Inclusive Green Finance works – now let’s take it mainstream

As countries seek to transition to a climate-neutral society, expanding access to finance to disadvantaged groups must be a top priority, says Christine Poursat, Head, Financial Systems Division, Agence Française de Développement.

Dealing with the impact of climate change is hard enough. When you can’t access financial services, it becomes almost impossible.

Around the world, the communities most exposed to the effects of climate change tend to be those that are most financially excluded. This double vulnerability must be addressed, and we have the tools to do so.

For years, the concepts of Green Finance and Inclusive Finance evolved separately and in silos. This dichotomy is ineffective, and no longer meets today’s challenges. Too often, efforts to green economies and to increase the flow of finance for sustainable initiatives give no thought to those who risk being left behind.

Finance should, and can, be simultaneously green and inclusive. The network of central banks and financial regulators that make up the Alliance for Finance Inclusion (AFI) pioneered the concept of Inclusive Green Finance (IGF), which seeks to advance climate resilience and emissions reduction through expanding access to financial services.

Agence Française de Développement has been heavily involved in efforts to take Inclusive Green Finance mainstream, working with financial institutions and regulators to build long-term sustainable economic, social, and environmental trajectories.

Let me share some examples of how AFD is advancing Inclusive Green Finance, from around the world.

When a climate disaster strikes, a priority is to provide immediate finance, in the most efficient, effective and fast way, to the most vulnerable. AFD is supporting central banks and regulators on climate risk exposure and mitigation through insurance schemes and the transition of the insurance sector. We contribute to the Global Shield against Climate Risks, a worldwide initiative to coordinate and mobilize finance for climate risks and disasters, providing EUR 20m of funding to develop climate-related risk coverage.

Together with the World Bank, AFD is financing a USD 100m project to strengthen Tunisia’s disaster risk management and financing efforts, including establishing insurance mechanisms to protect people against the financial fallout of natural disasters.

AFD is working with regulators and supervisors to accompany the transition of local financial systems, redirecting financial flows towards low-carbon and resilient investments. We are also supporting central banks in transforming their financial sectors to maximize the positive impact of finance on climate through dedicated financing and capacity building.

In the Pacific region, AFD is funding a EUR 9.5M-project, partly implemented by the Global Green Growth Institute, to promote sustainable finance initiatives to address climate change. The project will develop measures to enable climate-dedicated financing, and strengthen the climate and biodiversity capacities of the central banks of Papua New Guinea, Fiji, Vanuatu, Tonga, Samoa, and the Solomon Islands.

In the Caribbean, a region that is highly vulnerable to climate change, AFD is supporting the central banks of the Eastern Caribbean, the Dominican Republic and Jamaica to assess their exposure to climate change-related risks. With our partners, we aim to reduce emissions, increase climate resilience and reduce social vulnerabilities, while strengthening the Caribbean financial system as well as public and private actors.

Inclusive Green Finance has proven its effectiveness. We now plan to scale it up

Over the next two years, AFD will be supporting the AFI network’s Inclusive Green Finance activities through a EUR 2m grant. This will involve financing in-country implementation of IGF projects, disseminating good practices among peers, and supporting AFI members in measuring the impact of green policies.

There is much to do, and the need is pressing, but I sense a real global willingness to embrace the power of Inclusive Green Finance. Climate change poses a significant risk to financial stability and economic development, and as countries seek to adapt to it, there is a growing acknowledgement that our approach should be fair and inclusive. In an increasingly fragmented world, the growing collective commitment of financial actors to transform the financial system towards climate and sustainability is noteworthy. Public Development Banks, which account for about 10% of all global financing, are increasingly committed towards SDGs and climate action, in particular through the Finance in Common coalition, and their potential is only beginning to unfold. A key success factor is the collaboration and alignment of all partners, led by an ambitious national strategy.

By integrating green finance into our financial inclusion strategies, and financial inclusion into our efforts to green economies, we can drive not just sustainable development, but social development, the fight against poverty, and gender inequalities. Above all, as climate disasters become frequent, we can build resilience where it is needed most.

For more information on how AFD Group works alongside financial institutions and regulators to build long-term sustainable economic, social, and environmental trajectories:

AFI’s Inclusive Green Finance workstream is supported by Agence Française de Développement.