IF20 Environment Working Group 2025 Policy Brief: Addressing the Debt-Climate Nexus

Environment / Poverty and Inequality

This policy brief is the product of the IF20 Religion and Environment Working Group and reflects the views and analysis of its members, which do not necessarily represent the positions of the broader IF20 organization. Originally developed to inform discussions during the IF20 South Africa Forum, this document addresses the global debt crisis and climate finance—issues that remain both ongoing and critically relevant to current policy discourse.

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Introduction

  • Since COP27 the worldwide debt problem, which is especially problematic for low-resource countries, has been increasingly discussed in relation to the climate crisis at UN climate conferences.
  • Climate change is an existential problem. Climate disasters fall disproportionately on poor, indebted countries, which have meagre resources to adapt and build resilience to the rapidly warming climate catastrophe.
  • Poor countries are spending more on servicing debt payments than they are on life-saving public services, including responding to the climate emergency (UNCTAD 2025). They receive meagre assistance from high-income countries whose emissions have caused global warming, and are spending twice more in debt payments than what they receive in financial assistance to fight the climate crisis (IIED 2024). For many of them, debt servicing is equivalent to half of combined food import bills and public health spending. This results in obligations to repay large sovereign debt rather than spending on government programmes for people’s health and education, and a healthy environment.
  • At the same time, when a climatic disaster hits, poor countries are pushed to more borrowing to assist affected communities and to fund reconstruction, trapping them in a vicious cycle of indebtedness.
  • Addressing the debt-climate nexus is a moral imperative that high-income countries must address and find ways to alleviate so the low-resource countries that are most harmed by climate change have the resources to care for their people and the environment.
  • In this policy brief, we examine the debt-climate nexus in detail, and then present an alternative integrated framework.

The Debt-Climate Crisis Nexus

  • The debt and climate crises are challenging.
  • On the one hand, the impacts of global warming are aggravating debt problems in poor, climate vulnerable countries (ERDNC 2025, Woolfenden and Khushal 2022):
    • Following climate disasters, many of them have little or no option other than to take on more loans to support their people and to rebuild infrastructure. This has impacts into the future. Pre-existing debt, together with the rising cost of reconstruction, worsens the chances of recovery and makes it more difficult to repay debts.
    • Climate change degrades productive capacity and, in turn, the capacity to service debt.
    • The bulk of climate finance in the past decade has been provided through debt-creating instruments. Continued borrowing to meet climate finance obligations reduces debt sustainability and fuels the debt crisis.
    • Climate vulnerabilities increase the costs of borrowing. A study (V20 2022) shows how climate risks increased the cost of debt for the countries in the Vulnerable Twenty (V20) group, adding US$ 40 billion of additional interest payments over the past 10 years and this number is set to increase to US$ 168 billion in the next decade.
  • On the other hand, debt has an impact on climate (ERDNC 2025, Woolfenden and Khushal 2022):
    • High debt levels translate into more revenues spent on servicing debt, leaving poor, climate-exposed countries with scant resources to invest in climate mitigation and adaptation and to respond to climate emergencies, and making them even more vulnerable to disasters.
    • Poor countries are forced to exploit their natural resources such as oil, gas, and minerals to increase export revenues in order to repay debts. Debt burdens are being used to justify raw material extraction for the green transition. This not only worsens the climate crisis but also keeps these countries locked in an unsustainable development model that hampers their ability to address climate change.
  • The debt crisis and the climate crisis reinforce each other, particularly in poor, climate-vulnerable countries, where limited resources are stretched thin by both high debt repayments and the need to address the growing impacts of climate change. Addressing one crisis requires action on the other.

The Role of the G20

  • The G20 has taken steps to address the debt crisis through the G20 Common Framework, which aims to provide a coordinated process for restructuring debt in countries facing unsustainable debt burdens. Placing poor countries on a path to climate resilience is good news for both debtors and creditors. Debt restructuring can help free up resources for climate adaptation, mitigation and resilience-building.
  • However, the G20 Common Framework is failing to produce timely and equitable responses (IEJ 2025). Compared with previous processes, debt restructurings under the framework take up to three times longer as private creditors are able to delay negotiations and demand higher repayments than debtor countries can afford. To date only three countries – Chad, Zambia, and Ghana – have availed of debt relief under this framework (G20 2024).
  • The G20 Common Framework does not systematically consider the impacts of climate change (Akhtar and Njoroge 2024). A clear example of the G20 Common Framework not systematically considering the impacts of climate change is the debt restructuring process for Zambia. Zambia, one of the first countries to request debt treatment under the Common Framework, has been severely impacted by climate-related disasters, including frequent droughts and flooding that have devastated its agricultural sector and food security (The Guardian 2024). Despite these known vulnerabilities, the restructuring terms did not account for Zambia’s need to invest in climate resilience or adaptation. Specifically: Debt sustainability assessments (DSAs) used in the Common Framework focus primarily on macroeconomic indicators (such as GDP and fiscal balance), but do not integrate climate vulnerability or environmental risks, which are key to understanding a country’s real capacity to repay debt (Oduk and Mithia 2025). The absence of “climate clauses” (e.g., debt-for-climate swaps, or disaster clauses that allow payment suspension after climate shocks) means that countries like Zambia remain locked into rigid repayment schedules, even as they face climate-related emergencies that demand immediate and flexible resource allocation. Private creditors in Zambia’s case have been resistant to significant debt relief, and the framework provides no mechanism to enforce equitable burden-sharing or to link debt terms with climate action needs, thus undermining the country’s ability to channel funds into sustainable development. This means, the G20 Common Framework’s current design overlooks climate risks in its debt treatment processes, perpetuating a cycle where vulnerable countries are unable to invest in climate adaptation due to rigid, outdated restructuring models.
  • Address structural debt inequalities between G20 economies and the Global South. The combined sovereign debt of G20 economies vastly outweighs the cumulative debt of countries in Africa, the Caribbean, and the Pacific—by a ratio of approximately 19:1 (IMF 2023), a disparity that reflects deep-seated structural imbalances and colonial legacies in the global financial architecture While Global South countries are subjected to rigid fiscal discipline, austerity, and conditionalities, G20 economies benefit from expansive borrowing, currency privilege, and financial instruments insulated from external oversight. This unjust double standard must be confronted through the lens of equalisation, whereby new decolonised accounting structures are established to recalibrate global valuation metrics, centring well-being, reparative justice, and ecological stewardship. Recognising this asymmetry is essential for any legitimate global effort to resolve the debt-climate crisis.

Religious Responses

  • The Jubilee vision, which is shared by the Abrahamic religious traditions, offers a critical mandate for periodically overcoming structural injustice and poverty and for restoring right relationships. Pope Francis declared 2025 as a Jubilee year. During the Jubilee year, there is to be release from debts and slavery, and ecological restoration (Lev. 25).
  • In the context of global climate change, Jubilee is even more relevant today. The devastating consequences of climate change on poor countries and communities together with the growing concentration of wealth and power in the hands of a few calls for a reset of debts. A faith-rooted campaign titled “Turn debt into hope” has been launched, calling for debt cancellation for poor countries struggling with the destructive impacts of climate change.

Climate Debt

  • Religious groups have also spearheaded discussion on the concept of ecological debt. For example, following a study process on ecological debt initiated in 2004, the World Council of Churches released a statement on ecological debt in 2009 (WCC 2009). Pope Francis writes about ecological debt in Laudato Si (Pope Francis 2015).
  • In today’s world, ecological debt is driven by climate debt, which refers to the sum of damages caused over time by carbon dioxide emissions to ecosystems, places and peoples through direct extraction and unsustainable systems of production, consumption and investment. The costs – economic, social, and environmental – are imposed on the world without compensation or restitution. This reflects how some countries, sectors of society and individuals are using more than their share of the limited carbon space at the expense of the equitable rights of other countries, communities or individuals.
  • The concept of climate debt turns upside down the usual notions of debtor and creditor, of who owes whom. This is largely a debt owed by wealthy, industrialised economies to poor countries on account of historical disproportionate appropriation of ecological space to dump greenhouse gases (GHGs) and toxic wastes (Paredis et al 2008). But it is also a debt owed by super-rich elites to marginalised communities; a debt owed by the present generations to future generations; and a debt owed by humankind to other life forms and the planet.
  • A study (IMF 2023) attempts to estimate climate debt for 131 countries based on both historical and projected carbon emissions and the social cost of carbon, which measures the economic damage per ton of CO2 It shows that the size of a country’s climate debt largely depends on the size of its economy, which is positively correlated with emissions the extent to which a country uses fossil fuels and generates emissions for every dollar of economic output; and their composition of energy use (e.g., coal, oil, solar, wind). It finds climate debt to be in the tens of trillions of dollars – USD$59 trillion over 1959-2018 – and is projected to grow by another $80 trillion for the period 2019-35. As of 2018, the biggest climate debtors were the United States ($14 trillion), China ($10 trillion), and Russia ($5 trillion). Developing economies begin to account for a larger share of climate debt in 2018, especially for those with large economies and those with higher economic growth. The study reveals large differences across countries in terms of per capita climate debt. Climate debt per capita is highest in the United States—some 6 times higher than in China and 25 times higher than India for the 1959-2018 period. For 2019-35, climate debt per capita is expected to remain highest in the United States and is projected to rise in China, exceeding the expected level in the European Union.
  • The concept of climate debt demands reparations.

Policy Recommendations

  • Cancel and restructure unjust and unsustainable debt immediately and without policy conditionalities that impose harmful austerity measures, and as climate reparations, to free up resources for poor, climate vulnerable countries to invest in renewable energy, climate resilience, and a just transition.
  • Tackle the root causes of debt crises by reforming global financial systems to prioritise people and planet over profit.
  • Establish a transparent and just debt framework under the auspices of the United Nations to ensure fairness and accountability. Such a debt cancellation framework must be able to bring debt payments down to an affordable level, suspend debt payments while debt cancellation is being negotiated and in the occurrence of climate disasters, and compel all lenders to participate. This mechanism must be empowered to audit sovereign debts and to cancel odious and illegitimate debts that are contracted fraudulently or by despotic regimes without public consent, charge usurious interest, involve repayment at huge social and ecological cost, or finance socially- and ecologically- damaging projects.

Further, legislation must be passed in key jurisdictions to ensure private lenders participate in debt cancellation and suspend payments to private lenders during negotiations.

  • Support the creation of a UN Debt Convention to agree rules on resolving/settling debt crises, responsible lending and borrowing and the establishment of a public global debt registry so that all lenders and borrowing governments are held accountable.
  • Explore alternative instruments that manage debt in ways that free up space for climate action such as debt-for-climate swaps.
  • Embed equalisation into global debt frameworks to address structural disparities. The G20’s cumulative debt vastly exceeds that of countries in Africa, the Caribbean, and the Pacific, yet it is the Global South that faces harsher fiscal constraints. Global frameworks must explore decolonial accounting programs that recognize historical injustices and support reparative, climate-resilient development.
  • Recognise the climate debt owed to poor countries through the delivery by wealthy industrialised countries of much more ambitious NDCs as well as sufficient, at-scale, need-based and debt-free climate finance to affected, climate-vulnerable countries.

At core, the concept of climate debt calls for systemic change. These include debt relief, increased climate finance, and reforms to the international financial architecture, with a focus on debt-for-climate swaps[2] and concessional financing.[3]

Such a change entails reparation for the climate debt that is rooted in colonial legacies and continues to persist through neo-colonial dynamics today. But more fundamentally, it calls for a profound transformation of our capitalist economic system, moving away from extractivism and from an obsession with economic growth, and shifting to decarbonized, equitable and life-affirming ways of running our economies and meeting our economic needs.

Additional Proposals

  • There is a need to ensure that debtor countries are properly represented and that debt sustainability assessments and policy conditions place human and environmental rights at the centre.
  • A policy programme is proposed such as webinars on decolonising accounting leading up to the next IF20 in South Africa.

 

[1] Debt Justice (formerly Jubilee Debt Campaign) has called for comprehensive debt cancellation and the establishment of a transparent and just debt framework under the United Nations to ensure fairness and accountability. Similarly, the World Council of Churches has joined faith leaders and policy experts to urge for a transparent debt restructuring framework and a UN Debt Convention to develop rules for settling debt crises fairly. Additionally, the Asian Peoples’ Movement on Debt and Development has recommended the cancellation of unsustainable, odious, and illegitimate debts, and the demand for reparations and debt-free support for climate action. These recommendations reflect a broader consensus among civil society organizations advocating for systemic reforms to address the intertwined challenges of debt and climate justice. The World Council of Churches, World Communion of Reformed Churches, Lutheran World Federation, World Methodist Council, Council for World Mission, and United Society Partners in the Gospel – collectively representing 600 million Christians – urged a New International Financial and Economic Architecture in an open letter to the 2025 G20 Leaders’ Summit.

[2] See: https://www.weforum.org/stories/2024/04/climate-finance-debt-nature-swap/#:~:text=Debt%2Dfor%2Dnature%20swaps%20are,funding%20gaps%20for%20emerging%20economies.

[3] See: https://www.wri.org/insights/debt-climate-action-developing-countries#:~:text=Countries%20have%20also%20called%20to,Pact%20and%20Africa%20Climate%20Summit%20.