With climate change concerns now affecting financial decision making, choosing which industries to support and projects to finance has become a crucial part of the lending decision process. Shifting loans towards green energy projects and issuing green bonds to help slow the impact of global warming is now a necessary part of every portfolio.
But in addition to ensuring the right kind of projects are chosen, the emerging economies at the sharp end of climate change need international agencies and development banks to give them room to manoeuvre, as they walk a tightrope between building their economies and climate change resilience.
Importantly, numerous multi-billion-dollar programmes are available to provide financial support. For example, the Green Climate Fund, established through the UN Framework Convention on Climate Change, approved funding for 42 new projects in 2018. The European Investment Bank and the European Bank for Reconstruction and Development have committed funds and support for countries adapting to change. The Irish government has pledged €12m for Pacific Island countries to prepare for and build resilience in the event of natural disasters.
But as a country grows economically, it may no longer be eligible for such programmes, and the level of support it can receive declines. Many multilateral banks start to refuse loans, or financing can become more expensive. However, although a country may look like it has a robust economy, in reality it can remain vulnerable to sudden environmental shocks.
For example, a cyclone could wipe out a collection of high-end resorts, effectively destroying a country’s tourism industry. In the Pacific Islands, where tourism accounted for 39% of Fiji’s gross domestic product in 2018 according to the World Travel and Tourism Council, a natural disaster could quickly turn into an economic catastrophe. Such countries are voicing concerns that they will not receive the international support needed in times of crisis.
These countries are devoting time and funds towards insulating themselves against climate change, diverting resources away from improving their overall infrastructure and developing new industries. Without ample support, the delicate balancing act between supporting an economy and protecting their population may prove too difficult to maintain.
