How financial sector strategies are addressing inclusive green finance

By Klaus Prochaska, Inclusive Green Finance, AFI

Many central bank members of the Alliance Financial Inclusion (AFI) are increasingly considering inclusive green finance at the national strategic level, reflecting a recognition that addressing climate change falls within their mandates to ensure financial sector stability and promote economic development.

In AFI’s latest report, “Inclusive Green Finance: A Survey of the Policy Landscape”, more than 90 percent of respondents[1] said that they were either taking or planning to take steps to address climate change. In extreme cases, some said that it could undermine financial sector stability and regulators would need to step in where disruptions could spread.

Climate change deepens poverty that threatens development and imposes high costs on low-income and vulnerable populations in developing and emerging economies. The report examines why financial regulators are working on climate change and how they have been integrating climate change concerns in their national financial inclusion policies and other financial sector strategies.

While inclusive green finance is a new and evolving policy area, financial regulators in the AFI network have begun responding – often with urgency – by developing financial inclusion strategies, policies and regulations that help mitigate and build resilience to the impacts of climate change in their respective countries.

Savings, credit, insurance, money transfers and new digital delivery channels can provide buffers against climate-driven events. Moreover, supportive financing for green technologies, like solar-powered utilities, can help mitigate the effects of climate change – including for those at the bottom of the economic pyramid – in the transition to low-carbon economies.

More than 75 percent of those surveyed make a connection – either directly or indirectly – between financial inclusion and climate change in national financial sector strategies. Of this total, the central banks of Fiji, Rwanda and Jordan explicitly outline this relationship in their National Financial Inclusion Strategies (NFIS). Following suit, the Central Bank of Egypt is preparing an NFIS and considering making climate change a pillar of its framework.

While some institutions are making direct links between climate change and financial inclusion in their national strategies, others do so indirectly or implicitly. For example, one goal of Vanuatu’s NFIS is to support micro, small and medium enterprises in building resilience to the impacts of climate change. In Morocco’s NFIS, state actors address climate change implicitly, primarily through inclusive insurance, such as microinsurance and agricultural insurance for vulnerable populations. Finally, Armenia included agricultural insurance in its draft NFIS in its address of losses from climate-induced weather events. Again, the link between financial inclusion and climate change is clear to stakeholders without being mentioned explicitly.

AFI members are also linking financial inclusion and climate change in other national financial sector strategies. Bangladesh Bank was the first financial sector regulator in the AFI network to make a direct connection between financial inclusion and climate change in its First Strategic Plan (2010–2014). This link has strengthened over time, as evidenced by its Second Strategic Plan (2015–2019). Meanwhile, the Reserve Bank of Fiji is currently drafting a Sustainable Finance Roadmap that will cover all players in the financial sector. A key objective of the roadmap will be to align Fiji’s national strategies for financial inclusion, climate change, environmental conservation, social inclusion and economic development.

Making the link between financial inclusion and climate change at the national strategic level is important but not the end of the story. Next week’s blog will dive into detail on the range of policies that AFI member institutions have enacted to translate these strategies into concrete action. Read the AFI Special Report on “Inclusive Green Finance: A Survey of the Policy Landscape“.

The AFI Inclusive Green Finance (IGF) workstream is supported by the International Climate Initiative (IKI) & German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMU)