The Global South faces severe climate risks that can seriously impact the Global North’s economic interests. Key reasons for funding climate adaptation include protecting Foreign Direct Investment, safeguarding supply chains, and preventing productivity losses. Climate adaptation investment remains critically low, requiring urgent private capital engagement and innovative funding solutions to address these pressing challenges.
The top cities in the Global South facing extreme climate risks include New Delhi, Manila, Jakarta, Lagos, Mexico City, Beijing, and Shanghai. While residents of the Global North might prioritize local climate-related disasters due to their immediate economic impacts, neglecting adaptation in the Global South can have serious long-term ramifications globally. Climate change affects economic growth and quality of life across regions, with the Global South experiencing a notable 20% increase in climate disasters over the past decade, as highlighted by recent reports.
The Intergovernmental Panel on Climate Change has reported a 2.5-fold increase in extreme heat waves in parts of the Global South since the 1950s. Such climate crises elicit questions about the Global North’s responsibility regarding adaptation funding. Notably, the economic fallout from climate damages in the Global South could significantly impact the Global North’s investments and supply chains, as well as overall living costs.
Three compelling economic arguments underscore the need for the Global North to fund climate adaptation in the Global South:
1. Foreign Direct Investment (FDI) Risks: The Global South absorbed approximately $866 billion of global FDI, crucial for infrastructure and technology. Major corporations like Apple have heavily invested in these regions, increasing exposure to climate risks that could threaten their entire investments. Without adaptation efforts, the Global North risks losing substantial capital.
2. Supply Chain Vulnerabilities: The Global South is integral to global supply chains, exporting essential goods like coffee and manufactured products. Climate change threatens the yield and quality of these commodities, potentially disrupting supply chains and driving up costs for consumers in the Global North. The $40 billion coffee industry exemplifies this risk, as climate impacts could cause fluctuations in product availability.
3. Productivity Declines and Economic Losses: The International Labour Organization warns that climate change could reduce global working hours by 2.2%, equating to a $2.4 trillion loss in GDP. Countries in South Asia and Sub-Saharan Africa would likely suffer the most. Such productivity dips would adversely influence global economic stability and return on investments.
To mitigate these risks, an urgent call to action for funding climate adaptation in the Global South is necessary. Only $63 billion was allocated for these efforts in 2021-22, far short of the $212 billion needed annually by 2030. Private investment, imperative for bridging this gap, must be incentivized and harnessed effectively to address infrastructure needs in vulnerable areas.
The participation of private capital is critical given the limitations of public funds and the potential for private entities to drive value. Despite significant cash reserves in the private sector, investment in climate adaptation remains limited due to perceived challenges in capturing the resultant value. Innovative funding models must be developed to encourage private capital engagement, much like Property Assessed Clean Energy (PACE) financing promotes sustainability.
Funding climate adaptation in the Global South is essential to support both local communities and stabilize economies in the Global North. With a significant portion of foreign investments flowing into the Global South, the interconnections between global supply chains, economic growth, and climate risks need to be thoroughly addressed. Disasters in vulnerable regions threaten production, employment, and living standards, which, in turn, affect Global North economies, highlighting the importance of proactive adaptation measures.
The economic interdependence between the Global North and South underscores the urgency of funding climate adaptation. The risks posed by climate change, including the potential decline in productivity and disruptions to supply chains, necessitate collective action and investment. Strategies leveraging private capital and innovative financing models will be crucial to developing resilient solutions that safeguard both regions’ economic futures.
Original Source: www.orfonline.org
