Climate Resilience

People living in poverty are the most susceptible to climate change, and are the least well equipped to respond. This is especially true for women, who face greater exposure and higher vulnerability to climate impacts, yet they have fewer tools and strategies available to them to adapt. 

An inclusive financial system empowers vulnerable people to pursue their own resilience strategies, making it a fundamental enabler of autonomous, grass-roots adaptation and an absolute necessity for a just transition.

Financial inclusion is inherently about serving clients who are risky and costly. As climate change makes already vulnerable clients riskier still, financial service providers will find it increasingly hard to keep serving them. Financial service providers are themselves vulnerable to climate risk, which some already struggle to cover. Efforts to manage climate risk and ‘green’ the financial system could unintentionally contribute to greater exclusion.

Thoughtful policy responses can help to create a virtuous cycle of growing inclusion, falling climate risk, and greater financial stability (see illustration below). But more financial inclusion won’t automatically bolster climate resilience. Business cases may be harder to build for adaptation finance than traditional lending, and financial services carry risks which could become part of the problem.

Most financial service providers don’t yet see climate adaptation as a top priority for their clients. Some cite a lack of data, expertise, and demand. The product landscape is very narrow and centered on agriculture, particularly weather index insurance.

Much can be done to enable, catalyze, and scale financial products and services. But large risks to millions of poor people will realistically never be covered by markets. Social  protection programs are needed for vulnerable populations, including for slow-onset risks and long-term resilience building.

The financial inclusion and climate communities must learn to work on climate, financial inclusion, and gender in more integrated ways. With the right policy, regulatory, and financial support from governments and investors, financial service providers must innovate to better serve the climate adaptation needs of their more vulnerable clients, developing and testing financial solutions that better respond to the diverse resilience needs of customers. 

CGAP is currently working to:

• Distil best practice for financial service providers on how to better prepare for and respond to extreme climate events;
• Define the features and combinations of financial products that best support the climate resilience needs of vulnerable clients; 
• Drive innovation of financial solutions to better meet the climate needs of underserved clients; 
• Provide advice to policymakers, including on mobilizing the private sector to extend their commercial climate risk management and adaptation solutions to more vulnerable populations;
• Demonstrate how financial services can help social protection systems build better long-term resilience to climate shocks and stresses.