Climate Change and Microfinance: It’s Not Easy Being Green?

The unofficial color of the new millenium is beginning to evoke less images of Kermit the Frog, and more impressions of the lively discourse on environmental sustainability.

What with “green” on everyone’s tongues, it was only a matter of time before the question of environmentally-friendly practices arose in the microfinance realm. Green Microfinance, an organization devoted to harnessing the power of renewable energy to microfinance, is facilitating this week’s microLINKS Speaker’s Corner on Microfinance and Climate Change, which poses three questions to its participants:

• What is the impact of microenterprise and microfinance clients on the natural environment?
• How can MFIs promote environmental sustainability while still meeting their “core mission” of reducing poverty?
• What is the role of donors and investors in ensuring environmental sustainability of an MFI and their clients?
  

These issues are important, but one can’t help but wonder if there’s a fourth question that also needs to be asked: What can microfinance do to help protect livelihoods threatened by climate change?

In 2001, the U.N.’s Intergovernmental Panel on Climate Change surmised that “the impacts of climate change will fall disproportionately upon developing countries and the poor persons within all countries.”

And last year, IPCC Chairman R.K. Pachauri re-emphasized this forecast in his Nobel Lecture:

“…the impacts of climate change on some of the poorest and the most vulnerable communities in the world could prove extremely unsettling. And, given the inadequacy of capacity, economic strength, and institutional capabilities characterizing some of these communities, they would remain extremely vulnerable to the impacts of climate change and may, therefore, actually see a decline in their economic condition, with a loss of livelihoods and opportunities to maintain even subsistence levels of existence.“

Unfortunately, it seems that as the destructive effects of climate change begin to manifest themselves, spending shifts from long-term sustainable development programs to emergency relief. In Tanzania, where drought has had grave effects on the energy sector, health, and food prices, Richard Muyungi, the deputy-director for the environment in the office of the Tanzanian vice-president, attests that this is already evident.

It’s clear, then, that the devastating impact of climate change on the livelihoods of many in the developing world is something that needs to be taken into consideration if we’re to be vigilant about decreasing dependency on foreign assistance. Climate change has already had an impact upon land, the value of property in the developing world, and on low-income individuals’ ability to cultivate resources and leverage their assets. When assistance is shifted from providing long-term access to sustainable financial services to communities, and toward emergency relief, this only intensifies the problem.

So while efforts to “green” microenterprises in developing countries are both crucial and commendable, the need to provide safeguards for livelihoods of those most vulnerable to the effects of climate change is likewise imperative.

In a speech made earlier this year, IMF Deputy Managing Director Takatoshi Kato insisted that countries’ efforts to adapt to climate change must fit with their broader development agenda, maintaining that social and economic development “is one of the most powerful ways to increase the capacity to adapt to climate change”:

“Rising income levels can create the fiscal space needed to meet additional demands on public spending, both on climate-related public goods… and to protect programs affected by climate change.”

He continued:

“There may be opportunities for spending that is ‘pro-development’ and that helps adapt to climate change at the same time…. Nonetheless, it is important to guard against the possibility that efforts to adapt to climate change would detract from wider developmental objectives.”

If development and climate change are, as Britain’s international development secretary stated in February, “inextricably linked,” how can development programs and assistance be focused so as to help sustain livelihoods? What role can microfinance play in order to protect the assets of low-income individuals who are particularly vulnerable to the effects of climate change? Some food for thought as we enter tomorrow’s Speaker’s Corner on Microfinance and Climate Change.