Research & Analysis

Microfinance and Climate Change: Threats and Opportunities

Changes to the world’s climate that were once imperceptibly slow are now clearly visible and happening quickly. Dying coral reefs, the disappearing arctic ice sheet, and proliferating invasive insects in temperate zone forests are among the most visible signs, but countless less dramatic phenomena show that climate change is real. The changing climate is part of a new global environment that impacts all countries, economies, sectors, and people. Microfinance, like everything else, will not be spared.

Climatologists say that the impact of climate change will fall disproportionally on tropical and semitropical regions. Poor countries, and the poorest people in these countries, will likely be hardest hit. Climate change is an immediate threat to economic development in poor countries, which have the least resources to cope with these changes. Development priorities, such as public health, that had been on a path to resolution are suffering from serious setbacks.

Meanwhile, new challenges, including migrations of poor people displaced by drought, heat, flooding, and storms, are appearing. Within the microfinance sector, the word sustainable has tended to be used in a very narrow way, mainly referring to institutions that are financially viable. In the past few years, the term has broadened to include social performance. Today, the increasing emphasis on responsible finance has added environmental impact to the factors considered as measures of success for a microfinance institution.

Proponents of responsible finance sometimes speak of the triple bottom line of “profits, people, and planet”—that is, maintaining financial viability while advancing the social interests of stakeholders and protecting the environment. Among many others, Calvert Funds specializes in socially responsible investments, and Triodos assesses social and environmental benefits as criteria for financing institutions and projects. Several MFIs, such as Grameen and BASIX, have begun to address specific aspects of climate change, including the need to reduce emissions. Other MFIs, including ACLEDA in Cambodia, Findesa in Nicaragua, FIE FFP in Bolivia, and Banco Solidario in Ecuador, report on social and environmental, as well as economic, performance.