In 2023, global greenhouse emissions are expected to reach a new peak as investment in green energy has slowed due to recovery from the Covid-19 pandemic. With climate-related risks becoming more frequent, economic losses as well as human deaths and displacements around the world will increase. Figure 9 illustrates the exponential increase in global climate-related disasters and the resulting economic costs over the past five decades: What was once an anomaly is now commonplace, costing the world an estimated $520 billion each year in lost consumption, according to the World Bank.
Figure 9: Global reported climate disasters and associated economic losses 1970-2019, in absolute numbers and $bn
Developing countries are hardest hit by climate change, with 99% of weather-related casualties occurring there. Flooding, extreme drought, heat, changing rainfall patterns, and reduced crop yields are just some of the factors leading to economic damage, loss of livelihoods, and even violent conflict. While still recovering from the pandemic, developing countries will be further left behind by climate change: the African continent, for example, will lose up to 15% of annual per capita economic growth, according to the African Development Bank. Millions of people in countries like Pakistan, India, Bangladesh, Malawi, and Mozambique will be displaced due to floods and extreme droughts. In addition, climate change increases the risks of conflicts over natural resources, creating a favorable environment for armed groups and terrorist recruitment.
At the 2009 UN Climate Conference in Copenhagen, developed countries pledged to mobilize $100 billion annually for developing countries by 2020 – a target they still have to reach. At COP27 in Egypt in November 2022, it was agreed to establish a Loss and Damage Fund for countries most affected by climate change, though its structure, donors, and beneficiaries have yet to be determined. Even with an expected increase in contributions, the growing development gap will continue to prevent the Global South from implementing effective and sustainable climate action.
Given the urgent need for a comprehensive approach to climate finance that addresses both mitigation and adaptation, new opportunities are expected to emerge. These include the continuous efforts of developed countries to co-design climate finance packages with developing economies and the engagement of financial institutions such as the World Bank and the IMF to create more efficient and adequate climate finance mechanisms. The Climate Finance Summit in Paris in June 2023 will be a key event.
Another challenge for developing and emerging economies is food insecurity as a result of climate change, which is compounded by the impact of inflation. With supply chains, ports, and fertilizer markets disrupted, some developing countries experience double-digit food price inflation (with figure 10 showing Morocco’s rate as an example). Food insecurity therefore becomes a destabilizing factor in many emerging and low-income economies, in particular in East and North Africa as well as Central and Eastern Asia: Ethiopia, Nigeria, South Sudan, and Yemen are especially at risk of famine.
Figure 10: Food inflation rate in Morocco from Jan 2019 to Jun 2022 (year-on-year, in %)
To make matters worse, inflation and food insecurity put pressure on public institutions and increase the risk of social unrest and disruptive strikes. Countries such as Tunisia, Egypt, Rwanda, Ethiopia, and Pakistan already rely on international financial bodies to strengthen safety net programs and expand the agricultural sector. More broadly, donor countries will need to provide $7 billion in aid to vulnerable households, and $50 billion to end food insecurity for 222 million people across 53 countries.
In 2023, several initiatives and trends are worth monitoring. In the area of climate finance, the Bridgetown Agenda and the Caribbean Debt Swaps Initiative are particularly relevant for emerging economies. The former was initiated by Barbados to find creative solutions to high debt and financial pressures associated with the pandemic and climate change, including the use of the IMF's Special Drawing Rights to redistribute funds from developed to developing countries. The latter introduces a debt ceiling mechanism that combines dept relief and climate action. Both models are expected to gain traction globally.
In addition, the green bond market is expected to grow through initiatives by financial institutions such as the World Bank as well as individual countries such as Egypt, which will issue a new $500 million green bond in 2023. The urgency of climate change is also opening doors to enhance technology and innovation in agriculture, with the climate-smart agriculture approach of the World Bank, and in carbon-offsetting, with the IFC Carbon Opportunities Fund. Although 2023 is expected to see peaks in greenhouse gas emissions and an increase in climate-related disasters and costs, public and private sector initiatives to mitigate and adapt to climatic conditions will continue to grow.