As published on The Financial Times - Addressing social challenges in low-income countries at the sharp end of climate change could be key to unlocking more effective adaptation solutions.
In poor communities, livelihoods are often heavily dependent on climate-sensitive activities such as agriculture. This is particularly the case in south-east Asia, where smallholder farming is the backbone of many economies and where millions of families depend on small plots of land for incomes and nutrition each year. Typical incomes average $500 to $2,000 a year – often close to or below national poverty lines.
Climate change exacerbates the vulnerability of poor communities; in fact, the World Bank estimates that extreme weather could push up to 132 million more people into poverty around the world by 2030, with south-east Asia being the most affected region by a wide margin. For many smallholder communities, climate change will have material impacts, such as unexpected crop failure and reduced income. But while these communities urgently need to adapt to climate change, the poverty that makes them vulnerable also creates challenges when implementing adaptation solutions.
Addressing social challenges first
Smallholder communities are aware of the looming climate risks, but they lack the resources to address them. Globally, less than 10 per cent of smallholders can access formal finance to invest in climate adaptation measures such as improved infrastructure, climate-resistant crops or early warning systems. Instead, most rely on informal finance at rates that can be as high as 25 per cent.
Transitioning to sustainable agriculture will require significant investment: the UN’s Food and Agriculture Organization estimates that a global transition to sustainable agricultural practices could cost as much as $300bn a year, with Southeast Asia requiring a significant portion. But helping lower-income communities in south-east Asia to prepare successfully for climate change will take more than money alone.
To maximise the benefit of adaptation solutions for these populations, the social challenges that they face (such as access to finance) need to be dealt with first. For example, teaching farmers about how to interact with banks – addressing what is needed to borrow from a bank, how repayments and interest work – gives them tools to address looming climate change more proactively, says London-listed lender Standard Chartered.
“When smallholder communities gain access to credit, they are empowered to implement a wider range of adaptation solutions that would otherwise be out of reach. Access to credit allows for the purchase of better seeds and fertiliser, early warning tools to make better decisions and insurance to reduce climate vulnerability,” says Natalie Marko, Standard Chartered’s Global Head of Social Sustainability. “When smallholder farmers are informed and educated about how they can borrow to prepare for climate risks, they are better able to take preventative measures.”
“When smallholder communities gain access to credit, they are empowered to implement a wider range of adaptation solutions that would otherwise be out of reach. Access to credit allows for the purchase of better seeds and fertiliser, early warning tools to make better decisions and insurance to reduce climate vulnerability,” says Natalie Marko, Standard Chartered’s Global Head of Social Sustainability. “When smallholder farmers are informed and educated about how they can borrow to prepare for climate risks, they are better able to take preventative measures.”
And with more adaptive solutions, not only does smallholder resilience increase, but farming output usually goes up, leading to higher, more sustainable income and improved productivity, she says.
Forging a multi-stakeholder solution
Grow Asia, a multi-stakeholder platform established by the World Economic Forum and ASEAN, is pioneering a new blended finance approach, called Grow-Beyond-Fund, to bring financial education, new farming skills, and affordable loans to smallholders across Southeast Asia.
GrowBeyond delivers a closed-loop blended finance model that addresses the current fragmentation of climate finance. Grow Asia brings together governments, financial institutions, private investors, fintech and agri-tech companies and technical assistance providers to deliver a suite of crop-specific financial and knowledge services, enabling smallholders to scale their businesses and adopt regenerative practices. GrowBeyond’s first focus is a pilot with rice farmers in Vietnam, the world’s fifth largest rice producer, and where the Mekong Delta is one of the regions most vulnerable to climate change. Grow Asia hopes to catalyse $1bn in financing to smallholders across Asia by 2030.
In the Vietnam pilot, rice farmers will be able to access affordable credit as well as help in building financial and farming skills. Smallholders can secure loans to buy better quality seed and pesticides and benefit from on-the-ground training in sustainable and productive farming practices including reducing fertiliser use, stopping burning stubble and introducing alternate wetting and drying in paddy fields. Grow Asia’s research has established that the combination of better inputs and better practices could increase yields by 10-20 percent while cutting greenhouse gas emissions by up to 30 percent, says Beverley Postma, Grow Asia’s Executive Director.
“By working together with other partners in Grow Asia to distribute financial risk across the ecosystem, banks can enable farmers with access to loans for the first time,” says Marko. “It is essential to us that the provision of credit for the farmers we reach through Grow Asia also comes with knowledge about saving and overall financial health, so farmers can maximise the benefit of their increased yields.”