Breaking the cycle of risk: mapping a pathway for climate-vulnerable countries to address resilience and debt

Call to action for financial institutions to map resilience-building pathways to tackle the economic fragility of debt-burdened and climate-vulnerable countries.

A new report, “Breaking the cycle of risk: Addressing resilience and debt for a new global financial architecture”, shows that we have the opportunity to move climate vulnerable countries out of debt by reforming the financial architecture.

The report, by E3G and Mistra Geopolitics, explores the relationship between climate, debt and resilience and the influence of geopolitics. It concludes that, as we consider how to reform the international financial architecture to fund the climate transition, we can map the journey out of the debt and resilience crisis for climate vulnerable countries.

Key findings:

• Resilience is essential to the success of economies and societies and the smart economic option, but the vicious cycle between the debt and climate crises, intertwines a lack of economic resilience with a lack of climate resilience, creating fragility.

• The availability of financial aid remains inadequate, while vulnerability itself leads to higher interest rates, making debt harder to pay off.
• Clear roadmaps, and transition plans, will help frame the roles, and actions, of debtor countries, their donors and creditors in emerging from the present crises.
• The debt products, the institutions, and the whole social contract between these parties must move to a more just, mutually engaged and supportive one, if the world as a whole is to move to a more resilient future.

Ronan Palmer, Chief Economist, E3G, said, “In the run up to COP29’s focus on reforming financial systems to fund the transition we must not forget that countries burdened by both economic and climate vulnerability need transition finance that will not push them further into debt as they seek to build more resilience and adapt to the impacts of the changing climate.”

André Månberger, Senior Lecturer at Lund University and Lead of Mistra Geopolitics Decarbonization theme, said “As we consider human security and environmental change, we must consider the role of finance in building or destabilising economic and climate security at the same time. As we move our societies towards a decarbonized economy, we must not leave countries burdened by expensive debt.”

Dileimy Orozco, Senior Policy Advisor, Global Macro and Resilience, E3G, said “We cannot expect countries to escape debt only to be ensnared again as risks increase and intensify. It is crucial to acknowledge the dual challenges of climate and debt risks. Many economies will remain highly vulnerable to climate impacts without investing in resilience and responsibly taking on strategic debt. These countries need a robust safety net and a new contract with International Financial Institutions, including Multilateral Development Banks (MDBs) the IMF, and the private sector to ensure they thrive and have access to finance, particularly in the hardest times."

The report explores the critical challenge of investing in resilience, financing investment in resilience, debt as a constraint on resilience investment, the geopolitics of investing in resilience, and how to get out of the vicious cycle.

Find the report at the E3G website. 

Download the report.

For interviews, please contact:

Helen Civil, Communications, E3G, helen.civil@e3g.org, +44 (0) 7711 734456

Ylva Rylander, Press Contact for Mistra Geopolitics at Stockholm Environment Institute
ylva.rylander@sei.org, +46 (0) 73 150 3384

Ulrika Lamberth, Senior Press Officer, Stockholm Environment Institute,

ulrika.lamberth@sei.org, +46 (0)73 801 70 53

Notes

Authors at E3G include: Inès Benomar, Carolina Cecilio, Lucy Hayes, Dileimy Orozco, Ronan Palmer, Oliver Smith. This paper is prepared by E3G for Mistra Geopolitics phase II, research theme Decarbonization.

E3G is an independent climate change think tank with a global outlook. We work on the frontier of the climate landscape, tackling the barriers and advancing the solutions to a safe climate. Our goal is to translate climate politics, economics and policies into action. E3G builds broad-based coalitions to deliver a safe climate, working closely with like-minded partners in government, politics, civil society, science, the media, public interest foundations and elsewhere to leverage change.

Mistra Geopolitics examines the dynamics of geopolitics, human security and environmental change. The research programme brings together an interdisciplinary team of six Swedish consortium partners: Stockholm Environment Institute (SEI), Stockholm International Peace Research Institute (SIPRI), Linköping University, Uppsala University, Stockholm University and Lund University, with two high-profile international research institutes, E3G and adelphi. The programme is hosted by Stockholm Environment Institute and funded by Mistra, the Swedish foundation for strategic environmental research. Mistra Geopolitics interacts with stakeholder partners including Swedish government agencies, companies and industry associations. 

Related statistics included in the report:

• Global debt and climate crises are intertwined (UNCTAD 2023).
• Around 25% of developing economies and 60% of low-income nations are already experiencing or are at risk of experiencing a debt crisis [various, see footnotes in report]
• The annual costs of adaptation are estimated at $565bn by 2050 (UNEP).
• But investment in resilience is very worthwhile with benefit:cost ratios ranging from 2:1 to 10:1. (Global Commission on Adaptation).
• Investing $1.8tn in climate resilience measures could generate $7.1tn in total net benefits by 2030 (Global Commission on Adaptation).