Some of the world's poorest countries produce the lowest carbon emissions, and yet they are disproportionately affected by the impacts of climate change. Climate events exacerbate existing inequalities and increase the risks of lost income, food insecurity, poor health outcomes, displacement and poverty.
While many in the world of climate finance are focused on the large-scale mitigation of greenhouse gases, vulnerable and low-income populations don't have many emissions to reduce. Instead, their priorities are to strengthen their resilience to climate risks, adapt to changing climate conditions, and in some cases, find new ways to support themselves.
Finance - a tool to boost climate resilience
Financial services can help vulnerable populations, particularly women, young people and rural communities, by increasing their resilience and helping them adapt to the many challenges stemming from the climate crisis.
Contrary to expectations, the positive impact of finance on climate resilience and adaptation isn't exclusively linked to "green" financial products. Traditional financial products and services also help boost climate resilience.
Digital or mobile banking, secure savings, readily available loans and reliable fund transfers don't need to be specifically designed for climate risk to help even out consumer spending during periods of crisis, address health problems related to climate change or accelerate recovery after natural disasters.
10 ways financial products and services contribute to climate resilience and adaptation
- Following extreme weather events, savings are key to limiting excessive debt and negative adaptation strategies, such as the sale of assets or reduced food consumption.
- Savings can help people living in poverty meet their needs if they face unexpected hardship. They can also be used to invest in technology designed to improve climate resilience.
- Savings are also safer than informal assets, such as livestock or other goods that could be impacted by climate change.
- When small farmers have increased access to credit, they can invest in technology to mitigate the risks of climate change. Crop yields and productivity can be increased using enhanced seeds, irrigation, fertilizer, insecticides and other new technology.
- Green credit helps entrepreneurs to reduce their energy use and greenhouse gas emissions associated with their commercial activities.
- Credit can also support the transition to new means of subsistence and diversified sources of income.
- Improved access to various types of insurance can protect against climate risk, particularly recurrent droughts, flooding, illness and parasites that threaten crops and spread disease.
- Insurance helps people living in poverty recoup losses, rebuild their lives and restore income streams so they can better resist the next climate event.
- Through an inclusive and targeted approach, financial institutions can increase the accessibility and affordability of technology use and environmentally friendly practices, which can also mitigate contributions to climate change while improving individual wellness.
- Microfinance institutions are also well-positioned to provide non-financial services such as technical assistance and training, which can help individuals better adapt to the new realities of climate change.