Climate change is much more than an environmental problem, it is one of the most important challenges humanity faces today, threatening the gains in global development achieved over several decades. Moreover, its effects stretch far beyond humanity, posing a looming threat over all species and ecosystems at large.
According to the World Bank, without urgent action, climate change could push an additional 100 million people into poverty by 2030. Moreover, as this phenomenon tends to exacerbate weather shocks, extreme natural disasters including floods, droughts, and storms add on to the currently annual estimated loss of $520bn in annual consumption and more than $300bn in asset losses. These costs are disproportionately borne by the most vulnerable in society. Climate change is also emerging as a driver of internal migration, with an estimated 17 million “internal climate migrants” by 2050 in Latin America alone. The cost of inaction is estimated at over $20tr globally, while the benefits of action exceed $26tr.
As finance minister I have witnessed the heavy toll that climate change can take on all sectors of the economy. Unprecedented heavy rains and floods in the dry desert of Chile earlier this year forced several firms to suspend their operations. Severe droughts throughout several regions of the country have had a significant negative impact on the agricultural sector, depressing employment prospects, and destroying local economies. Further south, algal blooms have diminished salmon production. Landslides have interrupted water supplies and hit local economies. Heat waves are creating occupational hazards for the construction and agricultural sectors.
This requires a decisive will and action from finance ministers who have a key role in the design of domestic policies, especially in the realm of tax and spending matters. With this backdrop, representatives from 50 countries attended the launch of the Coalition of Finance Ministers for Climate Action in Washington on April 13, an initiative co-chaired by Chile and Finland, with the aim of strengthening collective action on this matter.
More specifically, the Coalition endorsed the Helsinki Principles, a set of six common principles that foster climate action, especially through the use of fiscal policy. Finance ministers can and must have a relevant role in developing and implementing a macro-fiscal framework that integrates climate change in all aspects of finance, planning, and budgeting. Failure to effectively act on this issue will have significant economic impacts and leave our economies further exposed to climate risks and natural disasters.
Since our inaugural meeting last spring, the Coalition’s momentum continues to build, with membership growing from 22 to 43 currently, stretching across all continents. On the back of this drive, the Coalition will meet again during this week’s IMF & World Bank annual meetings to discuss initiatives and policies that may be included in the Santiago Action Plan, a set of concrete actions that should have a tangible impact on climate change.
In Chile, we have taken action on climate this year by becoming the first in the Americas to issue sovereign green bonds. In doing so, we have clearly demonstrated our strong commitment to climate action and the development of the green asset class, while at the same time further improving our financing conditions and diversifying our investor base.
Importantly, the private sector has followed our lead, with several Chilean firms also issuing green bonds. We are set to publish our national financial strategy on climate change, and are awaiting conclusions on a public-private working group on green finance. We are also evaluating incorporating ESG criteria in the investment policies of our sovereign wealth funds. And we can proudly say that installed capacity of our economy’s energy matrix continues to rapidly transition towards non-conventional renewables, rising from 2% in 2013 up to about 33% today. Moreover, we have already set our firm commitment to become carbon neutral by 2050.
We look forward to further strengthening the Coalition in December as we meet during COP25 in Santiago, Chile. We call on all finance ministers of the world to join the Coalition and work ambitiously together to face climate change through shared responsibility and shared action.
Felipe Larraín is the Minister of Finance of Chile
and Co-Chair of the Coalition of Finance Ministers for