Climate Action - Assisting business towards carbon neutrality

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Ibrahim Thiaw, Co-authored with Renate Fleiner and Anantha Duraiappah, Division of Environmental Policy Implementation, UNEP

Impacts of climate change will inevitably influence ecosystem services and human well-being, and increase the pressure on the most vulnerable regions and communities that depend more on natural resources and ecosystems and have lower adaptive capacity. Taking appropriate adaptation measures is urgent to manage the risks and alleviate the impacts of climate change. Various mechanisms and instruments can be used, while concerted action from public and private sector and the international community is required in order to take equity and fairness into consideration.

CLIMATE CHANGE IMPACTS ON ECOSYSTEM SERVICES AND HUMAN WELL BEING

Climate change was identified by the Millennium Ecosystem Assessment as one of the five main direct drivers causing ecosystem services decline across the globe. Climate change can have significant impacts on ecosystems and their services and consequently on human well being, see Table 1. (MA 2005)

Ecosystem services influenced by climate change encompass water, food production, provisioning services and natural disaster risk management. The availability of these ecosystem services is mainly affected by precipitation pattern changes and temperature increase. Effects of changes in these ecosystem services on human well being can have impacts on security, basic material for life, and health. Effects can be various and complex, depending on vulnerability but also on the magnitude of impact and the specific context.

Climate change impacts will vary depending on regions and sectors but will be more severe where vulnerability to climate variability and change is higher, stress factors are multiple and adaptive capacity is low. In systems already exposed to increasing resource demands, unsustainable management and pollution, exposure to climate change constitutes an important additional pressure. Poor communities tend to be more vulnerable especially when located in high risk areas, as they have lower adaptive capacity and depend more on local ecosystem services, such as water and food. Climate change has the potential for exacerbating poverty.

Historically, Africa, Asia and Latin America have been the regions most at risk and vulnerable to climate change impacts. Major climate change impacts observed in these regions include:

• Reduced length of growing season in the Sahel region in Africa with detrimental effects on crops.
• Increased frequency of intense rainfall events in many parts of Asia causing severe floods, landslides, and debris and mud flows.
• Increased occurrence of climate related disasters in Latin America increasing mortality and spread of diseases in the affected areas.

Vulnerability can be further increased by existing stress factors, such as endemic poverty, limited access to capital, ecosystem degradation, disasters and conflicts and lack of effective response from the side of the government. (IPCC 2001) (IPCC 2007) (UNSG 2007)

Table 1: Climate change impacts on ecosystem services and human well being.

INSTRUMENTS AND MECHANISMS TO COPE WITH CLIMATE CHANGE

Adaptation depends on the adaptive capacity or adaptability of a system, region or community to cope with risks or impacts of climate change. If appropriate, adaptation can reduce negative impacts and even create benefits from new opportunities provided by changing climate conditions. However, if climate changes are incorrectly perceived, adaptation may even result in increased vulnerability (maladaptation).
Adaptation is an integral part of managing the risks caused by climate change, while risk reduction activities should be embedded in an integrated approach to ensure sustainability. Among international agencies there is growing consensus that climate change adaptation and therefore also climate change risk management should be integrated into all development planning and implementation activities to address sustainable development and poverty reduction in a more appropriate and effective way. (IPCC 2001)

A variety of mechanisms and instruments involving different actors can be used to manage climate change risks that affect ecosystem services and human well being, see Table 2.

Adaptation can be part of economic development that makes use of financial risk sharing and market based mechanisms to address climate change through various approaches in the private and public sector. Businesses traditionally dealing with risk management, such as insurance and reinsurance, are leveraging their capacities in order to integrate climate change issues. Business sectors, such as finance and investment are beginning to develop innovative approaches to tackle these new challenges and opportunities arising from the increasing awareness of the importance of environmental, social and corporate governance for businesses and markets. (UNSG 2007)

The public sector and policy making institutions provide the necessary pillars for market regulation, while public-private partnerships can facilitate governmental institutions the access to capital and resources. Interlinkages and dependencies of businesses on ecosystem services and environment factors can be important triggers in the pursuit of innovative market based and financial risk sharing approaches; see for example the consideration of the high economic value of biodiversity for potential new business opportunities. (IPCC 2007) (UNSG 2007)(World Bank Group/Global Environmental Facility Programme, 2006)

Table 2: Mechanisms and instruments for managing climate change risks.

CHALLENGES AND OPPORTUNITIES

The mechanisms described offer a variety of opportunities to cope with climate change risks. Since uncertainty is a major characteristic feature of climate change and clarifications are needed on how to put values on ecosystem services with public good characteristics that cannot be allocated to clear property rights, many of these opportunities still require research and support to become viable.

Further, the realisation of these opportunities requires large amounts of new and additional investment and financial flows. National policies could be supportive by promoting optimised resources use, providing incentives for private investors, and integrating climate change adaptation in key ministries and institutions as well as policies. Also, the insurance sector could attract private sector investment through alternative insurance schemes and risk transfer mechanisms, while an international fund could be established to backstop reinsurance schemes, support public-private partnerships or backstop national disaster funds. Despite of all these possibilities, further funding will be needed which could come through international cooperation from the developed countries, but most appropriately from polluting agencies based on the principle that the party responsible is liable for damages.

Another handicap is the urgency of taking appropriate actions in the fields of adaptation and mitigation in time to avoid increasing costs in the future. Economic losses due to climate change could reach US$1 trillion in a single year by 2040. Effective action requires a multistakeholder approach with the active involvement of governmental and non-governmental institutions at different levels. This must be based on the integration of climate change adaptation as a priority topic into all levels of decision making and operations, and on joint and coordinated efforts, together with other involved agencies and partners, at different levels to facilitate the use of synergy effects and improve cost effectiveness.

Governments should provide policy frameworks to facilitate adaptation and provide stability for business operations including subsidies and regulations to encourage appropriate actions, while providing accurate information on climate change. Inputs from the private sector could be in form of knowledge and resources as well as innovative products and services for new markets. The international community could undertake a concerted effort and provide a coordinated approach towards integrating climate change risk management into development and addressing underlying vulnerabilities, based on the integration of development, climate change and disaster risk management expertise.

While markets may be effective in determining efficient allocation of scarce resources, they do not take into account issues relating to equity and fairness. In developing countries, the poor depend heavily on ecosystem services for their well being, and the transfer and use of these resources is usually done through non-market channels. Therefore, bringing these ecosystem services into the formal market may cause some groups of individuals to be pushed into destitution. Moreover, by placing a price on a service which, previously, had been free and which people believe should always be free, such as clean water for personal consumption, clean air and flood regulation, may raise issues of ethics and rights.

The views expressed in this article do not necessarily reflect those of UNEP or the editors, nor are they an official record.  A full version of the article with the references is available on:  http://www.climateactionprogramme.org

INVESTING IN BIODIVERSITY FOR THE FUTURE  

Climate change is projected to have the second largest global impact on biodiversity by the year 2100. Biodiversity loss can have far reaching implications causing increased water loss and altered ecosystems and a loss to ecosystem services.

Biodiversity is of high economic value as a reservoir of potential active pharmaceutical ingredients and of genes for growing crop species, for biotechnological processes or for bionic developments.
Examples of market based mechanisms that apply to biodiversity as an ecosystem service include tradable quota systems and bioprospecting. The former addresses the over exploitation by allocating quotas to extractive companies so that the sum of all quotas does not exceed the carrying capacity of the extracted resources, while quotas can be traded between producers, for example in fisheries management. Bioprospecting is the process of scientific research for the useful application of genetic resources in various commercial markets, while also providing incentives for biodiversity conservation.

Financial institutions that lack information about companies depending on biodiversity issues run the risk of getting exposed to significant reputational and other risks if loans, investments or other products are provided to companies with negative impact on ecosystems or that depend on ecosystems for their services. Goldman Sachs for example adopted a biodiversity benchmark that was developed by Fauna and Flora International and Insight Investment. This allows for a performance assessment of extractive companies in terms of biodiversity. Such instruments will become increasingly important as stricter biodiversity laws are passed. Still, awareness of the financial sector towards the economic relevance of biodiversity conservation needs to be further increased. In this regard a review on costs of biodiversity loss and benefits of biodiversity protection, and linking biodiversity business concerns to tangible financial metrics such as risks, shareholder value, or market capitalisation, could be useful.

Author

brahim Thiaw is the Director of the Division of Environmental Policy Implementation (DEPI) in UNEP.  Mr Thiaw has more than 22 years expertise natural resource management and environmental policy – both at national, Pan African and global levels. 

Organisation

DEPI is responsible for the implementation of environmental policy in order to foster sustainable development at global, regional and national levels.  It leads UNEP’s activities on ecosystem management and services.

References

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