Climate change and environmental degradation affect low-income populations in developing countries disproportionately. What can the financial inclusion sector do about this worrying trend? As the issue of climate change takes on ever greater urgency, more work is being done to identify how financial service providers and other sector support organizations can help people build resilience to the harmful effects of climate change, adapt to shifting economic landscapes and transition to low-carbon economies. 

This FinDev Editor's Collection provides you with a guide to navigating the wide range of knowledge resources available on this crucial and growing area of research and action. 

View a list of all our resources on these related topics:
Climate and Environment | Energy | Disasters and Conflict | Insurance

 

Building Climate Resilience Through Inclusive Finance

Vulnerable communities around the world are increasingly affected by climate change, creating a growing need to develop resilience to withstand climate shocks and adapt to resulting environmental and economic changes. MFIs and other financial service providers with a direct link to low-income populations are in a good position to help build individual and collective climate resilience, through both financial and non-financial services. Access to a full range of financial services can provide a cushion or safety net in the face of extreme weather events, while non-financial services provided by local MFIs, such as climate-smart technical trainings and market linkages, can help customers adapt to shifting economies. This is an active and growing area of research and experience, as the sector continues to learn about what kind of services can help clients build climate resilience most effectively.

Paper

In this Focus Note, CGAP calls for financial inclusion to be a cornerstone of action on climate adaptation, and proposes a new agenda for collaboration between financial inclusion and climate adaptation practitioners.

Paper

This working paper illustrates how women are differently impacted by climate change and how financial services can play a better role in strengthening their autonomous adaptive capacities to climate change.

FinDev Blog
Blog

In the second post of the FinDev Blog Series on Climate Change and Financial Inclusion, we look at how both financial and non-financial services will be crucial in helping MFI clients adapt to climate change.

Policy and Regulation for Reducing Climate Risk and Building Resilience

Financial regulation and policies can support the process of mitigating climate change as well as building resilience to the environmental, health, social and economic impacts of climate change. Members of the Alliance for Financial Inclusion (AFI), a global network of financial inclusion policymakers, are increasingly linking financial inclusion and climate change on a national strategic level, whether through National Financial Inclusion Strategies or other financial sector strategies. While regulation and supervision can help reduce climate risk, care must be taken to make sure that low-income and marginalized segments of the population are not left behind in the transition to a low-carbon economy. There is still much to learn in this area and institutions such as AFI, CGAP, UNSGSA and others are conducting research to determine what types of policies can best support this transition.

Paper

This publication calls for urgent measures to address climate vulnerability by expanding digital payments and digital public infrastructure and putting women, youth, indigenous peoples, and communities in fragile and climate-vulnerable areas at the center of adaptation planning.

Paper

This working paper outlines how inclusive green finance policies can enhance financial stability by creating a more resilient real economy and reducing the risks facing the financial sector.

FinDev Blog
Blog

The third post of the FinDev Blog Series on Climate Change and Financial Inclusion discusses the 4 Ps of inclusive green finance, which provide a framework for policymakers to harness the potential of financial inclusion.

Insuring Against Climate Change

Insurance is considered an important financial service for building climate resilience as it can help protect people and institutions against natural disasters and other harmful effects of climate change. Most insurance products that cover climate risk are focused on agriculture, helping protect livelihoods which depend on crops, livestock and fishing or aquaculture. However, there is increasing interest among insurance providers in covering climate risk for urban areas as well, particularly for flooding. As climate risks become more well-known, innovations such as parametric or index-based insurance and the use of satellite technology to determine payouts are being developed.

However, there are many challenges to making insurance work for low-income populations, especially in the context of climate change. From the demand side, customer uptake is a major issue for a variety of reasons including awareness, affordability and product fit. On the supply side, cost is a fundamental challenge for insurers, and is exacerbated by the increasing severity and frequency of risks brought about by climate change. Due to the difficulty of overcoming the economics of inclusive insurance in this context, there is an important role for governments and funders to play in figuring out how to pool risk and expand insurance coverage.

Paper

This briefing note summarizes the emerging issues related to climate change and index insurance, discussing how climate trends are being considered in index product design and pricing, and how this could be improved.

Paper

This publication captures the lessons learned from implementing climate risk insurance solutions in the Pacific over the last two years.

Podcast

This podcast episode features a Typhoon Rai survivor and the insurance provider that helped her rebuild her home. It explores the changing role of insurance and other financial services in climate change mitigation and adaptation.

Investing in Climate Resilience and Adaptation

Impact investors are increasingly adopting strategies to address the impacts of climate change and ensure that their investments meet certain environmental criteria. While climate funding in general has grown exponentially over the past ten years, very little has been directed towards climate adaptation and resilience for the most vulnerable populations. The financial inclusion sector, with its direct connection to the people most affected by climate change, can provide an entry point for investors to help close this gap. However, there is still much to learn on how investments can be most effective. For example, what should the role of private versus public funders be? What kind of metrics are needed to determine the effectiveness of funding for climate adaptation and resilience? And a relatively new area of research being explored by institutions such as the CIFAR Alliance, BFA Global and CGAP, is the inclusiveness of carbon markets and how targeted investments could help bring their benefits to low-income households and communities.

Paper

This collaborative report shares new research that highlights the commercial impetus to accelerate a wave of green investment into emerging markets.

Paper

This publication documents the update process and presents the new Green Index 3.0, its standards and indicators as well as its scoring system and potential uses.


Additional Resources on Investing in Climate Resilience and Adaptation


  1. Financial Inclusion: An Entry Point to Climate Adaptation for Funders (CGAP Blog, May 2023)
  2. Incorporating Environmental Criteria in Social Performance Management Standards (FinDev Blog, Apr 2023)
  3. Private Asset Impact Fund Report 2022 (Report, Tameo Impact Fund Solutions, Dec 2022)
  4. Impact Finance Barometer 2022: How Resilient is Impact Finance to Exogenous Shocks? (Report, Convergences, Sep 2022)
  5. Investing in Financial Inclusion for Climate Resilience and Adaptation: The Role of Islamic Financial Services (Paper, ODI & Islamic Relief, May 2019)
  6. Microfinance for Climate Adaptation: From Readiness to Resilience (Paper, Climate Investment Funds, Nov 2018)
     

Mitigating Climate Change Through Inclusive Finance

Financial inclusion can support the mitigation of greenhouse gas emissions and the transition to low-carbon economies in different ways. For example, financing and payment innovations such as pay-as-you-go business models can help make green technologies, like solar energy and cleaner cookstoves, more affordable for low-income people. Green agricultural loans can finance the equipment and training needed for more climate-smart farming practices which protect ecosystems. Financial services can also support the implementation of payments for ecosystem services (PES), which are programs that provide compensation to people and communities who are responsible for the preservation of biodiversity, watershed management and carbon removal. Many of these initiatives are quite new, however, and we are still learning how financial services can help low-income populations support climate change mitigation.

Paper

This whitepaper examines how stakeholders can use and finance digital technology to address smallholder farmers’ challenges caused by conflict, the pandemic, and climate change.

FinEquity
FinDev Blog
Blog

Leadership Insights: A series from FinEquity’s Technical Advisors
FinDev Blog
Blog

Three key takeaways on developing green microfinance programs from experts at the SAM Conference.

The pay-as-you-go (PAYGo) solar business model allows customers to purchase solar-powered systems and appliances by paying over time in small increments as they use the energy. This type of financing can help simultaneously address the challenges of energy access and financial inclusion for low-income households, especially in rural areas, which lack reliable access to electricity. 

Two workers in blue uniforms installing a solar panel
Community of Practice

PAYGo PERFORM KPIs

The PAYGo Performance, Reporting and Measurement (PERFORM) framework offers the pay-as-you-go (PAYGo) solar industry a standardized and transparent set of key performance indicators (KPIs) for financial, operational, and portfolio quality.

Man mobile money agent assisting woman customer.
Paper | GSMA | Mar 2022

The Value of Pay-As-You-Go Solar for Mobile Operators: Insights From Customer Journeys in Benin and Côte d’Ivoire

Building on a 2020 GSMA study which showed that PAYG solar energy customers use mobile money significantly more than other mobile customers, this study looks at 120 in-depth interviews to understand the reasons behind customers' increased usage of mobile money.