As the world continues to battle the COVID crisis, we must not lose sight of the greatest long-term threat faced by mankind: climate change.
COVID-19 and its even more contagious variants have wrought misery upon our world, inflicting massive loss of life and sickness, widespread disruption of health services, and economic ruin with ensuing social upheaval. There is no silver lining.
We can, however, attempt to extract useful lessons from the strategies and tactics──both successful and unsuccessful──used to battle the contagion to better array our forces against that other pending global catastrophe: climate change.
Why now? Because we need to work more rapidly, analytically and efficiently to ensure that climate mitigation and adaptation measures adopted and deployed by wealthy countries do not leave the most climate-vulnerable countries in worse positions than they are in, today.
Here are three lessons that we can apply from our pandemic-fighting experience as we develop new global approaches to slow the worst impacts of climate change, especially in parts of the world where resources are scarce.
Mainstream the value of economic resilience
COVID-19 disrupted markets, supply chains, and manufacturing operations across the globe, with most major economies facing Gross Domestic Product loss of 4.5 percent (or about $3.94 trillion). Demand-and-supply disruptions exposed asset-specific and systemic vulnerabilities irrespective of location, size, and ownership. While the pandemic is a different type of shock than climate change, the manifestations of each overlap.
For example, one of the cascading effects of suddenly inoperable infrastructure (like roads or ports knocked out by superstorms) is the inability of farmers to move products to markets. Pandemic lockdowns and border closures had a similar effect, as producers suddenly became unable to connect with distributors or markets. Important work is already being performed to forecast economic impacts of natural disasters; such costs will only grow with continued climate change, and will disproportionately affect the vulnerable. One recent World Bank report, in fact, estimated that economic disruptions from natural hazards already cost low-middle income countries $390 billion/year.
Through Winrock International’s implementation of the U.S. Department of State Private Investment for Enhanced Resilience project in Asia, Africa, and Latin America, we learned that one key barrier to mobilizing private sector investments in climate change resilience is uncertainty around “the business case” for such investments──in other words, projecting returns on investments. Salient benefits of increased resilience to climate change include avoidance of losses from operational disruptions, and prevention of damages from physical impacts. These benefits are generally less compelling and tougher to grasp than the more tangible, observable, and measurable outputs that accrue from mitigation projects such as solar or hydropower conversion. While power generation from a solar panel can be measured by meters, climate adaptation benefits from protecting mangroves in coastal areas can only be derived through projecting avoided losses and damages. It’s harder to “see” the returns.
However, as demonstrated by COVID and its economic fallout, it is imperative that public and private institutions move forward today, to embrace and mainstream the full value of resilience in parallel to designing new business models, infrastructure, and systems capable of adapting to our changing climate.
Regulatory authorities must have the mandate and capacity to ensure that climate scenarios are considered and mitigation measures taken as they approve new investments and monitor regulated entities. Similarly, expanded financial incentives must be offered to encourage a global race to the top──at warp speed!──by governments, multilaterals, research institutions, and the private sector to develop and distribute effective climate adaptation tools and mitigation strategies. As part of this effort, COVID-related data collected and analyzed at various scales can help us define the business case for critically needed increases in climate resilience investments.
Rethink and revitalize multilateralism
As Kevin Rudd, former Prime Minister of Australia, said in late 2020, “We know that, for the multilateral system to respond well to crises like COVID, we need the following things in place: functioning institutions, and a level of political leadership to drive those institutions towards an outcome.”
Unfortunately, effective multilateral leadership simply didn’t materialize. While strides have been made in the spirit of multilateralism, such as the relatively quick sharing of the virus’s genome sequence and some bilateral “vaccine diplomacy,” few would argue against the need for vast improvement.
From global suspicions about the World Health Organization to the fragmented development and distribution of vaccines, the lack of trust and coordination among the world’s most powerful nations not only failed to thwart the virus’s spread, but exacerbated its impact upon the most vulnerable. For a sense of the disparity in resources, consider this finding from the U.N. Office for the Coordination of Humanitarian Affairs (UNOCHA), which determined that wealthy nations rallied to help their own peoples with a cumulative $11 trillion in stimulus packages──a figure amounting to 10 percent of the entire global GDP. By comparison, UNOCHA found that the cost of protecting the most vulnerable 10 percent of world populations from the worst primary and secondary impacts of COVID was estimated at $90 billion──or less than 1 percent of the combined value of OECD and G-20 stimulus packages.
Similar frustrations have hounded climate change policymakers, scientists, and advocates for decades, as multilateral institutions and processes fail to deliver anything resembling a race to the top for climate action. Why not? We know the incidence rate of large-scale climate disasters will increase exponentially as we cross the inevitable 1.5° warming threshold. If we are to adapt while also working to avoid the 2.0° threshold, then tremendous work remains.
As the 2021 U.N. Climate Change Conference looms, the stakes have never been greater. The world’s largest emitters and most powerful economies must lead by increasing their climate mitigation actions and ambitions while supporting nations with smaller economies to enhance their own. The re-entry of the U.S. to the Paris Agreement is a welcome sign, but greatly increased global commitment, collaboration, and action must be facilitated to help us achieve our climate goals.
Restructure COVID-related debt for climate action
I alluded at the outset to the lack of a silver lining, and I’m sticking to that. But one of the few encouraging virus-response developments worth highlighting is the provision of emergency financial support by multilaterals, the OECD, and G-20 countries to less-wealthy countries to tide them over during budget shortfalls created by pandemic disruptions.
For example, G-20 leaders agreed to a debt suspension initiative to free up domestic budgets for COVID responses for International Development Association loan-eligible countries. While these measures are welcome, suspension of debt doesn’t lead to reduction of indebtedness. Interest continues to accrue during suspension periods, and must be repaid. Per the Brookings Institution, suspensions would only cover a small portion ($5 billion) of the approximately $685 billion in loans that would need to be repaid by 2022.
One solution, modeled around debt-for-nature swaps—where a debtor country is allowed substantial discounts on the debt owed to its creditor in exchange for investments towards conservation and enacting environmental protection measures—should be considered. Such swaps can be used not only to provide financial relief as developing nations dig from under COVID shocks and stressors, but could be used to unlock and incentivize climate action by developing nations, and mobilize climate finance through multilateral institutions and/or wealthier nations. Debt-for-nature (or what I’ll call “debt-for-climate”) swaps would provide partial or full debt forgiveness to borrowing countries if they take concrete climate policy measures and reorient their national budgets (including a portion of their debt service) toward climate action. This would require two steps.
First, lending countries or multilateral institutions would transfer ownership of outstanding COVID-related debt to a special purpose facility or trust fund, possibly similar in structure to the World Bank’s existing Climate Support Facility. Let’s brand it a “Global COVID-to-Climate Facility” (GC2CF), whose main purpose would be facilitation of debt-for-climate swap transactions. Such a facility could be managed by the Green Climate Fund (GCF) in partnership with private fund managers. Transferred debt amounts would be credited against lending countries’ or multilateral institutions’ own GCF commitments, or other general climate aid commitments.
Second, the GC2CF would renegotiate terms with each borrowing country (including debt forgiveness, delayed repayment, interest reduction) in exchange for climate measures. Specific actions taken by GC2CF countries would be designed and implemented with the help of accredited climate institutions to ensure integrity and transparency.
Why could a coordinated GC2CF-style approach work better than each donor country or multilateral institution conducting its own debt-for-climate negotiations? Transaction costs, for starters. Such costs are typically huge barriers to debt swaps, so the establishment of a global facility could defray both upfront and transaction costs, building economies of scale. It would also increase efficiency by reducing the number of counterparts and centralizing renegotiation. This, in turn, would improve transparency and help eliminate non-climate influences. To be clear, donor contributions to this facility should be additional to any existing climate finance commitments to avoid dilution of climate ambition.
Among other positive impacts, if designed and implemented expediently, such a system could help developing nations stave off downward ratings of sovereign debt, resulting in reduced disruption to financial markets and improved global economic stability.
And if we can make that happen, I might even call it a silver lining.
Anmol Vanamali, Winrock International’s Director of Sustainable Finance, works across the organization to design and implement innovative financing solutions through partnerships with financial institutions and the private sector.
Sources: Brookings Institution, Earth.org, Green Climate Fund, Intergovernmental Panel on Climate Change, International Development Association, Statista, UNICEF, United Nations Economic Commission for Africa, United Nations Framework Convention on Climate Change, Winrock International, World Bank, World Economic Forum, World Health Organization, Worldometer.
Photo Credit: Movement of traffic and office goers walking through flooded streets after a torrential monsoon rain, due to the covid pandemic, people are wearing a face mask, courtesy of suprabhat, Shutterstock.com.