Dr. Guido Schmidt-Traub is a partner at system change company Systemiq
The IMF can do more to help departments integrate climate and natural resilience into economic growth and investment strategies
At a glance
Over the past two decades, poor emerging and developing countries, already vulnerable to the effects of climate change, have suffered a staggering $525 billion in losses due to extreme weather events.
The Independent High-Level Expert Group on Climate Finance estimates that by 2030, emerging and developing countries will need $225 billion a year just for climate adaptation. This is 10 times the current level of investment.
Climate recovery strategies developed without Treasury involvement lack the rigor and technical depth needed to attract the necessary investment.
Hurricanes Helen and Milton, which struck the United States and left hundreds of billions of dollars in damage, sent a loud and clear message that climate-related disasters pose a significant macroeconomic threat even to the wealthiest economies. I sent you.
Over the past two decades, much poorer emerging and developing countries, which are already more vulnerable to climate change, have suffered a staggering $525 billion in losses from extreme weather events. This is equivalent to one-fifth of their total GDP. And it’s not just the climate. Nature is being destroyed, agriculture, storm protection and carbon capture are being compromised.
What does this mean for the Minister of Finance? Simply put, if you fail to invest in resilience today, your country’s economy will decline tomorrow. Climate and natural risks pose a threat to long-term economic growth through reduced crop yields and negative health impacts. Disasters will also increase economic instability through sudden disruptions, making it more difficult for finance ministers to improve people’s prosperity and well-being.
What do you need?
Reducing greenhouse gas emissions is critical. To meet the goals of the Paris Agreement, reaching net zero by mid-century is non-negotiable. But investing in climate adaptation and nature conservation to build climate resilience is equally important and urgent.
The Independent High-Level Expert Group on Climate Finance estimates that by 2030, emerging and developing countries will need $225 billion a year just for climate adaptation. This is equivalent to 10 times the current investment level.
Why doesn’t this happen?
Investment in climate and natural resilience has not increased as much as is needed. Lack of financing is a major barrier, and the situation is exacerbated by the current debt crisis hitting many of the world’s most climate-vulnerable countries.
But without strong leadership and planning, countries cannot raise funds and deploy investments. Both are missing. Sovereign credit rating team staff report that Treasury officials have not made climate change adaptation and nature a priority. Climate recovery strategies developed without Treasury involvement lack the rigor and technical depth needed to attract the necessary investment.
Solving these problems will require finance ministers and their macroeconomic advisors, including the IMF, to take charge and prioritize the very investments that can protect the economy. Otherwise, the economic and social costs of climate and nature loss will undermine the economies of rich and poor countries alike.
What role can the IMF play?
The IMF has significant influence over how the Treasury approaches macroeconomics and investment. IMF officials know they cannot ignore climate science, but they are moving at a snail’s pace to incorporate climate change and nature into their economic assessments.
As Systemiq demonstrated in its discussion paper, the IMF needs to do more to help ministries integrate climate and natural resilience into economic growth and investment strategies.
What needs to happen next?
Three urgent steps are needed to scale up investment in nature and climate resilience.
The IMF needs to develop guidance and tools. The Fund will work with the World Bank and other partners to develop evidence-based guidance on the type and amount of climate and natural resilience investments countries need and the economic benefits they will bring. There is a need. This guidance is inspired by the IMF Consensus Guidance for countries on health, education, and infrastructure investments. Doing the same for climate and natural resilience would help push this item onto the finance minister’s agenda and support resource mobilization.
Countries need to act. Interested national treasuries should work closely with ministers to upgrade and invest in climate change and natural resilience strategies. Support from the IMF and other technical institutions could fast-track the development of medium-term public spending frameworks and investment strategies as part of growth strategies. These strategies should include financing strategies that leverage private and public resources.
We need to mobilize finances. The Minister of Finance, with the support of the IMF, must mobilize resources from domestic and, where necessary, international sources. The World Bank, the Green Climate Fund, the Global Environment Facility, other development financiers and the broader international community must support countries that are leading the way in making critical climate and nature investments. New financing must not increase unsustainable debt levels.
The IMF and finance ministers can ensure that countries vulnerable to climate change invest in the natural and climate resilience they need to ensure a prosperous and healthy future. The Bridgetown Initiative and V20 can mobilize countries vulnerable to climate change to take action. The Pope’s encyclical Laudato Si’ reminds us that nature and climate are ethical issues that unite all faiths.
There’s no time to wait. The World Bank/IMF Annual Meeting in Washington DC and Biodiversity Conference in Cali, Colombia, later this month will sound the start of a race to put climate and natural risks at the center of macroeconomics and finances. There is a possibility. Through broad bipartisan leadership, we will see real progress towards next year’s Spring Annual Meetings, the South African G20, and Brazil’s Climate COP30.
