Photo by: Habibhelou
by Joseph K. Ingram and Augusto Lopez-Claros
October 2026
Table of Contents
- Introduction
- The scientific debate is over
- Climate change as an economic and security challenge
- Financing the green transition
- Building the financial architecture of the green transition
- Governments as strategic investors
- Measuring what matters
- From climate governance to planetary stewardship
- Conclusion
- About the Author
- Canadian Global Affairs Institute
Introduction
In a recent social media post, former Canadian Foreign Minister Lloyd Axworthy asked if the climate/energy policies of Prime Minister Mark Carney are intended only to make ongoing oil and gas production less emission intensive or to build an energy system that can genuinely reduce dependence on fossil fuels and effectively achieve net-zero emissions by 2050 or earlier. With the recent release of the government’s 1,500 page “Changing Climate Report 2026” – the result of three years of work by some 100 scientific and public policy experts – the answer should be abundantly clear.
Unlike many of our 21st century challenges, climate change has arguably become the defining governance challenge we face today: its impact is cumulative, global in reach, and capable of altering the conditions that have supported human civilization for thousands of years. Addressing it demands not simply stronger environmental policies to reduce global emissions quickly, but a fundamental rethinking of how governments cooperate to manage risks that transcend national borders.
In a recent article, we identified climate change as the first of seven policy priorities – climate change, rising inequality, demographic pressures, migration, corruption, artificial intelligence and the weakening of multilateral institutions – that cannot be managed by governments acting alone. These policy priorities require institutions capable of sustaining cooperation while reconciling national interests with global public goods.
The international climate debate has evolved through three phases: first science, establishing that human activity was altering the climate; then technology, showing that decarbonization and prosperity are not mutually exclusive as advances in renewables, storage and electrification expanded practical solutions; and now, increasingly, governance. The critical obstacle is no longer scientific understanding or technology but mobilizing public support and finance, aligning policy and strengthening cooperation enough to deploy existing solutions at the scale and speed the science demands.
This evolution changes the nature of climate policy. Negotiations once concentrated on emissions targets and voluntary commitments; the more pressing question now is how to finance and implement the transition while enabling developing countries to expand energy access, reduce poverty, and improve living standards. Climate policy has become inseparable from fiscal policy, financial regulation, industrial strategy, and multilateral cooperation.
For Canada, this shift from climate science to governance carries important domestic and international policy implications. As a major energy producer and exporter that is also experiencing some of the most rapid effects of climate change, Canada has both an interest in accelerating its own transition and an opportunity to use its influence within multilateral financial and governance institutions to help mobilize the investment required internationally.
This article argues that climate change has evolved from primarily a scientific and technological challenge into one of governance, requiring governments such as Canada’s to mobilize finance, align market incentives and strengthen international institutions capable of accelerating the green transition at the scale and speed required to meet this challenge.
Humanity already possesses much of what is needed: scientific understanding has never been stronger, renewable technologies are increasingly competitive, financial markets have developed instruments to mobilize private capital, and multilateral institutions possess considerable—if underutilized—capacity to catalyse climate finance. The overriding challenge is no longer discovering technical solutions but creating the political conditions to deploy them. Notwithstanding the continued need for technological innovation that would further reduce the cost of electricity thereby allowing market forces to accelerate the decarbonization of sectors difficult to electrify, the climate transition has become primarily a challenge of governance and creating the necessary political will. Carbon pricing, green finance, expanded multilateral development bank (MDB) lending, innovative use of the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs), debt-for-nature swaps, and better measures of national wealth all form part of this evolving policy architecture. But none can realize its potential alone; their effectiveness depends on stronger international cooperation.
We begin by briefly reviewing the scientific and economic foundations of the climate challenge before turning to the financing architecture needed to accelerate the green transition, including carbon pricing, private capital, multilateral development banks and other international financing mechanisms. We then consider the complementary roles of governments and markets, the need for better measures of national wealth, and, finally, the institutional reforms required to move from climate governance toward a broader framework of planetary stewardship.
The scientific debate is over
As evidenced in the just released government report, few questions in contemporary public policy have been examined more thoroughly than the link between human activity and climate change. After over a century of research across atmospheric science, oceanography, geology and ecology, an overwhelming scientific consensus has emerged: the rapid warming since the Industrial Revolution is primarily the result of anthropogenic greenhouse gas emissions.
The data are compelling. Atmospheric carbon dioxide has risen from roughly 280 to more than 430 parts per million since the Industrial Revolution. The past decade has been the warmest on record, with the World Meteorological Organization and other bodies documenting accelerating ocean warming, glacier retreat, sea-level rise and more frequent extreme weather. Humanity now stands dangerously close to – or may already have temporarily exceeded – the 1.5°C threshold the Intergovernmental Panel on Climate Change (IPCC) identifies as critical for limiting the most damaging impacts. Of particular concern is the risk of reinforcing feedback loops – methane release from thawing permafrost, weakening carbon sinks – that push the costs of delay ever higher while narrowing the options for avoiding the worst outcomes.
A telling illustration comes from Exxon’s own research in the 1970s and 1980s, which correctly anticipated many climatic consequences of continued fossil fuel use but was never publicly communicated nor translated into policy with appropriate urgency. This is a lesson illustrating that scientific understanding alone cannot produce effective policy when economic interests and institutional inertia combine to delay action, as is apparently the case in Canada.
Today, the central question is no longer whether climate change is occurring or human activity responsible – those debates are settled. The defining challenge is whether governments will build the architecture to accelerate the transition before climatic change outpaces our capacity to respond.
Climate change as an economic and security challenge
Increasingly, it is not scientific evidence but economic reality that is driving the policy debate. Climate change is no longer simply an environmental concern but a systemic economic, financial and security challenge shaping the conditions under which societies develop and prosper.
The economic consequences are already visible across virtually every sector. Rising temperatures, droughts, wildfires, stronger storms and floods are disrupting agriculture, damaging infrastructure, raising health costs and interrupting supply chains, while governments face growing fiscal pressure from disaster response and adaptation, and households face rising costs and financial uncertainty. What was once an environmental externality has become a central macroeconomic concern, nowhere more evident than in finance, where insurers have seen a sustained increase in weather-related losses and in several regions have withdrawn coverage entirely, contributing to declining property values and greater uncertainty for long-term investors.
Economists have also increasingly recognized that degrading natural ecosystems – forests, wetlands, oceans, soils – carries economic costs that conventional income measures ignore, representing a depreciation of natural capital rather than a mere environmental loss. As the Dasgupta Review on the Economics of Biodiversity argued, humanity has been drawing down its natural assets while mistakenly recording the proceeds as income.
Climate change has also become an important security concern. Competition over water, declining agricultural productivity, and forced migration linked to sea-level rise and desertification can exacerbate existing tensions. Climate change seldom causes conflict alone, but functions as a threat multiplier, which is why defence agencies are now routinely including climate risk in strategic assessments. Climate policy can no longer be treated as a branch of environmental regulation – it has become inseparable from fiscal, industrial, financial and security policy, cutting across boundaries that require coordination few governments have achieved.
National action, however, will not be sufficient. The atmosphere is the quintessential global commons – emissions anywhere affect conditions everywhere – while resources for the transition remain concentrated in relatively few countries. Developing economies face a particular dilemma: expanding energy access and reducing poverty while avoiding the carbon-intensive path taken by advanced economies. Failure to assist them will only increase the ‘push factors’ leading to unmanageable levels of migration to ecologically less threatened parts of the planet – Canada included. Bridging this gap is now the central challenge of international economic policy.
Financing the green transition
Once climate change is understood as a challenge of economic transformation, finance becomes central. The technologies required already exist and keep improving – renewables are increasingly competitive, storage costs keep falling – so the constraint is not primarily technology, but mobilizing investment to allow new technologies to be economically applied at the speed and scale required.
The transition will require tens of trillions of dollars over coming decades, directed toward renewable generation, transmission, storage, resilient infrastructure and climate-smart agriculture, almost two-thirds of it in emerging and developing countries. This will make climate finance one of the central challenges of international development. Mitigation, moreover, is only part of the challenge: even under optimistic scenarios significant climatic change is now unavoidable, making adaptation equally urgent. Without it, climate change will further undermine progress on the UN Sustainable Development Goals, particularly on poverty, food security and health.
The world, encouragingly, is not short of capital: global financial assets run into the hundreds of trillions of dollars, vastly exceeding what the transition requires. The challenge is to redirect a modest share of these assets toward investments that generate returns, build resilience and cut emissions, which requires governments to reshape incentives and reduce investment risk.
Building the financial architecture of the green transition
The transition will not be financed by a single policy but by a portfolio of reinforcing instruments that alter incentives, mobilize investment and strengthen cooperation. Governments are not starting from scratch: economists, financial institutions, development banks and capital markets have already built a growing toolkit. The challenge now is finding the political will to deploy these tools coherently and at scale.
Carbon pricing: correcting the largest market failure. Among economists there is broad agreement that carbon pricing is the single most effective instrument for reducing emissions, incorporating the social cost of carbon into market prices and letting markets find the least-cost pathways to reduction. The International Monetary Fund has repeatedly called carbon taxes the most powerful instrument available to governments for this purpose, yet roughly four-fifths of global emissions remain un-priced or priced well below levels consistent with the Paris Agreement. The obstacle is political, not technical – acceptance rises sharply when governments recycle revenues through tax cuts, transfers to lower-income households, or clean-infrastructure investment. Done well, carbon pricing cuts emissions, protects vulnerable groups, and raises resources for mitigation and adaptation all at once.
Mobilizing private capital. Public finance alone, however, will never be sufficient. Institutional investors, pension funds, insurers and sovereign wealth funds collectively manage hundreds of trillions of dollars, and mobilizing even a small fraction would transform the financing landscape. Green bonds and sustainability-linked loans have grown rapidly, channelling capital toward renewables and resilient infrastructure and showing that sustainability and returns can reinforce one another. Further growth requires internationally accepted standards for disclosure since, without common taxonomies, investors cannot reliably distinguish genuine sustainable investment from greenwashing.
Multilateral development banks (MDBs). Their strong capital base and high credit ratings let MDBs leverage public resources well beyond national budgets, making them indispensable partners in low- and middle-income countries. Reform proposals have focused on more effective use of existing balance sheets, greater reliance on guarantees and blended finance, which can expand lending without proportionate increases in shareholder contributions.
Recycling global liquidity. IMF Special Drawing Rights (SDRs), a unique source of unconditional global liquidity, showed during the COVID-19 pandemic that the international community can mobilize resources rapidly in a crisis. Expanding voluntary channels for wealthier countries to redirect unused SDRs to developing countries would create fiscal space for renewable energy and adaptation, complementing rather than replacing traditional aid.
Complementary instruments. Debt-for-nature and debt-for-climate swaps let indebted countries redirect debt service into conservation and resilience. Taxes on aviation and maritime fuel could cut emissions while raising revenue, and a modest financial transaction tax could generate hundreds of billions annually with minimal disruption. Domestically, better tax administration, reduced evasion and anti-corruption efforts would free resources for climate investment. Each of these instruments alone addresses only part of the problem; together they form the foundation of an architecture capable of mobilizing capital at unprecedented scale.
Governments as strategic investors
The existence of effective financial instruments does not, however, diminish the indispensable role of governments. Markets excel at allocating resources and rewarding innovation, but do not automatically account for long-term externalities, intergenerational equity, or systemic risk. Left to themselves, markets are unlikely to deliver the pace of transformation needed to stabilize the climate. History shows that in periods of existential challenge, governments invest directly in research, innovation and infrastructure rather than waiting for private initiative – and climate change calls for mobilization of comparable ambition, not to support a wartime economy but to safeguard the ecological foundations of future prosperity.
Public investment in grids, storage, green hydrogen and resilient infrastructure can accelerate progress while crowding in private capital. Governments should also phase out subsidies that favour environmentally damaging activities, which are often highly regressive – 60 per cent of the global gasoline subsidy goes to the top fifth of the income distribution, according to an IMF study. Sustained public research and development (R&D), as governments have historically provided for aerospace, medical and digital technologies, remains essential for the next generation of low-carbon technologies. The goal is not to substitute government for markets but to recognize their complementary roles: markets drive innovation, governments set the framework and correct externalities markets ignore.
Measuring what matters
Climate change exposes a deeper weakness in economic policy-making. For more than three-quarters of a century, governments have relied overwhelmingly on Gross Domestic Product (GDP) as the principal indicator of economic performance. GDP remains indispensable, but it was never intended to measure the sustainability of growth, the resilience of ecosystems, or the wealth of countries – yet it has gradually acquired precisely that role. National accounting records the extraction of forests, minerals and fossil fuels as additions to output while assigning little value to the depletion of the natural assets on which future prosperity depends. In some cases, the cost of repairing environmental damage actually increases measured GDP, producing the paradox that ecological decline can accompany apparent economic progress.
A growing body of work points toward a more comprehensive approach. The Dasgupta Review on the Economics of Biodiversity, the World Bank’s work on comprehensive wealth accounting and the United Nations’ System of Environmental-Economic Accounting increasingly recognize that long-term prosperity depends on preserving four interdependent forms of capital: produced, human, social and natural. Progress should be judged not by annual output alone but by whether the underlying asset base is being strengthened. Seen this way, climate policy is not a constraint on development but an investment in the assets that sustain prosperity – a cost borne now to preserve capital for future generations.
From climate governance to planetary stewardship
Recognizing the central importance of natural capital raises a broader institutional question: if the stability of the Earth’s life-support systems underpins the prosperity of every state, do existing institutions have the capacity to safeguard them?
Over the past half century, the international community has negotiated an impressive array of environmental agreements on climate, biodiversity, desertification, ozone and oceans, strengthening cooperation. Yet responsibility for the Earth’s major ecological systems remains fragmented across treaties and institutions, each with a specialized mandate but limited capacity to assess the resilience of the Earth system as a whole. Climate change interacts continuously with biodiversity loss, water scarcity, ocean degradation and land-use change, often reinforcing one another in ways isolated sectoral approaches cannot address. This is best understood as one manifestation of a broader challenge: humanity’s stewardship of the Earth system.
The concept of planetary stewardship reflects this new reality – human activity now shapes the planet itself, implying long-term thinking, scientific foresight and institutions that integrate knowledge across disciplines and borders. A further challenge concerns the public information environment. Effective policy depends on public trust in science, and as digital platforms shape discourse, governments, tech companies and civil society share responsibility for curbing demonstrably false information on major public issues.
One institutional innovation worth serious consideration is an Earth System Council, an idea raised in recent proposals to strengthen the UN system, including the Second UN Charter initiative. Such a body would not replace existing agreements or agencies, but would provide a permanent high-level forum to assess systemic risks and promote coherence among institutions. This would be a role for planetary governance analogous to what central banks provide for macroeconomic governance, while fully respecting national sovereignty.
Whether this proposal proves the right solution matters less than the principle behind it: institutions must evolve to reflect the challenges they face. The postwar architecture was built to preserve peace and promote reconstruction, differs from what today's challenges—climate change, biodiversity loss, pandemics, artificial intelligence—now require.
For a Canadian government, ostensibly committed to providing enlightened global leadership, the fact that since 1970 the country has warmed nearly twice as fast as the global average – with its Arctic region warming nearly three time as fast – the imperative to lead on policy initiatives could not be stronger. These should include:
- an effective carbon tax with demonstrable financial benefits to Canadian households.
- an initiative led by the Canadian Executive Directors on the boards of the major multilateral development finance institutions to expand their lending capacity while pressuring them, as well as their member governments, to phase out the use of GDP as the primary metric for measuring economic progress (replacing it with metrics that reflect the quality rather than just the quantity of growth).
- increasing foreign aid levels to those countries the migratory ‘push factors’ of which are most impacted by global warming on condition that, like Nigeria, they agree to support the establishment of the International Anti-Corruption Court.
- as recently implemented in Ireland, preparing farmers for climate change by quickly developing and deploying “a practical climate risk toolkit tailored to individual land parcels.”
- ceasing to provide subsidies to the fossil fuel sector, instead applying them to research and the development of sustainable sources of clean energy. If implemented, these would all have profound consequences for global governance.
Cultivating public support for such measures by regulating the mis- and disinformation being propagated both on social and legacy media by vested interests would also prove exemplary at the global level.
Conclusion
Over the past half century, the climate imperative has moved from science to technology and now to governance. The scientific evidence is overwhelming, and technological progress has shown the transition is feasible and increasingly affordable. What remains are primarily political, financial and institutional obstacles. Climate policy should be understood not as a narrow environmental agenda but as one of the defining governance challenges of the century. Carbon pricing, green finance, expanded MDB lending, innovative use of IMF SDRs, debt-for-nature swaps and better measures of national wealth provide the foundations for financing the green transition. What has too often been missing is the political will to deploy these tools coherently and expeditiously using international cooperation to maximize their effect.
Ultimately, the climate transition is part of a broader process of institutional adaptation. Humanity’s technological capabilities now shape the functioning of the Earth system itself, and the central task for the next couple of decades is not only to decarbonize and electrify economies, but to build governance commensurate with humanity’s growing responsibilities as a planetary species. The health and prosperity of future generations will depend on whether we build the institutions, mobilize the resources, and develop the political will to turn scientific knowledge into effective public policy and global governance.
About the Author
Joseph Ingram is a former President of The North South Institute, a former World Bank Special Representative to the United Nations and the WTO, and a former Director of The World Bank office in Bosnia and Herzegovina. He is a Fellow of the Canadian Global Affairs Institute.
Augusto Lopez-Claros is the Executive Director of the Global Governance Forum, a Swiss-based nonprofit foundation. He has written extensively on issues of international cooperation. His latest book, Global Governance and International Cooperation: Managing Global Catastrophic Risks in the 21st Century, co-edited with Princeton´s Richard Falk, was published by Routledge in 2024.
Canadian Global Affairs Institute
The Canadian Global Affairs Institute focuses on the entire range of Canada’s international relations in all its forms including trade investment and international capacity building. Successor to the Canadian Defence and Foreign Affairs Institute (CDFAI, which was established in 2001), the Institute works to inform Canadians about the importance of having a respected and influential voice in those parts of the globe where Canada has significant interests due to trade and investment, origins of Canada’s population, geographic security (and especially security of North America in conjunction with the United States), social development, or the peace and freedom of allied nations. The Institute aims to demonstrate to Canadians the importance of comprehensive foreign, defence and trade policies which both express our values and represent our interests.
The Institute was created to bridge the gap between what Canadians need to know about Canadian international activities and what they do know. Historically Canadians have tended to look abroad out of a search for markets because Canada depends heavily on foreign trade. In the modern post-Cold War world, however, global security and stability have become the bedrocks of global commerce and the free movement of people, goods and ideas across international boundaries. Canada has striven to open the world since the 1930s and was a driving factor behind the adoption of the main structures which underpin globalization such as the International Monetary Fund, the World Bank, the World Trade Organization and emerging free trade networks connecting dozens of international economies. The Canadian Global Affairs Institute recognizes Canada’s contribution to a globalized world and aims to inform Canadians about Canada’s role in that process and the connection between globalization and security.
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