<p>Understanding the role of financial services in mitigating the effects of climate change.</p>


Financial Inclusion Week (FIW) 2022 took place in October during an important time for climate discussions. In 2022, there were deadly floods in Pakistan and Nigeria, tropical storms in Central America, and an ongoing drought in the Horn of Africa – to name only a handful of devastating climate-related disasters which have created a backdrop of urgency to address climate change. In early November, COP27 focused the world’s attention on the urgent need for climate action. In December, CFI hosted a <a href="https://globalrff.org/december-2022" target="_blank" rel="noopener noreferrer">Responsible Finance Forum (RFF) convening</a> focused on the intersection of climate risks and consumer protection. And in the last quarter of 2022, CFI was also in the process of finalizing our multi-year strategy for climate work.

While the urgency of climate change is not new, what has changed in the past year is our understanding of what financial services can – and can’t – do to help low-income and vulnerable people respond to various climatic risks.

The inclusive finance sector has stepped up to this challenge and 2022 marked an important year. The European Microfinance Platform’s Green Inclusive and Climate Smart Finance Action Group (GICSF AG) published its updated <a href="https://www.e-mfp.eu/sites/default/files/action-groups/Green_Index_3.0_conceptual_framework.pdf" target="_blank" rel="noopener noreferrer">Green Index</a>. The <a href="https://www.cifaralliance.org/" target="_blank" rel="noopener noreferrer">CIFAR Alliance</a> has continued to build an industry agenda for the role of digital finance in climate resilience (including a session at FIW on <a href="https://www.youtube.com/watch?v=IyUlwUPPY40." target="_blank" rel="noopener noreferrer">democratizing access to carbon markets</a>). CGAP integrated climate into their <a href="https://www.cgap.org/blog/era-urgent-climate-risk-does-financial-inclusion-matter" target="_blank" rel="noopener noreferrer">new strategy</a> and they ended the year by publishing a <a href="https://www.findevgateway.org/slide-deck/2022/12/cgap-strengthening-climate-resilience-adaptation-through-financial-services" target="_blank" rel="noopener noreferrer">new taxonomy</a> of climate-responsive and climate-supportive financial products. At COP27, AFI published its <a href="https://www.afi-global.org/publications/roadmap-for-inclusive-green-finance-implementation/" target="_blank" rel="noopener noreferrer">Inclusive Green Finance Roadmap</a>, and inclusive green finance is a key priority for UNSGSA Queen Máxima as well as many other development actors.

The importance and urgency of climate change was clear to attendees joining the many FIW 2022 sessions that covered climate and green issues. In <a href="https://www.youtube.com/watch?v=2qENaGgm_4k&amp;t=548s" target="_blank" rel="noopener noreferrer">CFI’s global plenary</a>, we brought together a diverse group of stakeholders to discuss how the impacts of climate change are complex and highly variable. For example, fishing populations in the Philippines, poor urban women in Gujarat, and refugees in Uganda are all negatively impacted by climate change, and panelists described how financial services need to be able to support them all.
<blockquote>Fishing populations in the Philippines, poor urban women in Gujarat, and refugees in Uganda are all negatively impacted by climate change, and FIW 2022 panelists described how financial services need to be able to support them all.</blockquote>
Among the FIW sessions related to climate, there was general agreement that the current state of financial systems is not going to be enough to meet the needs of climate-vulnerable populations, and that we need more innovation and better systems for responsible investment. Catalyst Fund chaired a fascinating panel on the <a href="https://www.youtube.com/watch?v=3XFplsvWs1I" target="_blank" rel="noopener noreferrer">business case for investing in climate resilience ventures</a>. One of my favorite sessions of the week was chaired by David Porteous, exploring whether <a href="https://www.youtube.com/watch?v=D2wQFh8SCZ4" target="_blank" rel="noopener noreferrer">ESG frameworks were for purpose</a> from the perspective of financial institutions in developing nations. And looking ahead to 2023, the organizers of <a href="https://www.ada-microfinance.org/en/sam-2023/home" target="_blank" rel="noopener noreferrer">SAM 2023</a> explored <a href="https://www.youtube.com/watch?v=1PvZtMqYlnI" target="_blank" rel="noopener noreferrer">the links between inclusive finance, agriculture, and food security in Africa</a>.
<blockquote class="pullquote--right">We are hoping that a lot of the promise of 2022 turns into action and investment where it is needed most.</blockquote>
So, what about 2023? At CFI, we have already started on our climate work and recently released our <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-and-vulnerable-people-respond-to-climate-change">latest research on green inclusive finance</a> and the ways it can impact low-income and vulnerable populations. We aim to build on this and go deeper into the role of inclusive financial services in responding to specific climate risks, like extreme heat or flooding. We are hoping that a lot of the promise of 2022, such as the commitment to funding for loss and damage at COP27, turns into action and that we can turn some of our ideas and concepts into real world action and investment where it is needed most.

FIW Recap: The Pressing Agenda of Climate Change and Financial Services

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As climate change-induced events increase in frequency, unpredictability, and severity, the people most impacted by such events are those least responsible for historic carbon emissions. The poorest 50 percent of the world’s population produces half the emissions of the richest 1 percent. Inclusive financial services can have a significant impact on how vulnerable populations respond to climate risks and challenges, but the inclusive finance community lacks an overarching framework for understanding and explaining the critical ways in which financial services can support improved outcomes for low-income and vulnerable people in the context of climate threats.

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The Center for Financial Inclusion (CFI), in consultation with industry stakeholders, has created a holistic framework to help fill that gap. This report considers evidence on how inclusive financial services can help vulnerable populations respond to climate change and uses the framework to understand the various impact pathways through which financial services can help: mitigation, resilience, adaptation, and transition.

Green Inclusive Finance: A Framework for Understanding How Financial Services Can Help Low-Income and Vulnerable People Respond to Climate Change

Understanding the role of financial services in mitigating the effects of climate change.

Financial Services to Mitigate and Adapt to Climate Risks

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FIW Recap: The Pressing Agenda of Climate Change and Financial Services

Green Inclusive Finance: A Framework for Understanding How Financial Services Can Help Low-Income and Vulnerable People Respond to Climate Change