• In the absence of adaptation, developing countries stand to be hit the hardest by trade losses due to climate change.

• They must enact adaptation measures to ensure 'trade-climate readiness'.

• Such efforts can ensure the economic resilience needed to achieve their future development goals.

The Paris Agreement on climate change is a landmark document for the world. However, despite the immense impact of climate change on trade, and the role it must play in our fight against global warming, the word trade is not mentioned once in the agreement.

In the space of only 200 years, we have put back into the atmosphere most of the CO2 that nature had spent millions of years absorbing from it. Now we are beginning to see the consequences. Climate change may seem to be evolving slowly at times, but the changes it produces are emerging at a quickening pace. Its initial effects are already being felt all over the world, but particularly in tropical and subtropical regions: the home of the world’s developing countries.

Many of these countries are among the least responsible for CO2 emissions; nevertheless, they are on the frontline in the battle against climate change. Small island developing states, for instance, are responsible for less than 1% of CO2 emissions, yet they are among the most vulnerable economies to climate change. Something is inherently unfair.

Agriculture, fisheries and tourism will continue to be the sectors hit hardest. This has far-reaching consequences, as in the developing world, and in least developed countries especially, these sectors are key contributors to national income and employment. They are also critical for trade as they accounted for 17% of exports from developing countries, more than 24% of the exports of least developed countries, and around 35% of exports from small island developing states in 2019.

Trade-climate readiness

Scientists have issued a stark warning: The current level of greenhouse gas in the atmosphere has locked us into irreversible climate change. And its adverse impacts will continue to grow in step with our inaction. There is no other option: Countries must urgently start planning and implementing actions to adapt their production and trade to the unforgiving effects of climate change. There is a growing need for countries to adapt production methods, identify new comparative advantages, and invest and diversify their economies, while building respective value chains. Such actions to ensure trade resilience as climatic conditions worsen is what we call trade-climate readiness.

What does this mean concretely? It means novel crops and cropping methods and intensified irrigation in farming, and more sustainable fishing methods and new fishing grounds. For the tourism sector, it implies moving tourism infrastructure to higher ground and adapting tourism offers in line with climatic conditions. Regional tourism will have an advantage with increasing climate awareness, and the industry must increasingly cater to domestic and regional market preferences.

In all economic sectors, developing country producers and businesses will need to climate-proof their activities against adverse conditions. The latter include storms, sea surges and floods of increased intensity and frequency, prolonged heatwaves and droughts, increased soil and beach erosion, and an impending influx of invasive species, pests and pathogens. At the same time, developing country governments will need to climate-proof transportation, water, energy and communications infrastructure.

Reducing the risks of economic activity and trade to future climate changes is the subject of a new UNCTAD Trade and Environment Review. It examines the physical impacts of climate change on developing countries and offers a methodology to assist them in enhancing their trade-climate readiness. It proposes a national multistakeholder process to assess sectoral impacts, evaluate response actions and related financing needs, and agree upon a set of trade-climate readiness adaptation actions and a time frame for their implementation.

Climate change threatens to drastically impact developing country exports – mitigation and adaptation measures can offset adverse impacts.
Climate change threatens to drastically impact developing country exports – mitigation and adaptation measures can offset adverse impacts.
Image: UNCTAD

A green transformation does not come for free

Naturally, such transformations do not come for free. More investment is needed, as well as a clear trade strategy that enables these transformations. However, many developing countries have very limited resources to invest in and upgrade technology and infrastructure to adapt to climate change, or to finance new climate-proof production methods. Effective transformations also require that the right choices are made and acted upon on time.

Despite the urgent necessity for funding, international public finance for adaptation falls far short of estimated needs. In the Paris Agreement, developed countries committed to mobilize $50 billion annually to finance developing countries’ climate change adaptation actions through the Green Climate Fund. But actual needs range between $130-300 billion annually by 2030, and between $280-500 billion annually by 2050. And as of November 2020, only $7.2 billion had been approved and $1.4 billion disbursed by the fund.

The coronavirus further aggravates the colossal task ahead. The pandemic has reversed socio-economic progress on many fronts, eating up countries’ resources to finance their green economic transformation.

Global cooperation is an imperative

At the same time, in the midst of this challenge, the COVID-19 pandemic has increased our sense of shared vulnerability and our understanding that tackling global problems requires solidarity and cooperation. We must build on this experience and use it to inspire global action against climate change.

Renewed international engagement will be critical as we push for change at the global level. It must lead to additional funding for developing countries’ climate actions, and trade policies that support their participation in greener trade and regional value chains.

As a society, we have always been confident in our ability to develop remedies that resolve the problems we create. We have crafted vaccines to combat the coronavirus, and CO2 emission-reduction strategies to mitigate climate change. However, nature is unforgiving, and it now appears that neither of these clever remedies will completely rid us of the newfound foes we have let into our world.

What’s the World Economic Forum doing about climate change?

Climate change poses an urgent threat demanding decisive action. Communities around the world are already experiencing increased climate impacts, from droughts to floods to rising seas. The World Economic Forum's Global Risks Report continues to rank these environmental threats at the top of the list.

To limit global temperature rise to well below 2°C and as close as possible to 1.5°C above pre-industrial levels, it is essential that businesses, policy-makers, and civil society advance comprehensive near- and long-term climate actions in line with the goals of the Paris Agreement on climate change.

The World Economic Forum's Climate Initiative supports the scaling and acceleration of global climate action through public and private-sector collaboration. The Initiative works across several workstreams to develop and implement inclusive and ambitious solutions.

This includes the Alliance of CEO Climate Leaders, a global network of business leaders from various industries developing cost-effective solutions to transitioning to a low-carbon, climate-resilient economy. CEOs use their position and influence with policy-makers and corporate partners to accelerate the transition and realize the economic benefits of delivering a safer climate.

Contact us to get involved.

If we want to have a chance for a habitable planet by the turn of this century, we need a radical change, and trade must play a central role in this transformation.