Transformative growth and prosperity in the age of climate change

Amidst climate change, global supply chain disruptions, COVID-19 aftershocks, and economic pressures, countries need to mobilise financial resources and develop plans for long-term resilience

Amidst climate change, global supply chain disruptions, COVID-19 aftershocks, and economic pressures, the mobilisation of additional financial resources is crucial for Sri Lanka and other countries around the world. Climate finance, sustainable finance, and green finance have great potential to scale up investment and harness synergies to not only survive climate change but turn it into an opportunity for transformative growth and prosperity.

The following will wrap up and connect three guest columns on climate finance and resilience published over the last weeks, which have focused on the foundations of a sustainable financial system as well as access to funding in the context of ecosystems, nature-based solutions, and a just transition. Bringing these elements together can help individuals, companies, and governments to develop plans and policies that maximise investment flows and lead to optimal socio-economic outcomes.

Mainstreaming adaptation and risk finance

Science has made it clear that vulnerable developing countries such as Sri Lanka can no longer achieve optimal socio-economic outcomes and sustainable development without investing in climate resilience and risk management. The Sixth Assessment Report published by the Intergovernmental Panel on Climate Change (IPCC) this year states that “overall adverse economic impacts attributable to climate change, including slow-onset and extreme weather events, have been increasingly identified,” and that “global aggregate net economic damages generally increase non-linearly with global warming levels.” Rising temperatures and progressive climate change impacts will severely affect economies around the world, particularly those that are already vulnerable and have limited financial resources available.

To avoid and adapt to this, systems transitions are needed for energy generation, infrastructure, land use, industry, society, and key economic sectors such as food systems, export products, trade, tourism, or the garment and textile industry. These sectors are vulnerable to climate change, but they can also offer solutions and serve as levers of change. By building on existing natural resources and human capacities—including ecosystem services, green infrastructure, and local and traditional knowledge—as well as investing in innovation and transformative adaptation, vulnerable sectors can turn from liabilities into engines of growth.

However, a large-scale transition requires significant resources, including in the form of finance, technology, and technical expertise. Domestic public funds are unlikely to be sufficient for this, especially as they are already strained due to the increasing intensity and interconnected nature of climate risks and economic impacts. The IPCC report highlights this as well, stating that “adverse climate impacts can reduce the availability of financial resources by incurring losses and damages and through impeding national economic growth.” To close the looming finance and protection gaps, it is therefore vital to secure and scale up bilateral, multilateral, and private sector funding from a range of sources.

Foresight and planning for long-term resilience

There are multiple avenues of financing that can be explored in the context of climate change adaptation, resilience-building, and economic recovery. As outlined in the three previous columns, natural ecosystems and biodiversity can be harnessed to attract funding, while the framework of a just transition can serve to accelerate economic transformation and stimulate growth. However, policy coherence and early, anticipatory action that pre-empts or prevents shocks are equally important factors to survive in a changing climate.

Currently, countries across the world are mostly reacting and responding to climate shocks and other unexpected events on an ad-hoc basis without pre-arranged resources. Anticipatory and risk-informed investment for resilient economic growth can minimise these shocks and greatly enhance the ability of key stakeholders to deal with them. Through investment in a climate-smart and resilient economy as well as the use of diverse financial instruments, including insurance and insurance-linked instruments, early action finance, or national contingency funds, countries can save money, protect lives and assets, and adapt in proactive ways to seize emerging opportunities.

For example, countries can use different kinds of bonds—such as sustainability bonds, climate bonds, green bonds, resilience bonds, or the new category of blue bonds—to raise funds for starting or scaling up projects that commit to climate-smart, sustainable, green, and/or resilient outcomes. These debt instruments are usually asset-backed or ringfenced to ensure that funds will go towards their intended purpose, and they present a powerful opportunity to invest in projects that offer a return of investment beyond merely repaying the loan with interest. Financial market instruments like these bonds can help actors to fulfil their social and environmental responsibilities, enhance the economy by harnessing domestic renewable energy resources and nature-based solutions, and prevent vast losses and damages.

Pathways to prosperity

In the context of today’s world and pathways into the future—such as the climate change scenarios projected by the IPCC—, it is critical to look ahead. Societies and economies need to develop long-term plans on how they can become climate-resilient, adapt to and benefit from the anticipated changes, absorb shocks, and access the finance necessary to transition. These plans should be integrated with a holistic and flexible policy framework that removes investment barriers, precision-channels resources to where they are needed, and encourages sustainable, climate-friendly, and resilient entrepreneurship across key sectors. 

(The writer works as Director – Research and Knowledge Management at SLYCAN Trust, a non-profit think tank based in Sri Lanka. His work focuses on climate change, adaptation, resilience, ecosystem conservation, just transition, human mobility, and a range of related issues. He holds a Master’s degree in Education from the University of Cologne, Germany and is a regular writer to several international and local media outlets.)