COP28 left two uncomfortable realities to fester. First, no matter how aggressively nations act now to reduce emissions — and they must — carbon dioxide levels already accumulated in the atmosphere mean global warming is “in the pipeline”, virtually ensuring increasing numbers of weather-related disasters and greater climate-induced disruption.
Second, the world’s most vulnerable people are not financially ready for what’s ahead, COP28’s Loss and Damage Fund notwithstanding. After all, at COP27, the finance ministers from 58 climate-vulnerable economies estimated 98% of their nearly 1.5 billion citizens lacked financial protection.
Accordingly, the 200 million-plus people projected to be displaced by climate change over the next 30 years, who nearly all live within these 58 vulnerable economies, risk financial disruption and despair.
We know what is to come for climate migrants because we have already seen it: the world’s most vulnerable people live and work outside formal financial systems; and when forced to move within their own countries and, particularly, outside them, migrants lose access to the capital necessary to help them transition to new livelihoods. Because migrants lack data trails that do not fit the mould built by most lenders for the urbanised middle class, they also lack credit, often falling prey to predatory lenders.
But none of this is inevitable. Climate change does not have to mean financial exclusion. Starting today, the public and private sectors can take action to avoid economic misery for millions tomorrow.
Three ways governments can help today
- Improve data portability and utilisation across borders: The public sector needs to improve the portability of financial data across borders. Because migrants often move from high financial inclusion to exclusion, particularly in international contexts, public stakeholders should work with financial service providers (FSPs) to ensure they have the capacity to utilise migrant data trails effectively. We urgently need a global, open standard for credit reporting that includes monitoring cross-border data restrictions, using common models and definitions, and integrating existing initiatives like open application programming interfaces for data quality and authentication.
- Protect migrants from financial abuses: Governments must adopt emerging best practices in financial consumer protection, specifically targeting predatory lending, aggressive sales and collections, focusing on safeguarding vulnerable segments like migrants, and establish effective dispute resolution mechanisms to ensure fair and ethical treatment of consumers.
- Support reskilling programmes for climate-affected communities: Public and private sector actors should provide re-skilling programmes for households and entrepreneurs whose livelihoods are destroyed by climate change. This is especially relevant for coastal communities affected by rising sea levels who need to transition to new geographies and careers. Village Capital, for example, has launched an accelerator programme in the US to support start-ups creating inclusive solutions for immigrants, refugees and communities of colour disproportionately affected by climate change.
Three ways banks can help today
- Reduce or waive fees: FSPs need to reduce or waive fees during times of crisis. For example, in response to the Pakistan floods in 2022, global remittance providers such as Wise, MoneyGram and the Commercial Bank of Dubai waived fees and facilitated donations to the government flood relief fund, demonstrating a proactive approach to support relief efforts. For every transaction over $100/£100 from the US and UK, WorldRemit donated $5 to the Pakistan Flood relief efforts, reinforcing the role of financial services in providing stability and support during crises.
- Keep cash-in, cash-out (CICO) networks active: Maintaining active CICO networks is essential during climate shocks to ensure migrants and affected communities have continuous access to financial services, enabling them to manage their finances effectively in challenging times. CICO networks, as demonstrated during the Covid-19 pandemic response in India, should be recognised as essential services during climate emergencies to ensure sustained financial access for affected communities.
- Invest in data-driven solutions for migrants: FSPs should enhance their capacity to make data-driven decisions that consider migrants’ unique characteristics, including internal migrants. One example is to adjust algorithms to assess migrants’ creditworthiness. Research in India shows that data inputs for migrants often trigger red flags in algorithmic decisions, denying them access to credit despite their creditworthiness. FSPs also must understand migrants’ data trails and what are appropriate proxies for creditworthiness and economic activity.
Climate-induced disruption is coming; financial havoc need not. These are not out-of-reach, pie-in-the-sky solutions. They are not panaceas either, but they are realistic, concrete steps, which can make a difference for tens, maybe hundreds, of millions of people. Governments and banks have it in their power to act now. The world cannot wait until COP29.
