With 2024 set to claim the title of the hottest year on record and fresh from reaching a new financial goal in Baku, the political outlook for 2025 presents a stark contrast to that of this year. The emerging political conditions will pose significant challenges to the climate agenda but may also offer opportunities for progress in financial matters.

Geopolitical Shifts and Developed Economies

In the coming months, geopolitics will continue to undergo significant changes. Many large developed economies are either in the midst of political transitions or facing elections, such as the United States, Canada, France, and Germany. Additionally, a new Commission is set to form in the European Union, and a more right-oriented Parliament is emerging. These political developments will have a profound impact on the global economic and financial landscape. 1: The political transitions and elections in these major economies will bring about uncertainties and shifts in policies. Different political parties and leaders may have different priorities and approaches to economic and financial issues. This could lead to changes in trade policies, regulatory frameworks, and investment decisions, which in turn will affect the global economy. 2: The formation of a new Commission in the EU and a more right-oriented Parliament will also bring about changes in the EU's decision-making processes and policies. These changes may have implications for the EU's economic and financial cooperation with other countries and regions.

G20's Progress and Challenges in 2024

In 2024's G20, Finance Ministers made notable progress on their change agenda, although it fell short of some expectations. Brazil's Presidency aimed to transform the International Financial Architecture, and the creation of Taskforce CLIMA provided a high-level political discussion space. This year, Finance Ministers discussed the macroeconomic impacts of the climate transition, set out goals and a monitoring process for the reform of Multilateral Development Banks (MDBs), and agreed on principles for transition planning at both the national and firm levels, as well as for energy transitions and country platforms. 1: The progress made in the G20 is significant as it highlights the importance of addressing climate change and financial issues simultaneously. The discussions on MDB reform and debt distress in developing countries are crucial for ensuring sustainable economic growth and development. 2: However, the fact that the progress did not meet some expectations indicates the complexity and challenges involved in achieving these goals. Different countries have different interests and priorities, and finding common ground and consensus can be a difficult task.

2025's COP29 and Finance in Common

2024's COP29 was dominated by discussions on climate finance, with the setting of a New Collective Quantified Goal and a commitment to create a 'Baku to Belem Roadmap' for mobilizing $1.3tn per year. The 2025 Roadmap will provide an opportunity to outline a vision for how various financing levers can channel finance on a large scale to the poorest countries. 1: The discussions at COP29 focused on the crucial issue of climate finance and the need to mobilize significant funds to support developing countries in their climate mitigation and adaptation efforts. The New Collective Quantified Goal and the 'Baku to Belem Roadmap' are important steps in this direction. 2: The Finance in Common meeting in February will play a crucial role in considering the role of the wider public bank ecosystem within this vision. The fourth Finance For Development Conference in June/July will provide a window to explore the deep intersection of climate and development finance.

Macroeconomic Impact and Dialogue

Increased awareness of the macroeconomic impact of climate risks is driving dialogue between state and private actors in developed countries. This dialogue is particularly focused on insurance and financial stability, as well as on the challenges of mobilizing finance on a large scale to developing countries, including the treatment of climate risk by credit ratings agencies. 1: The recognition of the macroeconomic impact of climate risks is leading to a more proactive approach in addressing these risks. State and private actors are working together to develop strategies and policies to manage these risks and ensure financial stability. 2: However, there are still challenges in mobilizing finance on a large scale to developing countries. Credit ratings agencies play a crucial role in this regard, and their treatment of climate risk needs to be improved to ensure that developing countries have access to adequate financing.

Scaling Up Public Finance and Overarching Questions

Having agreed on an underwhelming new global goal in Baku, countries now need to focus on scaling up high-quality public finance for adaptation while also exploring solutions to the broader finance mobilization challenges. 1: The need to scale up public finance for adaptation is crucial in the face of the increasing impacts of climate change. Countries need to find innovative ways to mobilize funds and ensure that these funds are used effectively. 2: At the same time, addressing the broader finance mobilization challenges requires a comprehensive approach that involves multiple stakeholders and sectors. This includes boosting the MDBs, increasing national ownership of transition planning, and taking action on debt.

Conclusion

2025 will present a different political environment compared to 2024, but the momentum for reforms that support financing global transition will remain on the agenda. Countries will need to work together to find solutions to the complex challenges facing the global economy and ensure a sustainable future.