Developing countries are victims of climate injustice. The CO2 emissions produced by developed countries have a major impact on their territories. Moreover, wealthier nations, which are historically the largest contributers to global warming are setting the environmental standards that they are expected to meet.
In a paper entitled “African firm default risk and CSR”, published in Finance Research Letters in 2021, my colleague Sana Ben Abdallah and I highlighted a link between the default risk of African companies and their environmental strategy. The stability of African companies is contingent on the implementation of a sustainable development approach. In short, the environmental performance of African companies has a cost and an impact on their stability. Therefore, the consequences of climate risks could not be neutral regarding the stability of the continent’s businesses.
Like Chernobyl’s cloud, the CO2 emissions of wealthy countries do not stop at their borders. They reach developing countries and have a significant impact on their territory. This is known as climate injustice: the fact that the countries most affected by natural disasters tend to be those that have polluted the least.
G20 countries have contributed to three-quarters of Global Warming
The African continent, for example, accounts for only 3% of global CO₂ emissions and yet it suffers from extreme heat, drought, floods, cyclones, tsunamis… it is not responsible for. In addition, some areas in Mali or Niger are heavily irradiated, with diseases spreading as a result of massive uranium mining under precarious safety conditions. Deforestation also continues to disfigure the natural environment. In the long run, these negative externalities could have a “boomerang effect” on humanity as a whole.
The United States (US) were responsible for around 17% of global warming between 1850 and 2021. Over the same period, India was responsible for 5% of global warming, despite having a much larger population than the US. In total, the G20 countries have so far been responsible for around three-quarters of global warming.
US, China, EU-27, Russia, India, rest of the G20, rest of the world, least developped countries.
These violent changes are also affecting Africa’s growth trajectory. A 30% decline in agricultural productivity seems to be a plausible hypothesis. Each disaster immediately leads to an estimated 20% increase in food insecurity. Based on International Monetary Fund (IMF) data, if nothing is done, a GDP decrease of at least 30% can be expected by 2050.
Africa’s CBAM schock
The environmental impact, therefore, cannot be measured in the same way in industrialised and emerging countries. In the fight against global warming, we cannot expect South Africa’s efforts to match those of France, or Brazil’s to match those of Germany.
The pressures, norms and environmental standards from wealthy countries are extremely onerous for poorer nations. Yet, a rapid ecological transition is called for, as evidenced by certain conclusions from COP28, as well as some directives and regulatory instruments from the European Union (EU).
Consider the example of the Carbon Border Adjustment Mechanism (CBAM) adopted by the Council of the EU, which entered a trial phase on October 1, 2023, and is expected to be fully operational by 2026. This mechanism is a real shock for Africa, a trading partner of the EU. The CBAM requires European companies to report on the direct and indirect carbon emissions embedded in their import (such as steel, iron, cement, aluminium, fertilisers, hydrogen, etc.).
This mechanism imposes a tax on CO2 emissions generated by the production of these goods outside the EU. As a result, African exports are expected to become less competitive, which could stifle growth. Ironically, this would leave Africa with fewer resources to finance its ecological transition. The continent is thus faced with a difficult, but not unsolvable equation: it must drive growth without increasing CO₂ emissions.
The risk of Ethnocentrism
The Collins Dictionary defines ethnocentrism as:
“a tendency to view alien groups or cultures from the perspective of one’s own.”
Corporate Social Responsibility (CSR) and, more broadly, the ecological transition are often viewed through the prism of wealthy countries, which seem to hold all the keys and strategies. Decision-making centres are still located in the northern hemisphere. However, these issues cannot be approached from a single perspective; they must be addressed with an openness to a pluralistic world.
The COP28 UN Climate Change Conference, held in Dubai at the end of 2023, was supposed to correct this ethnocentrism by giving the most vulnerable countries a platform to be heard. The long-awaited announcement of a loss and damage fund to help poorer countries cope with the effects of climate change could be a positive, and certainly decisive, step towards greater mutual understanding and the correction of climate injustice.
But since 2009, the Global North has been keeping the Global South waiting. Nothing is settled yet. Only pledges of funding have been announced. So how do we avoid a global divide between the West and emerging countries?
The potential of Green Bonds
While waiting for the climate loss and damage fund to compensate poor countries, part of the solution to the climate crisis in emerging countries could be green bonds. This type of financing is based on raising funds for environmentally-friendly projects such as renewable energy or clean transport.
Most of Africa’s green bonds have been issued by the African Development Bank (AfDB). Morocco, Egypt, Kenya, Nigeria and South Africa are among the most dynamic. The funds raised will be used to help protect against rising sea levels and to back solar energy projects.
So far, the green bonds issued in Africa represent only a small share of the global bond market, accounting for 0.17% of total global issuance over the period 2014-2022, equivalent to USD 2,136 billion. Latin America accounted for only 1.76% of total global issuance over the same period. Global issuances are dominated by Europe, Asia and North America (over 70%). Green bonds offer real potential to help developing countries move towards greener, more egalitarian economies, but market depth remains low.
Europe (46.67%), Asia-Pacific (23.96%), North America (20.28%), Supranational issuances (7.16%), Others (1.93%).
Other financial solutions could include funds from the African diaspora, as remittances totalled nearly 100 billion US dollars in 2021. This is an opportunity for African bankers. How would this work? The banks would collect part of this windfall and turn it into green loans financed by government incentives, supported by wealthy countries’ compensation funds.
The solution is not just financial
In the medium and long term, the ecological transition requires the creation of an entire ecosystem in the developing countries concerned. Three key elements are needed:
- Education and certification in green and sustainable economics and finance. This involves training real specialists in climate risks and the ecological and digital transitions, through specialised programmes in universities that are up-to-date with current research.
- The involvement of civil society, NGOs and think tanks. For example, an African Observatory of Sustainable Finance would be invaluable in unifying and adapting current international regulations. Similarly, national CSR councils that gather all stakeholders would be useful for supporting and developing coherent national strategies to meet European requirements.
- A search for impact measurement tools for companies, banks and organisations to measure progress in sustainable development. This metric should be adapted to companies in emerging countries, so that the ESG (Environment-Social-Governance) transition avoids any ethnocentrism and injustice. This contextualisation should take into account the S and G aspects in countries suffering from impacts on the E, for which they are not really responsible.
This article was republished from The Conversation under a Creative Common license. Read the original article in French.
