3 steps to ensure the COVID-19 economic crisis does not harm climate adaptation plans
Now is not the time to reduce spending on climate adaptation. This is how countries can invest now to prepare for future climate shocks
T he COVID-19 pandemic, as well as taking a huge toll on human lives and health, represents the greatest shock to the global economy in almost 100 years. “The Great Lockdown” has led to major reductions in both production and consumption, with the International Monetary Fund global growth forecast for 2020 being downgraded to -4.9%. Some countries are already seeing record unemployment and the ILO estimates that working hour reductions will take place equivalent to 305 million jobs, with 1.6 billion informal economy workers suffering damage to their earning capacity.
The fiscal and monetary measures being taken by governments to support workers, firms and strained health systems are unmatched in recent times. Governments have announced fiscal stimulus response packages worth $8bn, with a further $6trillion of liquidity injections expected from central banks. The IMF has made $1trillion in lending available to service country requests for emergency financing, and Development Finance Institutions (DFIs) have announced substantial lending packages, for example with the World Bank pledging up to $160bn over the coming 15 months.
This context represents both challenges and opportunities for the drive to shift investment flows onto sustainable and resilient pathways. The following three steps can help Governments and DFIs to ensure that the economic crisis avoids harm to, and even delivers on, global adaptation objectives.
1. Accelerate the mainstreaming of climate risk into public policy and spending
Finance ministries should ensure that, where possible, fiscal interventions contribute to the resilience of people, communities and businesses to climate shocks. New public spending on infrastructure, for example, should respect resilient building standards, protected areas legislation, and best practice in water management, to avert the compound threat of health and climate-related disasters.
Beyond this approach to avoiding harm, climate resilience can offer significant opportunities in a green economic recovery. Governments can source investment-ready national and local adaptation interventions from Nationally Determined Contributions (NDCs), National Adaptation Plans (NAPs), and sectoral climate strategies. New Zealand are setting a strong example, with a Covid-19 $1.1bn public recovery package that is set to create 11,000 environmental jobs, including measures such as ecosystem restoration and other resilience measures, helping to secure water availability and stabilize river banks.
In supporting developing country governments, DFIs should continue to utilize and expand mainstreaming measures such as climate-risk screening at the project level, to avoid maladaptive practices, working with governments to ensure that where possible, Covid-19 support delivers co-benefits for climate resilience. For example, the World Bank recently announced $1.9bn of Covid-19 recovery support, which includes new and rehabilitated treatment centers in India, Ethiopia, Mongolia and Cambodia, represents an opportunity for mainstreaming, through incorporating resilience to risks such as extreme heat or flooding into the construction of those facilities.
2. Enhance private sectors disclosure of physical climate risks
The COVID-19 crisis has placed a spotlight on financial stability in the face of exogenous shocks. In responding, Governments should take advantage of this focus on financial resilience, by also promoting the transparency of businesses’ exposure to physical climate-risks, in line with the recommendations of the Task Force for Climate Related Financial Disclosures (TCFD). One option to hasten the uptake of these recommendations would be to make public support for Financial Institutions (FIs) and businesses contingent upon the introduction of climate-risk assessment and disclosure. Canada is leading the way here, with bailouts for large companies being made contingent upon climate disclosures. The GCA has partnered with UNEP FI to accelerate commitments from FIs and promote detailed, homogenous disclosure of physical climate risk in line with TCFD.
The role of financial regulators is crucial in this respect. Following the example set by some such as the European Central Bank, which is proposing that all banks disclose data on their climate-related risks and exposures as a matter of course. The Network for Greening the Financial System (NGFS), a leading group of central banks, has recently launched best practice guidance for supervisors and regulators to manage climate risk across the financial sector. In the light of Covid-19, governments should carefully consider regulating to formally require these risk-reporting measures, to further bring to light hidden risks across the economy.
3. Drive innovation in the design and application of debt instruments to raise finance for both health and climate crisis management
As a means to help fund COVID-19 recovery, some developing countries and DFIs have turned to the bond markets, for example, with Indonesia launching a $4.3bn dollar-denominated pandemic bond, and the African Development Bank releasing a $3bn social bond. While pandemic bonds have been used by some countries, similar insurance-based models have faced criticism due to complex triggers and slow pay-outs. Resilience bonds, as first trailed by the EBRD last year, which raise finance for measures that improve the resilience of assets or systems, represent an alternative opportunity, and if designed well could offer dual benefits for climate and health.
In approaching these issues, countries will need to thoroughly consider debt sustainability and local financial market conditions, recognizing that for many countries, additional debt may not be an advisable strategy. DFIs can play an intermediary role in structuring these instruments, to give confidence to investors and help improve the terms of the debt for recipient countries.
In summary, in tackling the COVID-19 crisis, this commentary argues that the immediate response should not replace the essential systemic objective of integrating physical climate risks into fiscal and financial decision-making. Alongside its partners, the GCA is driving a number of initiatives to support both the public and private sectors in achieving this goal.
The ideas presented in this article aim to inspire adaptation action – they are the views of the author and do not necessarily reflect those of the Global Center on Adaptation.
