDP.
The Critical Minerals Task Force: Acknowledging that the green transition requires vast amounts of minerals like cobalt, lithium, and copper—much of which lie in developing countries—the summit established a task force with representation from producing nations, consuming nations, and civil society. Its goal is to ensure that mineral-rich countries “benefit the most” from their resources through local processing, job creation, technology transfer, and fair royalty schemes, preventing a new form of resource exploitation that would mirror the problematic patterns of fossil fuel extraction.
Localization Mandate: At least 25% of funded projects must be contracted to local companies, NGOs, and research institutions, ensuring that capacity and expertise are built within communities rather than being perpetually dependent on foreign consultants. This provision also helps ensure that solutions are culturally and contextually appropriate, addressing the common problem of externally designed projects failing to account for local conditions and knowledge systems.
Simplified Access Procedures: Recognizing that complex application processes had previously prevented the most vulnerable countries from accessing climate finance, the Compact establishes a simplified approval process for small-scale adaptation projects under $5 million, with decisions made within 90 days rather than the previous average of 18-24 months.

The Negotiation Battlefield: Key Players, Pivotal Moments, and Diplomatic Breakthroughs

Reaching this agreement was a diplomatic war fought on multiple fronts over several months. The summit itself was merely the final stage of a process that had involved hundreds of officials in dozens of preparatory meetings. The negotiations were a theater of intense lobbying, last-minute reversals, and high-stakes pressure tactics, with moments of both frustration and extraordinary collaboration.

The Champions of the Deal

The South African Presidency: President Ramaphosa and his team, led by veteran diplomat and climate envoy Nosipho Jezile, acted as honest brokers, skillfully mediating between blocs. They built a “Coalition of the Vulnerable” that included small island states, least developed countries, and climate-vulnerable middle income nations, giving them a powerful collective voice that could not be easily dismissed. Their patient, consensus-building approach, rooted in the Ubuntu philosophy, helped create an atmosphere where compromise felt like shared victory rather than defeat.
The Indian Bridge: Prime Minister Narendra Modi played a crucial role as a bridge builder between developed and developing nations. India, with its vast economy and high vulnerability to climate change, could speak with credibility to both sides. India’s successful presidency of the G20 the previous year had laid much of the groundwork for these discussions, particularly around reform of multilateral development banks and the need for debt sustainability. India’s commitment to its own ambitious renewable energy targets gave it moral authority in these negotiations.
The U.S.-EU Alliance: President Joe Biden and European Commission President Ursula von der Leyen formed a powerful alliance that provided critical momentum. Despite domestic political pressures, they pushed for a high ambition package, seeing it as essential for global stability and a strategic imperative in the face of great power competition. Their commitment to the deal helped bring along other developed nations, particularly Japan and Canada, who had been more hesitant about the scale of financial commitment.

The Reluctant Parties and Sticking Points

Oil-Exporting Nations: Saudi Arabia, Russia, and other petrostates initially resisted the deal, fearing it would accelerate the demise of the fossil fuel economy and undermine their economic models. Their opposition was overcome through a combination of pressure and persuasion. The final text included language recognizing the need for “multiple energy pathways” and a “just transition” that acknowledged different starting points, which allowed them to save face. Behind the scenes, discussions about diversification opportunities and potential support for carbon capture and storage technologies helped alleviate some concerns.
The Issue of “Loss and Damage”: The most emotionally charged debate centered on “loss and damage”—compensation for the irreversible harms already caused by climate change, such as submerged land, lost cultural heritage, and permanent ecosystem destruction. Developed nations fiercely resisted language that implied legal liability or created open-ended financial obligations. The breakthrough came with a compromise: the creation of a separate “Cape Town Facility for Climate Resilience” under the UN framework, funded through voluntary contributions rather than assessed payments, to address these impacts without formally admitting legal responsibility. This creative solution allowed both sides to claim victory while establishing a mechanism to address this critical issue.
The China Question: China, now the world’s largest emitter but still classified as a developing country, was a complex player throughout the negotiations. It supported the demands of the Global South for finance from historical emitters (like the U.S. and EU) but was reluctant to become a donor itself, insisting on its developing country status. The final agreement subtly acknowledged China’s unique status, encouraging it to contribute “voluntarily” to the finance package while remaining eligible to receive funding for certain projects, particularly those involving technology transfer and South-South cooperation.

A pivotal moment came during a closed-door session on the second night of the summit. The lead negotiator for the Alliance of Small Island States (AOSIS), surrounded by maps showing his nation’s projected land loss due to sea-level rise, gave an impassioned, unscripted speech. “You are not negotiating paragraphs of text,” he said, his voice breaking. “You are negotiating the very existence of my country. Our future is not a bargaining chip. When I return home, I must look my children in the eye and tell them whether we have secured their future or signed their death warrant.” The room fell into a profound silence. That moment of raw humanity is credited by multiple participants with breaking the logjam on several key issues, particularly around the adaptation funding and loss and damage provisions.

Another crucial breakthrough came when Brazilian President Silva proposed the “Climate-Debt Suspension Clause” based on his country’s positive experience with similar mechanisms during the COVID-19 pandemic. This practical solution addressed both the immediate liquidity needs of climate-vulnerable countries and the political concerns of creditors about debt forgiveness, creating a pathway forward on one of the most contentious issues.

Beyond Climate: The Summit’s Other Landmark Agreements for Global Governance

While the climate finance deal dominated headlines and historical attention, the 2025 summit produced significant outcomes on other pressing global issues that demonstrated the G20’s role as a forum for comprehensive global governance. These agreements, while less headline-grabbing, represent important steps toward a more stable and equitable global economic system.

The Cape Town Framework on Digital Taxation

After years of stalemate and diplomatic impasse, leaders agreed on a new framework to ensure multinational tech giants pay their fair share of taxes in countries where they generate revenue, not just where they are headquartered for tax purposes. This framework:

Establishes a global minimum corporate tax rate of 15% for large multinationals
Creates new rules for allocating taxing rights to market jurisdictions, not just production locations
Includes special provisions for developing countries to help them build capacity for tax collection from digital companies
Is expected to generate an estimated $150-200 billion in new annual revenue for governments worldwide, with a significant portion flowing to developing countries

This agreement is particularly significant as it provides developing countries with a crucial source of self-funded climate action and development finance, reducing their dependence on external funding.

The Food Security Accord

In response to climate-driven famines and supply chain disruptions that had caused food prices to spike in vulnerable regions, the G20 launched a new accord to bolster global food security. It includes:

Establishing emergency humanitarian grain reserves in strategic locations around the world, particularly in food-insecure regions
A commitment to remove export restrictions on food for humanitarian purposes purchased by the World Food Programme
Significant investments in climate-resilient crop research, sustainable agricultural practices, and soil health restoration
Support for digital agriculture technologies that can help farmers in developing countries access weather information, market prices, and agricultural advice
A task force to address the intersection of climate change, agriculture, and nutrition security

Principles for Responsible Artificial Intelligence

Acknowledging both the risks and opportunities presented by rapid advances in artificial intelligence, leaders signed off on a set of principles promoting “safe, secure, and trustworthy AI.” The framework:

Establishes guidelines for human-centric AI development that respects human rights and democratic values
Creates a regulatory sandbox for testing AI governance approaches across different jurisdictions
Includes crucial provisions for capacity building in the Global South to prevent a new “AI divide” from exacerbating existing inequalities
Commits to ongoing dialogue through a dedicated task force that will translate these principles into actionable policies

This work represents an important step toward ensuring that the benefits of AI are widely shared rather than concentrated in a few technological hubs in developed countries.

Reform of International Financial Institutions

Recognizing that existing international financial institutions were not adequately designed to address 21st century challenges like climate change and pandemic preparedness, the summit endorsed a package of reforms for multilateral development banks including:

Leveraging balance sheets to increase lending capacity without jeopardizing credit ratings
Developing new instruments to better address global public goods like climate stabilization
Improving representation and voice for developing countries in governance structures
Simplifying access procedures and reducing transaction costs for vulnerable countries

These reforms, while technical, are essential for creating a financial system capable of responding to the scale of challenges facing the global community.

The Implementation Architecture: Building a System for Turning Pledges into Projects

Acknowledging past failures where ambitious climate finance pledges failed to materialize into actual projects on the ground, the Cape Town Compact establishes a robust implementation framework with multiple accountability mechanisms designed to ensure transparency, efficiency, and impact.

Governance Structure

The Compact creates a three-tier governance system that balances oversight with flexibility:

The High-Level Steering Committee: Composed of ministers from contributing and recipient countries, with co-chairs from a developed and a developing country, this body provides strategic direction, resolves disputes, and ensures political accountability. It meets quarterly to review progress and address emerging challenges.
The Technical Review Board: Independent experts from around the world who assess project proposals for technical feasibility, climate impact, financial sustainability, and social and environmental safeguards. This board ensures that funded projects meet high standards of effectiveness and do not cause unintended harm.
The Civil Society Observatory: A consortium of NGOs, community representatives, indigenous groups, and research institutions tasked with monitoring implementation, conducting independent evaluations, and ensuring local communities have a meaningful voice in projects affecting them. This mechanism helps prevent the top-down approach that has undermined many development initiatives.

Transparency Mechanisms

In response to widespread criticism about the opacity of previous climate finance flows, all projects funded through the Compact will be recorded on a public digital ledger with real-time updates on:

Fund disbursement timelines and status
Project implementation progress against established milestones
Environmental and social impact assessments and monitoring reports
Community feedback and grievance redressal mechanisms and outcomes
Detailed expenditure tracking with automated alerts for irregularities

This unprecedented transparency aims to prevent funds from being lost to bureaucracy or corruption while enabling researchers, journalists, and citizens to track progress and identify bottlenecks.

Capacity Building Initiative

Recognizing that many vulnerable nations lack the institutional capacity to design and implement complex climate projects, the Compact includes a dedicated $5 billion capacity building fund to:

Train local officials in project management, financial administration, and monitoring and evaluation
Strengthen national environmental agencies and statistical offices
Develop community-based monitoring systems that combine local knowledge with scientific data
Support local entrepreneurs and civil society organizations in developing bankable climate projects
Create centers of excellence on climate finance in developing regions to build long-term expertise

This focus on capacity building represents a crucial understanding that financing alone is insufficient without the ability to effectively utilize those resources.

The Activation Mechanism for Climate-Debt Suspension

The climate-debt suspension clause includes a detailed activation mechanism to ensure rapid response while preventing abuse:

Automatic Triggers: Based on objective criteria like the percentage of population affected, economic damage relative to GDP, or declarations of national emergency
Independent Verification: Assessment by a panel of experts from the UN, World Meteorological Organization, and affected regions to confirm qualifying events
Temporary Duration: Initial suspension period of 12-24 months, with possibility of extension based on need assessment
Reporting Requirements: Affected countries must transparently report on redirected resources and recovery progress

This carefully designed mechanism balances the need for rapid response with appropriate safeguards and accountability.

Regional Impact: How the Compact Will Transform Different Parts of the World

The Compact’s impact will vary significantly across regions based on their specific vulnerabilities, opportunities, and existing capacities. Understanding these regional variations is crucial for effective implementation and monitoring.

Africa: Unleashing Green Potential and Building Resilience

For Africa, the Compact represents a historic opportunity to leapfrog fossil fuel dependency and build a climate-resilient economy that benefits all Africans. Key focus areas include:

Sahel Region: Large-scale investments in the Great Green Wall initiative to combat desertification, restore degraded lands, and create sustainable livelihoods for vulnerable communities. This includes support for agroforestry, sustainable land management, and community-based natural resource management.
Central Africa: Significant funding for protecting the Congo Basin rainforest, the world’s second-largest carbon sink, through programs that support alternative livelihoods for forest communities, strengthen governance, and combat illegal logging.
Coastal Nations: Support for climate-resilient infrastructure, erosion control, and blue economy initiatives centered around sustainable ocean resources. This includes investments in sustainable fisheries, marine protected areas, and coastal tourism that respects ecological limits.
Energy Access: Programs to accelerate access to clean energy for the over 600 million Africans who currently lack electricity, through both grid expansion and decentralized renewable solutions like solar home systems and mini-grids.

Asia-Pacific: Battling Existential Threats and Seizing Opportunities

For the Asia-Pacific region, home to both climate-vulnerable islands and major emerging economies, the Compact provides crucial support for addressing diverse challenges:

Small Island States: Direct support for coastal protection, freshwater security, and in some cases, managed retreat from uninhabitable areas. This includes investments in desalination technology, climate-resilient infrastructure, and economic diversification to reduce vulnerability.
South Asian Nations: Funding for climate-resilient agriculture, flood management systems, and transition from coal-powered energy. Particular focus on transboundary water management and early warning systems for the increasingly intense monsoon seasons.
Southeast Asia: Investments in protecting mangrove forests, developing sustainable aquaculture, and building disaster-resistant infrastructure. Support for just transition in regions dependent on fossil fuel extraction or deforestation-based economies.
Pacific Islands: Specialized programs addressing unique challenges of small, remote island communities, including shipping infrastructure for climate resilience, preservation of traditional knowledge, and development of sustainable tourism models.

Latin America and Caribbean: Protecting Natural Wealth and Communities

The region stands to benefit from the Compact’s focus on natural climate solutions and community-based adaptation:

Amazon Basin: Significant resources for rainforest protection and sustainable development alternatives for local communities. This includes support for indigenous land stewardship, value-added forest products, and ecotourism that benefits local populations.
Caribbean Islands: Support for hurricane-resistant infrastructure, coral reef restoration, and sustainable tourism models. Investments in diversified economies less dependent on climate-vulnerable sectors.
Central America: Funding for climate-smart agriculture and programs addressing climate-driven migration. Support for the Dry Corridor region where changing rainfall patterns have severely affected agricultural communities.
Andean Region: Programs addressing glacier retreat and water security for cities and agricultural regions dependent on mountain water sources.

The Economic Implications: Beyond Climate to Sustainable Development

While primarily a climate agreement, the Compact has profound economic implications that extend far beyond environmental benefits to touch on virtually every aspect of sustainable development.

Job Creation Potential

According to analyses by the International Labour Organization and other research bodies, the implementation of the Compact could create:

12-15 million new jobs in renewable energy installation, maintenance, and manufacturing
8-10 million jobs in climate-resilient agriculture, forestry, and ecosystem restoration
5-7 million jobs in green construction and climate adaptation infrastructure
3-4 million jobs in circular economy activities like recycling, repair, and waste management

These employment opportunities are particularly significant for youth in developing countries where unemployment rates are often alarmingly high.

Market Transformation and Innovation

The Compact’s scale is expected to catalyze broader market transformations that extend beyond the specific funded projects:

Standardization: The development of common standards for green infrastructure, climate resilience, and sustainable finance that can reduce costs and improve quality through economies of scale.
Technology Transfer: Accelerated diffusion of climate technologies to developing country markets, driven by the scale of demand created by Compact projects and the emphasis on local capacity building.
Supply Chain Development: Growth of local green manufacturing and service industries to meet the demands of Compact projects, creating sustainable economic ecosystems that extend beyond the initial investments.
Financial Innovation: Development of new financial instruments and business models tailored to the needs of climate resilience and low-carbon development, potentially creating new export opportunities for financial centers in developing regions.

Macroeconomic Stability and Resilience

By addressing climate vulnerabilities, the Compact contributes to broader macroeconomic stability in developing countries:

Reduced Fiscal Vulnerability: Less exposure to climate disasters reduces the massive fiscal shocks that can derail development progress and force countries into debt crises.
Improved Balance of Payments: Reduced dependence on fossil fuel imports improves trade balances for many developing countries, while development of green export industries can create new sources of foreign exchange.
Enhanced Investor Confidence: Demonstration of serious climate action can improve country risk ratings and reduce borrowing costs, creating a virtuous cycle of investment and development.
Social Stability: Addressing climate vulnerabilities that disproportionately affect poor and marginalized communities can contribute to social cohesion and reduce conflict potential.

The Skeptics’ View: Will the Promises Become Reality?

For all the celebratory applause and historical significance, a healthy dose of skepticism remains both within and outside the negotiation rooms. History is littered with broken climate finance promises and ambitious global agreements that failed to live up to their potential.

The Ghost of $100 Billion: The most famous and relevant precedent is the 2009 pledge by developed countries to mobilize $100 billion per year by 2020 for climate action in developing countries. This target was missed repeatedly and only belatedly reported as met in 2023, with serious questions about the accounting methods and the quality of the finance provided (