Journal of Financial Economics

REF 151 Financing Global Public Goods

As the world faces an unprecedented “polycrisis”, the provision – and sustainability – of global public goods is being profoundly affected. First and foremost, climate and nature, but also the other global public goods provided by the commons, which need to be protected. Defining global public goods in this context means emphasizing both their centrality – a prerequisite for sustainability in an interconnected world – and their profoundly political nature. The insufficient availability of these public goods and the governance challenges that are specific to them must therefore be re-examined. This article describes the characteristics of global public goods, their diversity, but also the links between them, the many challenges they face, and possible solutions.

To the traditional division between public and private goods, the commons add a new dimension: that of resources, material or not, that we can share and that are vulnerable to unregulated private appropriation. It is suggested that this category is key to addressing the ecological polycrisis but requires the establishment of a new type of hybrid international institutions bringing together private, public, and NGO actors, of which the Drugs for Neglected Disease initiative (DNDi) offers a promising example.

This article discusses the transformation of the concept of corporations in the contemporary world and how it is driven to be a new contributor to global public goods. Heir to a vision of the company as a simple generator of profit, our society is evolving under the combined pressure of consumers, employees, regulators, but also managers and shareholders, in a world marked by the appearance of public causes, to which companies are summoned to contribute. The article proposes to redefine the corporation on the basis of the value it generates. That will put into perspective the new vision of public policy, as well as corporate strategy, that is emerging.

This article examines why publicly owned companies include the creation of global public goods in their goals. There are often acute market failures and public policy problems on a global scale. In such cases, profit maximization cannot guarantee efficient and fair economic outcomes. The article discusses developing socially responsible strategies for investors and proposes various practical implications.

This paper explores the “Free Destroyer Problem”, which poses a threat to global public goods. The term free destroyer can be defined as someone who harms or destroys something that is good for everyone but requires everyone's cooperation to provide or protect. We provide six concrete examples of the “Free Destroyer Problem”, including a case study based on the Covid-19 pandemic. We propose engaging diverse stakeholders, developing a robust and inclusive global governance structure, and establishing innovative financing mechanisms. The provision and preservation of global public goods demands urgent collective action to mitigate potential catastrophic consequences.

Since the great financial crisis, the G20 has established itself as the main international forum for coordinating public policy, at least in the economic and financial spheres. Current issues, such as the Covid-19 pandemic and the urgent need to combat climate change, have prompted the G20 to extend its focus beyond financial stability to other global public goods and to address these issues within this analytical framework. At the same time, the consensus required for the G20 to take decisions appears to be increasingly difficult to attain due to geopolitical tensions, even though there has been no noticeable weakening of economic and financial interconnections and the issue of global public goods has heightened awareness of interdependence.

Economic multilateralism has been built up in successive layers and currently suffers from a lack of clarity that sometimes tends towards institutional cacophony because of the large number of institutions involved and the creation of more or less flexible and sometimes competing standards, particularly for the regulation of sustainable finance.

Using climate change as an example, this article calls for rethinking the role of the G20 – especially in the area of finance – in the multilateral order by increasingly relying on coordinating institutions that set standards, such as the Financial Stability Board, as well as on groups like the inclusive forums backed by the OECD that bring together voluntary participants in the quest for an operational consensus around management and financing of global public goods. The G20 should thus see itself as the driving force behind this multilateral network in order to avoid cacophony.

Challenges such as climate change and the recent Covid-19 pandemic have forced policymakers to recognize the close interconnection between environmental and human health. In this context, over the last couple of years multilateral economic forums and institutions (the G7, the G20, the International Monetary Fund and the World Bank, among others) have significantly stepped up their efforts to support the international community in reinforcing their preparedness and resilience against shocks. Despite the recent progress, increasing global climate-health resilience remains a key policy priority at the international level, which requires a comprehensive strategy and a wide range of tools. Strengthening multilateral economic and financial cooperation, coordinating mutually reinforcing climate and health policies, while enhancing synergies among international initiatives, is crucial in order to transform the ongoing multi-faceted challenges into a unique opportunity to build sustainable and resilient economies and societies.

Financing global public goods, in particular climate action, is on the verge of being made part of the World Bank's official mandate. This is just the most recent development in a process of convergence between two financing ecosystems: the international ecosystem for financing development, established after the Second World War, and the more recent institutions established to finance the protection of the environment. This convergence process is both inevitable and necessary, but makes it necessary to take a detailed look into the risk that the focus on global public goods could come at the expense of social and economic goals. This paper shows that the institutions for financing development can align all their strategies and their entire portfolio with the Paris Agreement on Climate by making sure that they align with nationally developed long-term low emissions development pathways, thus avoiding trade offs between development and climate, and fostering transformative change in the spirit of Agenda 2030. This can serve as a model for other global public goods. But beyond dedicated development finance institutions, this paper also shows the necessity for a more thorough reform of the whole international financial system.

The globalization of sustainable development challenges (health crises, climate change, etc.) has not yet been followed by an equivalent push in terms of metrics, statistical accounting, and the promotion of incentives for governments to deliver their best possible contribution in terms of international cooperation. While the framework of public development aid has made it possible to compare the solidarity efforts of OECD countries, it no longer provides a sufficiently accurate picture of the funding devoted to global public goods. This article analyzes existing statistical frameworks and looks at various possibilities for better reflecting and structuring international financing for climate and, more generally, the Sustainable Development Goals (SDGs).

The definition and list of global public goods, which are undoubtedly narrower than those relating to global challenges, do not enjoy consensus among the various multilateral development banks. Since the Addis Ababa conference in 2015, MDBs have committed to financing the sustainable development goals (SDGs), the achievement of which partly depends on creating and protecting global public goods. While most MDBs already finance certain global public goods, including climate, and have a mandate compatible with financing them, it seems necessary to strengthen their action in favour of GPGs through new approaches, such as systematically integrating GPGs into MDB activities and using financial and non-financial incentives in favour of GPGs. The Summit for a New Global Financial Pact held June 22-23 202 3 in Paris called for MDBs to begin better financing these GPGs, in synergy with the development goals at the heart of the MDB actions, such as the fight against poverty. The G20 is also pursuing this agenda of having MDBs better respond to GPGs. It is in this context as well that the World Bank is developing an evolution roadmap to be discussed at its next Annual Meeting in October 2023.

Financing global public goods with the proceeds of earmarked taxes is an idea that has been regularly discussed and implemented in France after the 2004 Landau report through the solidarity tax on airline tickets and the tax on financial transactions. In this article, we propose an evaluation grid for such a financing mechanism inspired by the theory of mechanism design. We examine its properties in terms of efficiency and equity, facilitation of commitment, coordination of actors, and transparency and control. We use this framework to highlight the strengths and weaknesses of two practical cases: the Solidarity Fund for Development and the International Oil Pollution Compensation Funds, both of which are funded by earmarked taxation. Our analysis shows that the precise modalities of implementation of the earmarked tax are important for judging the relevance of this financing mechanism.

The stability of our climate is a global public good whose benefits far outweigh its cost of provision. The nature of free riding means that a stable climate is threatened by three tragedies: of the commons, of the horizon, and of the shift from moral to market sentiments.

Preserving a stable climate requires coordination among nation states with different interests, financial resources, and state capacities. Through the United Nations climate change process, this coordination is beginning to happen. By creating a consensus at the global and national levels on the need to preserve our climate, the dynamism of the private sector is now being unleashed. When society sets a clear goal, it becomes profitable to be part of the solution, and costly to remain part of the problem.

Reforms to the plumbing of the financial sector will amplify and accelerate public climate action. Transition planning by all actors is essential. 

To ensure that climate finance is additional to development financing and that it is allocated effectively and equitably, it is necessary to distinguish between whether it is aimed at mitigation or adaptation, but also to know whether it is a main or intermittent goal. If it is the former, it is generally accompanied by concessional conditions. Mitigation, which aims to preserve a global public good, must be allotted a specific global budget (not included in Overseas Development Assistance, ODA) and be allocated on a project by project basis by accredited institutions according to the criteria of effectiveness. Adaptation financing must in turn have a global budget no lower than that of mitigation; if it is concessional, it should be reserved for low-income countries and other countries contributing almost no CO₂ emissions and be allocated to them mainly according to their physical vulnerability to climate change.  Funding to compensate for losses and damages (due to climate change) should mainly be included in the financing of adaptation. The rest should be handled by reinforcing the existing systems of response to shocks, climatic and otherwise. The funds corresponding to the separate budgets should be allocated in accordance with the distinct terms and conditionality of each budget.

Over the last 30 years, at least 94 green-climate funds have been created to finance climate-related projects and programs in emerging markets and developing economies (EMDEs). Each individual fund may have been justified at the time of its creation. As a system, however, they do not add up and their contribution to the total flows of green finance remains marginal.

In this paper, we count 81 active funds as of the end of 2022. Moreover, it is quite difficult, if not impossible, to evaluate even the most basic aspects of the financial management and impact of these funds as a « system » and a channel of climate finance. Given the urgency of scaling up both mitigation and adaptation policies and projects in EMDEs, and before creating new funds that would add to the current astonishing fragmentation, it is urgent to increase the transparency, efficiency and impact of today's existing publicly financed funds. That would be a useful first step in rationalizing and redefining the current messy aid architecture.

Today, we are facing a unique and unprecedented challenge: a dual environmental and climate crisis. This crisis could have irreversible and dangerous consequences for humanity. It results mainly from a market failure, which needs to be addressed. The responsibility of making the ambitious, but necessary, shifts, is incumbent on all players and the need for financing is massive. Governments, the private sector, and private individuals all have a role to play. In addition, multilateral development banks (MDBs) such as the EBRD must facilitate the financing of global public goods and help developing countries resolve their climate crisis, while ensuring their competitiveness on a global scale. The aim is to help these economies develop to ensure that market forces lead to the desired results. This mainly involves mobilizing private capital and reforming economic systems. Succeeding in seriously and effectively tackling these issues means showing both the ability to cope with the crisis and to seize an economic opportunity.

On March 3, 2023, negotiations were concluded on the third implementing agreement for the United Nations Convention on the Law of the Sea, known as the Montego Bay Convention, the purpose of which is to protect biodiversity on the high seas and regulate the activities that take place there. This so-called BBNJ agreement (for Biodiversity beyond national jurisdiction) was formally adopted by consensus on the June 9, and now needs to be ratified and signed by future governmental parties. Based on Elinor Ostrom's classification of the high seas and the biological resources they contain as « common-pool resources », the aim of this article is to analyze the consequences of the adoption of this treaty for the governance of a common good, the exploitation of which is expected to generate a financial windfall that is as yet difficult to quantify.

In recent decades, the Ocean has become an object of conquest. Not only is it subject to major pressures - overexploitation of certain resources, pollution, climate change - but the status of this vast expanse is changing at an accelerating pace. Today, based on existing international conventions, around 36% of the ocean's surface is under the sovereignty or jurisdiction of a coastal state. This means that the remaining 64% is in international waters with few or no rules. The administrative limits defined by treaties have no physical or biological reality and the Ocean provides numerous services to populations, the climate, and the economy, which it is important to preserve in a context of climate crisis. Much remains to be done to protect biodiversity, combat overfishing, and the proliferation of plastic waste.

The international financial system remains centered on the dollar, which is by far the main reserve currency; the monetary policy of the US Federal Reserve has an important bearing on the Global Financial Cycle. The United States, as hegemon, plays the role of world banker and underwrites the globalized economy in times of crisis, becoming lender of last resort via swap lines. The US thus contributes to the provision of financial stability, an important global public good. Its role must of course be supplemented by robust prudential regulations, active use of macroprudential policies, in some cases capital controls, and by the actions of the Bretton Woods institutions, in particular the International Monetary Fund. With the relative size of the United States shrinking in the global economy, the international monetary system potentially faces a new Triffin's Dilemma: the demand for dollar liquidity grows with the global economy while the fiscal capacity of the United States, which guarantees the value of the American currency, decreases in relative terms. Moreover, the existing global financial architecture seems so far incapable of channeling capital to where it would have high marginal social value, helping produce those other global public goods of combating climate change and preserving biodiversity.

Drawing from the literature on global public goods, we examine the adequacy of the US financial and monetary system as a global public good in relation to emerging markets and low-income economies. We analyze the negative externalities caused by crises in the financial system and the possibility of adopting a Pigouvian-type tax with implications for frontier and emerging market economies. We examine the institutional framework needed for a truly global public goods version of the international financial and monetary system, reflecting on the global governance of such a system and on the tools needed for inclusive and enhanced global collaboration and coordination.

This article assesses the effects of infrastructure on poverty reduction in the CEMAC. From a sample of five countries in the CEMAC zone, the robustness of the results is tested by using the Double Least Squares Method (2SLS), taking into consideration cultural specificities. The study period extends from 1981 to 2019. Results show that improved access of the population to economic and social infrastructure leads to poverty reduction. From the point of view of economic policy, these results give guidance for the implementation and use of infrastructure in the countries of the Economic and Monetary Community of Central Africa (CEMAC) as an instrument to improve the level standards and the income of the population and thus reduce poverty.