The climate crisis: Transitions in development finance

by Chris Neglia

While the international community is concerned about a rise in global mean temperature of 2°C, climate modelling indicates that we are more likely to reach 4°C by the turn of this century, says
Warren Evans, a senior advisor with the Sustainable Development Network of the World Bank.

Evans was speaking at IFAD’s Rome headquarters on the medium to long-term outlook for climate finance for development. Sourcing the World Bank’s recent study Turn Down the Heat: Why a 4° Celsius World Must Be Avoided Evans noted that the impacts of rising sea levels, ocean acidification, heat waves and extreme temperatures, droughts and floods are already evident worldwide.

Evans has led a prolific career in the development field, living over 25 years in South East Asia, and the last 10 in Washington D.C. with the Bank.

Addressing IFAD directors, staff members and country representatives, he explained his role now is to leave behind some of the tacit knowledge he accumulated and to share his perspective on the lending of development finance institutions amid rapidly changing demographic, economic and climate trends.

Much of Evans’ prognosis regarding the challenge of climate change to human systems was palpably shocking. For instance, there is fairly high confidence in attribution to climate change of the Russian heat wave in 2010, which resulted in an estimated death toll of 55,000 people. Drought conditions caused grain harvest losses of 25 per cent (estimated US$15 billion), leading the Russian government to impose a total ban on wheat exports. Evans also cautioned that humans had crossed the threshold of 400 parts per million (ppm) of CO2 in the atmosphere.

“The news is all bad for coral reefs, and ocean ecosystems in general,” he said. If atmospheric CO2 reaches 450 ppm, coral reef growth around the world is expected to slow down considerably and at 550 ppm reefs are expected to start to dissolve. This represents a severe threat to the economic viability of Small Island Caribbean States (SIDS) and would be destructive to marine biodiversity.

The consequences that can be inferred from these projections underscore the urgency of leveraging climate finance for mitigation and adaptation actions, which can still limit the rate of warming to 2°C above preindustrial levels. This is where Evans sees the continued relevance of the World Bank, and other international funds such as IFAD, that are integrating climate objectives into development projects and programmes.

But how can we meet the financing challenge for global public goods, and what are the sources that climate finance is expected to flow from in the future? At present, most climate finance is allocated from public money. However, Evans cited the need to engage the private sector to a much greater extent than has been achieved hitherto. Commercial financial institutions, corporate actors, and institutional investors have the potential to mobilize the resources necessary to take serious climate action. Getting buy in from insurance companies, pension funds and mutual funds could be the tipping point for influencing more low carbon green investment.

Although Evans pointed out that these sources are very risk averse, their attitudes can change as development finance institutions start to take steps to manage risk, such as through portfolio diversification.
Important for IFAD, it was recognized in the discussion that sustainable agriculture is unique in that it builds small farmers’ climate resilience, as well as sequesters carbon in the soil. “Agriculture is the best opportunity to increase food security and reduce emissions,” said Evans. For this reason, climate finance should pay greater attention to increasing small farmers’ capacity to move to sustainable production systems.

In terms of the types of initiatives that climate finance will look to invest in, he mentioned the 6th replenishment of the Global Environment Facility (GEF) and the capitalization of the Green Climate Fund (GCF) as processes to watch for an indication of mitigation and adaptation activities that hold the greatest prospects for scaling up.

Evans provided many insights into how the World Bank and others can create incentives for the private sector provision of global public goods. Utilizing human ingenuity and innovative financing mechanisms, we have the solutions to avoid a 4°C warmer world that none of us can afford.