Australia in its "moral duty" would pay compensation to developing countries battered by climate change-fuelled natural disasters under a push by Pacific Island nations.
A report released by Oxfam Australia on Thursday calls on the nation to support financing a global loss and damage fund, where wealthy countries would stump up cash for poorer countries to help them manage the damage bill in a bid for "equitable" solutions.
"Australia is also experiencing the devastating consequences of climate change, however ... we have also contributed significantly towards causing the climate crisis, which means we have a moral duty to support low-income countries to respond to worsening climate impacts," the report reads.
The report says for Australia to restore its international reputation, the federal government "should work towards a bold and progressive climate finance and loss and damage agenda that is underpinned by the principle of climate justice".
The research found Australia was providing just one-tenth of its "fair share" of international climate funding.
It was calculated the nation's contribution should be $4 billion each year, as part of a US $100 billion fund to support vulnerable communities respond to climate change.
According to the report, Australia's contributions are averaged at $400 million each year between 2020 and 2025.
It says the nation should pledge to increase its funding to $3 billion over the same period ahead of the global climate summit in Egypt in November.
International Development and the Pacific Minister Pat Conroy said the government was "working constructively" on the issue of financing loss and damage.
"Australia is the largest humanitarian donor to the Pacific region, and we will continue to work with Pacific partners to prepare for and respond to climate-related disasters, including to build back better," he said.
Last year at COP26, the government promised to raise its climate finance to $2 billion between 2020-2025, including $700 million for climate change and disaster resilience in the Pacific.
Former Kiribati president Anote Tong said Australia needed to become a "leader" for financing loss and damage, with the issue back on the agenda after stalling at the United Nations climate change conference in Glasgow last year.
"Australia has been one of our biggest development partners, but if it's going to galvanise the rest of the global community, which needs to happen, then they've got to take this step," he said.
George Koran, from the Vanuatu Climate Action Network, said climate justice was key to Australia's relationship with its Pacific neighbours.
"Pacific people want Australia to step up its roles and responsibilities in terms of climate change, because that is the only issue for us in the Pacific," he said.
"We are not too concerned about military occupation, we are more concerned about climate change."
Oxfam Australia chief executive Lyn Morgain said Australians produced eight times as much carbon emissions each year as Pacific Islanders.
"We can help achieve this and make a significant difference to the lives of people impacted by climate change by increasing climate finance," she said.
Australian Associated Press