Financial transformations needed to address the nature and climate crises
Comments by Dr. David Obura (coral reefs and sustainability scientist, Kenya) in breakfast meeting with Hon. Mia Mottley and representatives of financial institutions, on 21 June 2023 on the margins of the Paris Summit on the New Global Financial Pact, hosted by Tortoise Media and the Brunswick Group. This text outlines the argument presented in brief comments during the meeting.
Summary points
· The financial and debt crises in the global south are a mirror of the climate and biodiversity debts accrued over 100s of years of over-extraction, and transformed into financial assets, held predominantly in the global north.
· The concepts of ‘loss and damage’ in the climate space and ‘halt and reverse decline’ in the biodiversity space apply across both, complement each other, and must be applied together, across both.
· Balancing the climate and biodiversity debts can only be done through restoring excess capital that has been extracted, to rebuild the climate and biodiversity assets so they can efficiently and sustainably provide for people, and nature.
· Transformation of financial systems must extend to providing mechanisms to transform sufficient financial assets back into biodiversity and climate assets held in secure commons instruments assuring equitable access to all.
Main text
The Bridgetown Initiative actions address transformations in relation to sovereign debt and multilateral processes. Additional actions will be needed in macro and micro-economic spheres to change the individual behaviour of financial and economic actors. I’ve spent 30 years studying coral reefs from my home in Kenya, so I feel a high affinity with small islands, and with developing tropical countries. Coral reefs and tropical countries are experiencing the worst of the current poly-crises — climate, biodiversity, financial, and more. So I express strong support for Hon. Mottley’s Bridgetown Initiative actions for reform[1].
My charge here is to connect the biosphere and climate crises with our finance-driven economies, and what financial reform needs to address. We need to understand the gravity of this moment — from the agrarian revolution 5000 years ago through the industrial revolution 400 years ago and now the digital revolution, the impact of people on the planet has grown exponentially, literally crashing through the ceiling in just the last 20 years, and not (yet) slowing sufficiently.
A promising roadmap is provided by the science of Earth System Boundaries (ESBs), telling us how unbalanced our planet is — but more importantly — providing clear signposts for returning within balance. A flagship paper from the Earth Commission[2] released on 31 May 2023 frames the imbalance in human and justice terms, not just biophysical[3]:
· it reinforced that 1.5 degrees Celsius warming is a safe limit, but showed that 1 degree was the just limit, exceeded in 2015;
· it developed two biosphere (i.e. nature) boundaries, one on the area of healthy ecosystems needed to sustain our planet (50–60% on land), the other on the proportion of nature across ALL remaining places, to sustain people (25% natural habitat, in every square kilometre) — both exceeded;
· it further developed freshwater, nutrient and air pollution boundaries — many also exceeded.
My role in the meeting is to anchor finance reform in the biological and physical realities of the world we live in. That is, the notion that financial imbalance in the global system is a mirror of the biophysical imbalance — and both can be expressed as debt. The trillions discussed in finance must address the eroding biophysical assets;
· finance is needed to regenerate the climate, biodiversity, water, nutrient and atmosphere systems to return within safe and just boundaries, and to assure just access to these, particularly for the people that need them the most;
· but critically also, to rebuild and foster social and political systems that have been manipulated and in many cases destroyed to exploit natural resources in the name of profit and growth, in many cases for 100s of years;
· A critical tool illustrating this for us is the use of global budgets (e.g. of carbon and biodiversity), and considering just allocation of these budgets. Thus those that have consumed more than their fair share of climate and biodiversity budgets must undertake the transformations and redistribution necessary for those whose shares need to be, and can be, restored.
Operationally, this means reversing the trends and practices of the last few 100 years where carbon and biodiversity have been traded and converted into finance and assets enriching just some nations and people;
· these practices include unfair trade regimes, regressive taxes in tax havens[4], and others, all of which prevent or avoid investing at source in sustainability and asset growth;
· these practices and the financial system that drives them are alive and kicking today. The clearest signs are the gross quarterly profits of many corporations in times of global challenges and recession[5], and not just fossil fuel majors.
My main message is the financial and debt crises mirror the climate and biodiversity debts that are physical, tangible and real to 100s of millions globally, particularly in poorer and more vulnerable countries. Resolution of financial and climate/biodiversity crises must be designed jointly, and pick up where the Bridgetown actions on (climate) debt stop. Two key principles have emerged in the climate and biodiversity COP processes, that need to be joined across both, and apply in other contexts;
· loss and damage, as adopted by the climate convention addresses the emergency impacts and reparation that prior action on climate could have avoided;
· but deeper than this is the need to ‘halt and reverse’ declines, as adopted in the biodiversity convention. This requires not only rebuilding and regenerating nature, but fundamentally, also halting and reversing the drivers of biodiversity decline, and redistributing access and benefits from the over-consumers that drive the decline, to the half of the global population that have too little[6].
· Without these transformations, the carbon and biodiversity budgets will never balance, and further components of the earth system WILL fail, in some cases at abrupt tipping points[7].
The financial system reforms needed to re-balance the carbon and biodiversity budgets will have to go deep, and be based on recognizing that the flight of (carbon and natural) capital into financial assets over centuries must be reversed. This is so that that financial capital reinvests in and rebuilds the climate and natural capital to be what may be termed as ‘safe and just’, self-sustaining, and able to support natural systems and human society into the future.
· If this is not done then the natural and climate crises and debt/financial crises WILL repeat and amplify.
It is very hard to know what finance or governance systems must replace the old ones, but initial actions can lead towards varied commons regimes, that scale from local to global, and guarantee persistence of key nature and climate assets and rights of access.
[1] https://today.caricom.org/2023/04/28/bridgetown-initiative-2-0-highlights-six-key-action-areas/
[2] https://earthcommission.org/
[3]Rockström J, Gupta J, Qin D, et al (2023) Safe and just Earth system boundaries. Nature. See the following links: https://earthcommission.org/news/publications/just-world-safe-planet/ and https://www.nature.com/articles/s41586-023-06083-8
[4] https://www.oecd.org/newsroom/130-countries-and-jurisdictions-join-bold-new-framework-for-international-tax-reform.htm, https://press.un.org/en/2022/ecosoc7080.doc.htm
[5] https://www.reuters.com/business/energy/bumper-profits-fuel-surge-dividends-buybacks-oil-firms-2023-01-31/, https://www.euronews.com/2022/11/01/bp-results
[6] https://www.cell.com/one-earth/fulltext/S2590-3322(22)00589-9
