The shortfall in climate finance from wealthy countries to help poor nations adapt to the effects of global warming is reducing the incentive for developing Asia to take action, a prominent Malaysian economist has warned.
Speaking at the Unlocking Finance for Sustainability conference on Thursday, Professor Jomo Kwame Sundaram, a senior adviser at the Khazanah Research Institute, a non-profit backed by Malaysia’s sovereign wealth fund, said the contribution industrialised countries have made to a pledged war chest for climate-vulnerable countries had been “woefully inadequate.”
His comments come as Pakistan’s minister for climate change, Sherry Rehman, said that industrialised nations should pay reparations to countries facing climate calamity in the wake of flooding that has left around 1,300 people dead in the South Asian country.
Rich nations promised to give developing countries US$100 billion a year to adapt to climate impacts by 2020 at the United Nations climate summit in Copenhagen in 2009. At the COP26 climate talks last November, nations vowed to live up to that commitment with new funding targets.
But only about half of the pledged US$100 billion a year has been delivered to date, Jomo noted at the conference organised by Eco-Business. The amount delivered has risen over the years, although the sum only reached US$83.3 million in 2020.
“There’s very little incentive for developing countries to do very much [to reduce emissions] when rich countries are not meeting their [climate finance] obligations,” he said.
“Rich countries are not trying very hard [to fight climate change], and they’re certainly not delivering the kind of finance needed by poorer countries.”
Developing Asia is the world’s largest and fastest growing source of carbon pollution, and is where the fight to avoid the worst consequences of climate change will be won or lost. It is also the most climate-vulnerable region.
“We are in a very bad situation. And unfortunately, there is no global leadership [on climate action],” said Jomo. “And when there is no global leadership, there’s no incentive at the national level to do the right thing.”
Malaysia is among the countries eligible for climate finance from the United Nations.
The Southeast Asian country requested funding from the UN in January in the wake of catastrophic December floods that affected 125,000 people, killing over 50. It was the first time that Malaysia has requested funding for climate adaptation.
Malaysia – which is Asia’s 12th biggest carbon emitter – has pledged to reduce emissions intensity by 45 per cent by 2030 as part of its Nationally Determined Contributions (NDC) to the Paris climate accord. Ten per cent of this goal had relied on international finance, though this clause was dropped in an update last July.
Jomo said that a pledge made by a consortium led by Mark Carney, the former governor of the Bank of England, at COP26 to direct US$130 trillion worth of funds to achieve net-zero emissions by 2050 rung hollow.
“It is all very well to talk about the money being available. The question is: what is being delivered?” he said.
The call for climate finance has recently been echoed by Cambodia, which is currently heading the Association of Southeast Asian Nations (ASEAN) bloc.
Climate finance will be high on the agenda at the COP27 climate talks in Egypt in November. According to a report published by the UN’s Standing Committee on Finance (SCF), low-income economies need almost US$6 trillion leading up to 2030 to fund their NDCs.
As the impacts of climate change become more severe, the capital needed to adapt will increase, SCF says.
Recognising climate risk
To help meet climate goals, the business world needs break away from “short termism”, said Shahazwan Harris, head of strategic investments at Employees Provident Fund (EPF), Malaysia’s state pension fund.
“We need to be making multi-generational decisions and look at financial returns over a longer period of time,” he said.
Malaysian companies need to get more serious about climate risk, he added.
“There is a danger that corporates are doing it [climate reporting] because it is a trend – because Bursa [Malaysia’s stock exchange] requires it, because SC [the Securities Commission, Malaysia’s financial regulator] requires it. But do they fully understand what climate risk is?”
“Do they really understand how these risks affect their businesses now and in the future? I think they’re still behind – definitely behind companies in more developed markets,” he said. It is a common refrain that Asian firms are blind to business risks such as extreme weather and new sustainability regulations.
Jomo added that climate change cannot be tackled by relying on market forces.
“Leaving it to the market and expecting that pious appeals to ESG [environmental, social and governance] investing is not going to do the trick.”
“ESG is not working and is not going to work,” he said, referring to comments made by Tariq Fancy, the former head of sustainable investing at asset management firm Blackrock, who decried ESG investing as “dangerous placebo that harms the public interest”.
“There is no alternative but for governments to step in with a regulatory framework [to tackle climate change].”
Jomo said that without bolder international and national frameworks to tackle climate change, the Paris Agreement’s “nebulous” goal of achieving net-zero emissions by 2050 would prove elusive.
“2050 is almost three decades away. Governments will do their own thing until 2049, then leave it to the government of the day.”
“This is just simply not going to work,” he said.
Jomo said it was “ironic” that despite a pledge made by 40 countries at COP26 to phase out coal – the most polluting energy source – use of the fossil fuel has surged in the wake of the Covid-19 pandemic and the Russia-Ukraine war.
Coal has also been gaining share in Malaysia’s energy mix, as domestic gas production declines.
Malaysia did not sign the COP26 coal phase-out pledge, although the country has signalled that it wants to reduce its reliance on dirty energy and boost renewables in the energy mix.
Gin Keat Ong, director of Singapore energy firm Uniflow Power, pointed out that there was a “double standard” in Malaysia’s climate and energy policy. The country has been exporting less-polluting natural gas at a premium while prices are high, and importing cheap, highly-polluting low-grade coal to meet post-pandemic energy demand.
