COVID-19 or the novel coronavirus outbreak has fundamentally affected our everyday lives. The lockdown and social distancing have significantly upset the finance industry or the world economy in general. However, one can also presume the positive effect of the global level lockdown on the environment.
While many may consider the dramatic reduction in pollution levels to be the silver lining, Finance News surmises that the rebound phase could be even worse. Environmentalists predict a significant increase in the pollution levels leading to climatic crises, and this, in turn, will have a direct impact on the financial sector.
An Overview of Covid-19 & Its Impact on Financial Industry
There is no question about the impact of COVID-19 on the financial sector or the global economy. In fact, the global economy is expected to shrink by more than 3% this year, according to the IMF or the International Monetary Fund. The place where it all started, China witnessed a drop in its GDP by 36.6% in Q1 2020. The developing and emerging economies are also predicted to shrink further by -1%.
While this is the case with the financial sector, COVID-19 has also affected climate finance. And, as the year 2020 was considered to be one of the crucial turning points for climate finance initiatives.
What is Climate Finance?
The United Nations Framework Convention on Climate Change UNFCCC defines climate finance as the finance aimed towards reducing the pollution levels caused by emissions and greenhouse gases, etc., alongside maintaining and or protecting human and ecological systems from the impacts of any negative climate changes.
Climate finance is very crucial, as the measures required to reduce emissions, especially from industry verticals that emit a significant amount of greenhouse gases involve massive investments or financial resources, which could be drawn either from public or private sources.
Future of climate finance:
The climate finance globally has been witnessing an increase in recent years. In fact, the year 2017-18 reported an increase of 25% when compared to the period of 2015-16. However, the onset of the COVID-19 pandemic will undoubtedly upset this trend. Moreover, the initiatives and measures enforced to combat the growing coronavirus-induced recession will further impact global public finances and deviate from climate finance.
The paradigm shift from investing in climate finance to investing in combating coronavirus-induced recession will certainly have a long-term impact. And, especially when the lockdown is lifted while the increase in emissions of greenhouse gases will be worse than what it used to be.