People first: how regulators are addressing the climate emergency

By Johanna Nyman, Head, Inclusive Green Finance, AF

The global climate negotiations, or COP25, in Madrid are drawing to a close. Thousands of people from across the world and different backgrounds have come together to debate the most urgent challenge of our time. On Wednesday, 12 December, the High-Level Event on Climate Emergency witnessed a common call for action that shifted ambitions away from negotiations and into engagement and implementation.The global climate negotiations, or COP25, in Madrid are drawing to a close. Thousands of people from across the world and different backgrounds have come together to debate the most urgent challenge of our time. On Wednesday, 12 December, the High-Level Event on Climate Emergency witnessed a common call for action that shifted ambitions away from negotiations and into engagement and implementation.

One of the many topics at COP25 has been the mainstreaming of adaptation to climate change. Consensus is that silos need to be broken and all parts of government need to respond to the climate emergency. All policymakers and relevant institutions must be involved in addressing the impacts and trying to mitigate the impacts of climate change.

While financial sector regulation has only recently emerged as a potential response to climate change in these discussions, the significance of its impact is clear.

Across the AFI network, there is a growing commitment to developing financial regulation that ensures the most vulnerable can adapt to climate change. Inclusive Green Finance (IGF) is a crucial tool in the larger climate policy toolbox and an important instrument that builds resilience among those most vulnerable to climate change. IGF applies a rights-based approach and aims at empowering individuals and micro, small and medium enterprises, making sure that accessing financial services can guarantee small-scale mitigation, but also help individuals adjust to and even prosper in this rapidly changing climate.

The resilience of the most vulnerable to climate change leads to and increases long-term financial and social stability, even amid ever-changing societal factors. By promoting resilience among the most vulnerable, this also promotes stability at regional and national levels.

IGF contributes to the goals and targets set out in the Paris Agreement, specifically Articles 2.1c, 7 and 8. Article 2.1c aims to make finance flows consistent with a pathway toward low greenhouse gas emissions and climate-resilient development. Meanwhile, Articles 7 and 8 outline agreed efforts to enhance adaptive capacity, strengthen resilience and reduce vulnerability to climate change, as well as avert, minimize and address loss and damage associated with its adverse effects.

AFI and financial regulators from the network took part in Pre COP25 in Costa Rica earlier this year to share insight into specific activities they have been undertaking in response to the climate emergency and how financial regulations are being designed to target the effects of climate change.

IGF is not the only solution, but one of many that needs to be explored, developed and implemented. Financial regulators have an important role to play in combating climate change, not only in relation to large-scale mitigation and with regulating capital markets, but also enabling mitigation and building resilience among those at the base of the economic pyramid. Inclusive Green Finance is contributing to long-term stability while using the tools of financial inclusion to empower people affected by climate change.

AFI’s IGF workstream is part of the International Climate Initiative (IKI), which is supported by the German Federal Ministry of the Environment, Nature Conservation and Nuclear Safety (BMU) and based on a decision adopted by the German Bundestag.