Climate finance for the Global South

Going into COP29 where the focus should be on promoting climate-linked development finance initiatives in the Global South, collective action is crucial to attract funding for the intertwined objectives of curbing the carbon footprint via sustainable agricultural activities.

Let’s start by first reviewing the macro-level fundamentals to outline the causal complexity and the resultant impact before defining some practical solutions.

According to the World Economic Forum’s recent perception survey of global leaders on the anticipated risk spectrum, five environmental and two societal risk elements are included in the top 10 risk elements in terms of severity for the forthcoming decade (the residual three risk elements are tech/cyber/infosec related and none fall under the economic risk category directly).

These socio-environmental risks include extreme weather events intertwined with the critical changes to the Earth’s systems. These are inextricably linked to the collapse of biodiversity and associated ecosystems which are influenced by the increased level of pollution. Arising from environmental and climate risks, we shall see social risks accelerating with involuntary migration out of ‘drying up’ zones due to natural resource shortages towards already overpopulated cities and this will also give rise to societal polarisation, disease proliferation, and crime.

The main driver is the rapid population growth over the 20th century, accelerating in the post-World War II period as we also entered a period of mass industrialisation.

Contextualising the ‘What and the Why’ regarding Pakistan: Our population is projected to surge to over 400 million by 2050, a stark reality that underscores the urgent need to address the nation’s burgeoning food security crisis as urbanisation will accelerate and the ‘youth bulge’ will require greater nutrition. Note that the National Nutrition Survey 2018 showed that 36.9 per cent of the population faces food insecurity. Additionally, the lingering impacts of the 2022 flooding continue to exacerbate food access issues, underscoring the urgent need for comprehensive interventions to address the complex factors contributing to food insecurity in these areas. With a significant portion of the population already grappling with food insecurity, the situation is poised to worsen if decisive action is not taken by the state apparatus on social reforms.

Several interconnected factors contribute to Pakistan’s food insecurity besides climate change-induced extreme weather events, such as floods and droughts, that disrupt agricultural production and exacerbate poverty. In my mind, rather than scarcity, water insecurity arising from inefficient resource management is a fundamental risk to the agricultural sector which is the major consumer of freshwater.

The ‘How’ Part: There are several climate-smart solutions which can be implemented on a public-private partnership basis with the state apparatus resetting guard rails and parameterising best practices to attract climate-linked funding to rebalance and sustainably enhance agricultural output at scale.

From the state perspective, even in the wake of the 18th Amendment, a National Climate-Smart Resources Pact (akin to the National Fiscal Pact) should provide the collaborative governance framework to parameterise best practices as the historically ineffective policies and subsidies favoured less productive crops that led to resource misuse and decreased food security.

Building into the food and water security policy framework, incentivisation and de-incentivisation metrics are essential to promote climate-smart agriculture. This develops resilience to climate change and increases productivity and equitable redistribution.

Practical ‘solutions’ can be deployed that will attract impact funding that requires monitoring and independent validation by climate experts are aplenty. For example, at the provincial level establishing an inventory of existing surface and groundwater resources with real-time monitoring of water flow along the Indus River System as well as the canal network, especially in Punjab.

This will allow for accurate and real-time assessment of water losses throughout the system and identification of key areas where such losses occur including the need to relining the canals to reduce seepage, leading to more targeted remediation measures. Such measures have the potential to revolutionise the water monitoring systems in Pakistan by optimising water usage in irrigation. Rainwater harvesting at the ‘chak’ (community) level can attract similar impact funding but will require a local-level commitment to ensure optimal water usage from locally stored sources.

Climate-smart agricultural practices not only invite private sector investors, but they also lead to food surpluses. From Pakistan’s perspective, it will require a concerted and determined effort to disincentivise the cultivation of water-intensive crops and simultaneously promote high-value, water-efficient crops, such as pulses, fruits, and vegetables which yield significantly higher USD value per drop (of water).

Without targeted incentives, farmers lack the motivation to adopt sustainable practices or shift to high-value crops that could improve food security and boost exports. To be specific, crops like sugarcane – which have low export value and high-water consumption – continue to be widely cultivated, exhausting water resources and degrading soil quality from nutrient exhaustion.

Sugarcane is neither a food staple of strategic importance nor an export driver like rice, hence, measures should be taken to disincentivise its cultivation and gradually funding and replacing it with sugar beet is a better option for domestic sugar production as it has a six-month crop cycle with similar yield but significantly higher nutritional value which will attract funding as value-added exports can be generated. Meanwhile, intercropping with legumes (which have a crop cycle of four months) for restoration of soil nutrients and are of high dollar value besides being water-efficient crops will enhance food security and economic resilience.

At the farmer level, land laser levelling should be made a requirement for farming purposes for farms larger than 50 acres, the cost of such services could be covered primarily for subsistence and below-subsistence level farmers who typically fall below this threshold as part of the agenda by sustainability & ESG fund managers targeting certain SDGs to reduce income inequality, poverty and hunger.

At present, large farm owners already have access to finance for climate-smart agriculture including greenhouses, hydroponics for vertical and tunnel farming, and central pivots. I recommend that provincial governments mandate their provincial banks and the state-owned banks to design climate-smart solutions for smaller land holdings and form cooperatives at ‘chak’ levels. Other lenders and investors will follow once the ground has been broken to go beyond banking.

An example of being ‘more than a bank’ was launched this year in the form of an agricultural ancillary services company by a leading systemically important bank after promoting innovative climate-smart development financing solutions to enhance staple crop yields over tens of thousands of crop areas. This sort of initiative can be replicated and attract external investors to Pakistan as the enhanced profitability from the sale of crops has been independently validated and published by development experts at CERP and Princeton and Yale universities.

Given the complexity associated with the multi-pronged risk elements, and the solutions that need to be implemented against time-bound action plans, stakeholders involved in national security policy design should start getting involved in collaborative discussions on the ‘How’ part of the implementation to ensure that we keep on track. Needless to say, the impact of climate change is the largest strategic threat proponent over the long term as it will give rise to several non-traditional asymmetric risk elements. We should expect a higher probability of regional conflict and internal strife as a resultant if not curtailed through prudent measures.

Climate change is real. Let’s try to convert risk and threat into opportunity for a safer, healthier planet. Pakistan can play a significant role in this space and introduce climate finance initiatives that invite investment and greater stability.

The writer is a senior banker seasoned with international experience in global markets and development finance. He can be reached at: 1adnanpasha@gmail.com