Towards Climate Justice: Developing Financial Mechanisms for Resilience
At the United Nations Climate Conference (COP27), Dr Haddad, director of the Institute for Legal Transformation, moderated the discussion on Developing transformative financial mechanisms hosted by the UNFCCC Resilience Frontiers project.
Resilience Frontiers is an adaptation program that Dr. Haddad advises in law and governance. As legal futurist, she consults the United Nations Framework Convention on Climate Change (UNFCCC) on legal adaptations to the climate crisis and conducts research on the law of the future. One of Resilience Frontiers´ pathways towards a resilient future is about evolving financial markets to support human and planetary well-being.
COP27: Establishing a Climate Loss and Damage Fund
COP 27 resulted in the agreement on a Loss and Damage Fund, which aims to financially assist nations most vulnerable and impacted by climate change. Representatives from 24 countries will work together over the next year to decide what form the fund should take, which countries should contribute, and where and how the money should be distributed. The term “loss and damage” refers to the negative consequences that arise from the unavoidable risks of climate change.
“Since 1981, the number of natural disasters has tripled to 429 in 2021, costing on average $200 billion in the last decade. The most common natural disasters are floods and storms. The frequency of both have been increasing”
Thus, the purpose of loss and damage fund is to financially compensate for existing climate injustice by contributing to adaptation and repairment costs in the future. This is to be implemented by providing financial support from states that have systematically contributed the most to the acceleration of climate change, to nations that have contributed less to climate change but are at the same time primarily experiencing its effects.
What is Climate Injustice?
Climate injustice refers to the unequal distribution of the impacts and burdens of climate change, particularly among marginalized communities and those who have been historically oppressed.
Making climate justice tangible
To achieve Climate justice the international community needs to recognize and address the disproportionate impacts of climate change contributed to by different countries. According to Oxfam, the richest 10% of the world population are responsible for 49% of total lifestyle emissions while the poorest 50% are responsible for only 10% (2015).
First, it is crucial to recognize that the actions and consumption patterns of industrialized countries have environmental and social impacts on the entire planet. Moreover, it is not fair or effective for those countries to continue with their high levels of consumption and disregard for an intact nature while expecting other countries to reduce their consumption first. This approach, which is characterized by blame and division, will not lead to meaningful or sustainable solutions. A more constructive approach would involve industrialized countries taking responsibility for their own consumption and working collaboratively with other nations to address the systemic issues contributing to climate change and shape broader visions for humankind in a spirit of global community.
Therefore, when turning the vision of Climate Justice into reality, the countries that have become rich through unrestricted carbon emissions carry the greatest responsibility to not only stop causing planetary imbalance but also to learn from the indigenous peoples who protect 80% of the remaining global biodiversity while only remaining less than 5% of the world population and are highly exposed to the effects of climate change (cf. Raygorodetsky national geographics 2018).
ESG: Financial approaches to proactive Climate Adaptation
Transformative financial mechanisms are crucial for climate adaptation as funding is needed to cope with loss and damage caused by climate change in vulnerable areas. Thus, we welcome the ambition of the fund for loss and damage as an essential step towards shaping and achieving the global vision of climate justice.
However, the sole coverage of loss and damage costs is insufficient for avoiding scenarios in which those damages occur. A major challenge in sufficient climate adaptation remains in translating visions like climate justice and resilience into legal frameworks and economic practices to proactively prevent climate damages, and not only cover its costs reactively.
Thus, further initiatives for creating sustainable economies that do not harm the environment that human health depends on are needed. One approach to incorporate sustainable values in economy are environmental, social, and governance (ESG) practices ESG. ESG investment might increase in value as it may enable states and corporations to become climate-positive. According to the UAE Megatrend report 2022, “ESG-linked debt issuance, to finance ‘green projects’, more than tripled in 2022 to $190 billion and sustainability-related equity fund flows also rose to $25 billion” (UAE Megatrend report 2022).
Today, neither the majority of ESG measures nor other approaches like carbon offsets are sufficient to adequately combat climate change. Nevertheless, appropriate measures and policies need to be further researched and developed. In this process, state regulation, as well as subsidies, play a critical role in shifting economies toward sustainable change. The government of the UAE, for instance, has implemented several regulations to promote environmental, social, and governance (ESG) practices, such as requiring companies to report on their ESG activities, appointing more women to company boards, and raising public awareness through campaigns. They have also appointed a Climate Change Special Envoy and released a comprehensive Sustainable Finance Strategy through the Ministry of Climate and Environment. In addition, the UAE has committed to investing $163 billion in clean energy projects as part of their Net Zero 2050 Strategic Initiative (cf. Dubai Future Foundation 2023).
In order to effectively address climate injustice, it is vital to first gain a comprehensive understanding of the underlying social and political factors that contribute to it. By recognizing and acknowledging these challenges, we can work towards eliminating climate injustice and creating a more sustainable and equitable future. Financial and economic initiatives like loss and damage funds and ESG policies may play a crucial role in achieving climate justice. However, the historical and social aspects of Climate Injustice must be reflected when creating these frameworks. Depsite all financial ambitions for covering the loss and damages caused by climate change, the main objective must thus remain in not even causing those. Loss and damage funds will be needed, however, the loss and damages ahead will concern the survival of human beings and thus depend on international climate actions for safeguarding current and future generations.