Transform finance to make human experience climate-safe

Briefing note for negotiators, observers, and relevant institutional arrangements at SB58 and on the way to COP28

Escalating Risk

Finance is a way of mapping today’s wealth to future outcomes. Finance shapes future conditions. We can no longer claim that we do not know what it means when finance supports pollution that heats the atmosphere and ocean. We can no longer accept the argument that business-as-usual is the affordable, proven, efficient way of shaping the future. Costs related to ongoing, and worsening, climate disruption are piling up fast.

  • Not only low-income vulnerable countries, but also high-income industrialized nations, are already dealing now with unprecedented disaster response costs.
  • Dozens of countries are already facing serious debt distress, and climate-sensitive debt-relief is now in constant demand.
  • Insurance companies have started to refuse to insure homes in disaster-prone areas of the United States.
  • In 2020, a special report from the United States’ Commodity Futures Trading Commission found that unchecked climate change would undermine the financial system and put the entire economy at risk.
  • In 2021, the Financial Stability Oversight Council—the umbrella body for all U.S. financial regulators—found that unchecked climate change could collapse the financial system, removing its support from the wider economy.
  • Deloitte has projected global costs of climate inaction to reach $178 trillion by the year 2070.

The financial reckoning with global heating pollution is already here. The system we have is not yet fully equipped to meet this challenge. New instruments and institutions need to be developed and deployed quickly. We need new metrics that can help investors and institutions better select between options that might improve or degrade overall future security and wellbeing.

The 6th Assessment Report from the Intergovernmental Panel on Climate Change—the global consensus body on climate science—found that successful climate-resilient development may soon be out of reach. The perils and costs of climate disruption are higher than projected, accumulating more quickly, and creating serious vulnerability in all regions, in all sectors. The risks inherent in a world of 2ºC or more of global heating are too high to be acceptable. 

Every person, every nation, every industry, needs financial actors to have access to robust, detailed reporting on climate crisis response, and whether we are meeting the moment or not. The Global Stocktake needs to generate clear and actionable insights and practical, widely applicable metrics that help to better align financial decision-making with livable future outcomes. The Global Stocktake is, in part, a financial brief.

Adaptation Ambition

Since the Paris Agreement was agreed in December 2015, we have not seen high-ambition consensus around the Global Goal on Adaptation. Article 7 of the Paris Agreement describes the Global Goal on Adaptation as: 

“enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change… contributing to sustainable development and ensuring an adequate adaptation response in the context of the temperature goal referred to in Article 2.” 

It also recognizes that: 

“adaptation is a global challenge faced by all with local, subnational, national, regional and international dimensions, and that it is a key component of and makes a contribution to the long-term global response to climate change to protect people, livelihoods and ecosystems…” 

It recognizes the need to account for vulnerability and to align national policy planning and everyday economic activity with maximum global temperature rise of 1.5ºC, as found to be necessary by the scientific consensus.

Article 7 does not, however, state a single, overarching Global Goal on Adaptation. It does not give us a clear, measurable target like 1.5ºC. There is, at present, extensive disagreement about whether the ongoing process should establish such a singular shared target, as an overarching Global Goal on Adaptation, or whether the parameters laid out in Article 7 are better attuned to the complexity of the challenge. 

In the first round of diplomacy workshops co-convened by CCI and The Fletcher School at Tufts University, ahead of the SB56 round of UNFCCC negotiations last year, it was suggested that Adaptation could be a motivational framing goal to drive high ambition across all areas of action, if the goal is right. Such a goal would need to be something like “zero climate-related harm to people or nature”.

What does this have to do with finance?

  • To achieve a goal of such high ambition, it would obviously be necessary to do better even than 1.5ºC, as we are already experiencing extensive harm and cost now. 
  • Finance for Mitigation would have to increase even more to meet this goal than if we simply aim for “net zero by 2050” or “net zero in line with maximum global heating of 1.5ºC”.
  • Finance for Adaptation and Resilience Measures (FARM) would also need to expand rapidly, to get ahead of the curve and start reducing vulnerability for everyone as soon as possible.
  • Risk, harm, and cost projected through human industrial systems—as we have seen can happen when COVID disrupted supply chains and Russia’s invasion of Ukraine disrupted food supplies—needs to be materially reduced.
  • Health-building sustainable food systems finance, aligned with climate goals, needs a major boost across public, private, and multilateral funding sources, to meet this goal.
  • A less ambitious goal will almost certainly impose on everyone greater disruption, and more extensive cascading risks, impacts, and costs.

The fiscal stability of nations is at stake. The integrity and viability of the international financial system is at risk. Our ability to reliably plan for and live into a future of sustainable shared prosperity may hinge not on whether financial actors are agile enough, but on whether they are tasked with responding to this far too under-attended global challenge.

The Right to a Livable World

Inaction on climate will have grievous costs, for people, communities, nations, and industries. A core principle of international law is that human rights are transcendent and unconditional. Every person has a right to exist in a world free from fear, chaos, insecurity, and deprivation.

To live free from fear, chaos, and preventable harm, people, communities, and countries require financing that serves diverse, cross-cutting needs. Because the climate system connects all areas of human activity and all regions to one another, it is important that finance be accountable to the human rights, dignity, aspirations, and right to participate of stakeholders and communities.

The Transitional Committee on Loss and Damage will play a critical role in determining whether hundreds of millions of people have access to safety and opportunity, in the face of worsening slow-moving and shock climate impacts. The TC will support design of modalities and operations of a new Loss and Damage Fund, and will seek to identify ways to enhance funding for addressing, minimizing, and averting climate-related loss and damage. 

In November 2022, we laid out a participatory ‘Capital to Communities’ standard for mobilizing finance toward climate and sustainability goals. People and communities have invaluable information to contribute to national, industrial, entrepreneurial, and multilateral efforts aimed at achieving integral human development. The Principles for Reinventing Prosperity, detailed through stakeholder consultations during the first year of the COVID pandemic, aim to guide policies that will realign finance for improved outcomes for people and nature: 

  1. We are all future-builders.
  2. Health is a fabric of wellbeing and value.
  3. Resilience is a baseline imperative.
  4. Leave no one behind.
  5. Design to transcend crisis.
  6. Maximize integrative value creation.

Increasingly, the everyday right to health is under threat from extreme climate-related impacts. Amnesty International has detailed the threat to human health and wellbeing from repeated extreme heatwaves in Pakistan, driven by global climate disruption. Even before summer has arrived, a rash of wildfires across Canada has tens of millions of people across North America unable to leave their homes without endangering their health. Integral human development is possible only if we commit, in principle and in practice, to use finance with an integral and holistic understanding of where value really is rooted.

To achieve maximum structural and everyday benefit to people, to the climate, and to natural systems that underpin all economic value, the SB58 and COP28 will need to: 

  • Support the expansion of overall climate finance funding;
  • Outline a New Collective Quantified Goal that raises ambition for all;
  • Leverage NMAs to create new funding opportunities for Mitigation, Adaptation, Resilience, and Loss and Damage;
  • Align with sustainable development and poverty eradication, in principle and in practice;
  • Mobilize new data systems and services to provide best-case monitoring and progress tracking;
  • Connect to international finance reform and climate-sensitive debt relief efforts;
  • Recognize the value of delivering capital to communities, to consolidate gains for successful climate-resilient development.

Summit to Seabed

We need to redefine ‘blue finance’. June 8 is World Ocean Day. Week 2 of the SB58 will feature the next Ocean and Climate Dialogue. In March, the community of nations agreed a new treaty to protect Biodiversity Beyond National Jurisdiction (BBNJ). Without all of the living ocean ecosystems we have previously shared the planet with, full of the carbon-based biomass they previously contained, we will almost certainly fail to limit global heating to 1.5ºC.

Blue finance cannot be limited to profitable commercial activities that take place in and around the ocean. Blue finance must go to work transforming practices upstream, so every sector of our economy is ocean-safe, climate-smart, and nature-positive. Blue finance could be the key to making sure the chain of cascade effects from summit to seabed, running through our everyday economy and projected through the climate system, works in a resilient and sustainable way.

Cascade effects are defining features of the ecological reality within which all human experience is embedded. Whether cascading and compounding interactions generate helpful or harmful effects has come to be a critical question for financial actors, due to the excessive disruption of the climate and other natural systems by industrial activity.

Science is providing clear evidence that we need to not only restore and support the health of ecosystems on land, but also beyond the shore, throughout the ocean. All ecosystems are in some way integral to the biosphere, and serve as anchors for the climate system. By eliminating harm to ecosystems and to the ocean, we can also foster decent work, sustainable communities, reduced inequalities, sustainable consumption, and human health. Ocean-smart climate finance fosters social good and advances human wellbeing across the Sustainable Development Goals.

And, this should not be news. The Paris Agreement and the other three major global agreements of 2015 were crafted to support this multifaceted approach to integral human development. Biodiversity and nature, along with the cryosphere,  are part of the climate system; the Convention mandate to prevent dangerous anthropogenic interference with the climate system requires us to be responsible stewards of them as well. 

Financial projections about commodities, and the risk of a financial collapse from climate disruption link to food security as well. If we do not care for nature, biodiversity, and the ocean, or if we lose the mountain glaciers that provide most people and most agricultural lands with life-giving water, there will not be an investable economy to speak of, much less defend. Getting food financing right, accounting for impacts from summit to seabed, must be a central piece of the future finance puzzle. 

Good Food Finance

Beyond financing sustainable agriculture, food-related finance needs to support ecosystem restoration, regenerative production, nutrition security, improved human health outcomes, and affordability of healthy, sustainably produced foods. The Good Food Finance Network is working with public, private, multilateral, and philanthropic expert and financial actors, to improve understanding of the parameters of ‘good food finance’ and to develop the instruments and institutions needed to deliver it as widely as possible. 

Cooperative Investment Management

A critical piece of that work, in 2023, is the ongoing process to develop and establish a first-of-its-kind Co-Investment Platform for Food Systems Transformation. This global cooperative facility for delivery of good food finance aims to be a meta-innovation—not only a new food financing modality, but carefully designed to support transformational change across relevant sectors. The Co-Investment Platform will: 

  • Provide funding to support needed transformational action when other resources are not available;
  • Identify and develop instruments and strategies to deliver good food finance;
  • Facilitate investment partnerships, to make it more likely catalytic finance will result in desired co-benefits and additional investment;
  • Develop and sustain innovative mutual accountability systems, using integrated data, multidimensional metrics, and inclusive governance to transparently measure impact and build trust.

The core logic of the CIP is to support system-level transformation at global and local scales, considering the needs and recognizing the capabilities of all actors. Many other initiatives do part of the work of systems transformation; the CIP will be designed to support and extend their reach, and to provide means for ensuring progress, where existing mechanisms could not, on their own, fill that need. 

Adaptive, Effective Governance

The CIP also aims to develop critical governance innovations necessary to reveal hidden value, reduce rewards for imposing harm on stakeholders, and transparently assess performance against diverse metrics and standards. Investors and institutions need to be able to meet their existing governance commitments in any cooperative arrangement, and yet the scale of the challenge of transforming food systems and finance is such that bold innovations need cooperative support. 

When each partner to a cooperative funding arrangement brings different goals, metrics, and governance, to the process, unified standards take time to develop and often err on the side of being simpler and more streamlined. Climate-aligned food systems transformation needs complex experimentation and new mechanisms designed to evolve as practices, markets, financial activity, and standards are tested and become more reliable. Some argue that systems transformation in the midst of worsening climate breakdown means tested and proven approaches must always retain their ability to reshape business models. 

Integrated Data Systems

To get beyond this practice of narrowing standards to achieve consensus, it is necessary to set high standards, rooted in clear, practical, and mutually beneficial principles, and aligned with science and evidence. Setting standards helps, but we then need to acquire relevant data. In some cases, the standards we need will require multiple different kinds of data, operating across different spatial and time scales, and testing for different kinds of risk and resilience.

Decision-makers that want to invest in health-building sustainable food systems tell us they need reliable metrics that can tell multidimensional stories. Those metrics need to have grounding in diverse everyday experiences, and reveal details about overall supply chains. They need to have local and global elements to them, and they need to be comprehensible, actionable, and interoperable. 

The GFFN Co-Investment Platform development process is working to establish innovative mutual accountability standards and practices, on the basis of the Integrated Data Systems Initiative. Key goals of this process will be to identify and share standards, begin initial test integrations of disparate data systems, and then start to deliver services, where decision-makers have access to new performance metrics that allow them to see value emerging in multiple areas at once.

Food finance is not only about food. Ocean finance is not only about the ocean. Integrated data systems can help to deliver financial resources where they can do the most good, so this new integrated data standard should be tested globally, nationally, and in local communities. A compelling example of near-term real-world benefit would be for rural communities where applied climate and nature data, linked to impact-oriented financial vehicles, can increase pay to producers and diversify local economies, while adding new investment flows.

Shifting Incentives 

We need to materially reduce global heating emissions in all sectors. We need finance to work in an integrated and holistic way, and we need data systems that work together to make that possible. This means we will need to shift and restructure the incentives that create market conditions in which financial decisions are made. 

Agricultural subsidies provide support for livelihoods, consistent production, and affordable pricing, to minimize risks of disruptive food price spikes. Some also support entities whose business models limit farmers’ income and in many cases keep farmers from innovating. The structural incentives that condition everyday economic behavior to pollute, to denature, to drive species to extinction, include many more kinds of leverage than just subsidies.

Dominant technologies—including seeds and fertilizers—condition what is possible for the everyday economy. Who has access to those technologies? Who has leverage? What kind and how much? Whose wealth backs the practices and institutions that dominate the everyday marketplace for exchange of goods, services, and ideas? How do international trade policies support or disrupt the status quo in moments of critical innovation?

Non-market approaches under Article 6.8 of the Paris Agreement (NMAs) are effectively better, healthier trade and investment deals that provide enhanced cascade effects, an expanded pool of overall value, including non-financial value, and better opportunity for mutual gains. To parse the language of the international climate policy negotiations:

  • Market approaches are modes of international cooperation that involve ‘emissions trading’ systems or markets;
  • Non-market approaches are any and all modes of international cooperation that do not involve emissions trading—in other words: everything nations do together to shape the world and one another’s fate.

As we outlined in our blue note on non-market approaches: 

Non-market approaches to international cooperative climate action present an unprecedented opportunity to raise ambition and support the institutional transformation required to achieve successful climate-resilient development for all. The cost-savings to nations inherent in meeting that highest ambition standard—which is also the Convention mandate and a guiding legal standard for all nations, under the Paris Agreement—far outweigh the investments needed to mobilize these powerful cooperative arrangements.

Emerging prototypes of effective, multidimensional non-market approaches to international cooperation hold promise to transform entire sectors along with everyday experience of people in community. If done right, they will significantly upgrade trade relations and outcomes and the human scale. Shifting incentives in policy, market dynamics, business practices, international finance, and banking, is more possible right now than it has ever been. 

The UNFCCC process should recognize this moment and invite Parties to leverage non-market cooperation and climate-smart financial innovation to upgrade Nationally Determined Contributions and National Adaptation Plans, align major industries with climate and sustainable development goals, and support mutual gains as a shared global standard. Improved lives and livelihoods should be a natural consequence of climate-aligned finance. Cooperation is the key.

Key Messages

  • Financial risk linked to climate disruption is escalating quickly; the fiscal stability of nations may be at risk, if the needed realignment of finance does not move quickly enough.
  • All areas of climate-related finance can benefit from shifting incentives, including through effective non-market multilateral climate cooperation. 
  • Multidimensional data support to reveal hidden value and enhance transparency and accountability will be critical for mainstreaming climate-smart finance.
  • Engagement with and delivery of value to stakeholders and communities adds leverage and efficiency to the design and deployment of climate finance.

Resources

  1. Capital to Communities – The 2022 Reinventing Prosperity Report, includes information on engaging stakeholders in design and delivery of climate-related financial resources.
  2. Co-Investment Platform for Food Systems Transformation – overview timeline of co-creation process and operational aims and structures.
  3. Integrated Data Systems Initiative – 5-year AIM for Climate innovation sprint, supported by the Good Food Finance Network and linked to the emerging Co-Investment Platform.
  4. Invest at the Source – report on investing to maximize integrated upstream-downstream co-benefits, from summit to seabed.
  5. Resilience Value will change how money works – Resilience Intel brief outlining the co-benefits of a multidimensional evolving metric that values cascade effects.
  6. SBI 58 provisional agenda item 10 may provide insights into possible emerging modalities for international non-market cooperative approaches to agriculture and food security.
  7. SBSTA 58 provisional agenda item 15 traces Article 6.8 meetings during the SB58.
  8. Untapped Opportunities: Climate financing for food systems transformation – new report from the Global Alliance for the Future of Food.