Addressing the climate crisis in socially unequal areas: Global funds, poverty eradication and risk management

This blog has been written by Alessia Salamon from the Resilient Development team, and edited by Matteo Bizzotto, from the Global Communications team at ICLEI World Secretariat

It is widely recognized that the impacts of the climate crisis are not evenly felt across the world. In fact, developing countries and cities often lack appropriate coping capacities, despite being amongst the least to contribute to greenhouse gasses’ emissions. While there are multiple options to help these governments deal with such impacts, no single solution exists. Multiple measures will need to be enacted in parallel, and on many different fronts. Let’s take a closer look at dedicated global funds, poverty eradication, and risk management.

The establishment of a Loss and Damage Fund was one of the highlights of the United Nations Climate Conference (COP27) and the culmination of decades of pressure from developing countries. Indeed, the focus of COP27 was on adaptation, hence shifting from the pledges of previous COPs to their actual implementation. The newly established fund aims to provide financial assistance to nations most vulnerable to and impacted by the effects of the climate crisis. While the historic decision was welcomed, this is but the first step: Success will depend on how quickly this fund gets off the ground and on how it will reach the most vulnerable.

Despite there being financial instruments already available for some cities, they are often difficult to access due to a mismatch between demand and offer. On the supply side, financial solutions are often complemented by complex and sophisticated requirements. Investors and financial institutions generally require technical studies and a cost-benefit analysis to prove a project’s technical and financial viability, as well as its intended impacts. On the demand side, municipalities have limited capacities and multiple priorities, as well as facing different barriers and challenges that determine how effective they can implement a project. Relying exclusively on global funds that do not address local issues, therefore, is not enough.

Socioeconomic exclusion is an excellent indicator of who is going to be affected the most by disruptive events. Through the understanding of inequality and the distributions of vulnerable communities, it is possible to understand better how and where they will be affected. In this regard, one of the major challenges – and opportunities – for cities is the eradication of multidimensional poverty, a definition of poverty based on a three-pronged approach: lack of money, education, and basic infrastructure services. For this, let’s take a look at an example of the most socially unequal region in the world, Latin America and the Caribbean (LAC). In LAC, strong social inequalities can be found not only across countries, but within each city as well. While cities in Brazil are generally wealthier than their regional peers, they are also the most unequal. In fact, the 2021 national Gini coefficient is 0.53, but the number increases significantly in Brasilia (0.67) and Rio de Janeiro (0.58). Conversely, Colombia, Costa Rica, Mexico, and Argentina have Gini indexes of 0.52, 0.50, 0.45 and 0.42, respectively, thereby displaying greater equality in wealth redistribution. In these countries, Gini indexes of major cities are either in line with the national index, or lower – Medellin 0.50, Guadalajara 0.34, and Mendoza  0.42.

Alongside global funds and initiatives to eradicate poverty, cities can use their risk management toolbox to help their vulnerable communities adapt and respond to the impacts of the climate crisis. The risk management toolbox consists of methods for making informed decisions about how to mitigate, transfer, avoid, or retain risks. In case of climate-related risks, for example, this could mean that cities strive to reduce their existing risks as much as feasible, and transfer the remaining risk to a third party, such as an insurance company. Following damaging natural disasters, insurers can reduce the duration of disruption through quick pay-outs, which cities can use to help their most vulnerable residents cope with the impacts.

Yet, this approach also depends on cities’ capacities, the local/national regulatory frameworks, and funds availability. Looking again at the LAC region, different countries present different capacities to work with a range of financial instruments. Mexico, Brazil, Jamaica, Colombia, Argentina, and Costa Rica are well positioned to work with such solutions, according to a series of related assessments conducted in the region under the Urban Infrastructure Insurance Facility (UIIF) project. UIIF supports LAC cities to better manage their risks and, at the end of the process, acquire an insurance premium. The tailored insurance mechanisms provide rapid access to financial resources, covering critical infrastructure and residents most vulnerable to the impacts of such disasters. Through projects like UIIF, city officials can obtain financial and technical support, as well as a better understanding of their climate risks to make informed decisions.

In conclusion, although the climate crisis is threatening the livelihoods of the most vulnerable, there are some viable solutions. First, establishing a loss and damage global fund would allow for reparations for the negative impacts already suffered. Second, continuing and improving efforts towards poverty eradication will better position vulnerable populations to cope with and recover from climate impacts. Third, reframing national and municipal legislations to support better risk management can help cities protect their most exposed residents and strengthen their resilience. While there is no one-size-fits-all solution, implementing in parallel different approaches like those described here can provide significant impacts and a sustainable path forward.