Climate change deepens poverty. It is widely accepted in the AFI network that climate change is a threat to development and that it has already imposed a high cost on low-income and vulnerable populations in developing and emerging economies.
However, there is ample research that shows financial inclusion is one of the best ways to build individual– and collective – resilience to the effects of climate change. Savings, credit, insurance, money transfers and new digital delivery channels all provide a financial buffer against climate-driven events like changing weather patterns, cyclones and storm surges, and aid in recovery and reconstruction. Meanwhile, supportive financing for green technologies, like solar-powered home energy systems and cleaner cookstoves, help to mitigate the effects of climate change and include those at the bottom of the economic pyramid in the transition to low-carbon economies.
Inclusive green finance is a new and evolving policy area in which AFI member institutions are beginning to devise and implement policies, regulations and national strategies to mitigate or build resilience to the sweeping environmental, health, social and economic effects of climate change. To understand the scale and scope of these efforts, AFI conducted a member survey in 2018 that asked why financial regulators were working on climate change, how they have been integrating climate change concerns in their national financial inclusion policies and other financial sector strategies, and how they are collaborating with national agencies or institutions.
More than 90 percent of AFI members interviewed for the survey indicated they are already taking or plan to take steps to address the impacts of climate change in their countries. The survey uncovered a growing trend in the AFI network to link financial inclusion and climate change at th national level, either in National Financial Inclusion Strategies (NFIS) or other financial sector strategies. More than 75 percent of the 19 countries included in the survey have explicitly linked climate change and financial inclusion in their national financial sector strategies, and many have already enacted a broad range of policies to turn their strategic objectives into reality.
In line with the Sharm El Sheikh Accord on Financial Inclusion, Climate Change and Green Finance – and more recently the Nadi Action Agenda – these policies include individuals and MSMEs in climate mitigation and resilience efforts and have one thing in common: they either catalyze financial services for climate action from the private sector or use financial infrastructure to deploy them.
The policies fall within four key pillars of inclusive green finance policy and can be understood as the 4Ps of inclusive green finance: Provision, Promotion, Protection and Prevention. This framework provides financial policymakers and regulators with a typology of available policy options.