Ensuring a just and inclusive transition to a low-carbon economy

Kerry Adams-Strump—Contributed Photo

Climate change is one of the greatest challenges of our generation. It affects every one of us wherever we are in the world. Deadly heat waves in previously unlikely locations such as in Europe or flash floods in the Middle East and intense storms in Asia have become more common even in the past few years.

The second installment of the flagship report of the Intergovernmental Panel on Climate Change that was released in February this year has noted that despite the recent efforts to reduce the risks, climate change is now causing dangerous and widespread disruption in nature and affecting the lives of billions of people around the world. The report calls for accelerated and ambitious climate adaptation action and deep cuts in greenhouse gas emissions.

The report notes that progress in climate adaptation is uneven and that the increasing gaps between the action taken and what is needed to deal with the increasing risks become more pronounced among the lower-income populations and economies. Therefore, it is imperative that global climate action taken to transition to a low-carbon economy should be done mindfully and carefully executed given the disparity of resources among countries and populations.

Barriers to decarbonization

To start, there is a stark disparity between developed and emerging markets’ energy consumption and contribution to carbon emissions.

While developed markets may have already invested in alternative energy resources, their accumulated carbon footprint to date is still significantly bigger. The United States, Europe, Australia and Japan have an accumulated 67 percent of total carbon emissions.

On the other hand, emerging markets have historically contributed less to greenhouse gas emissions in the atmosphere despite being heavily dependent on fossil fuels.

Reducing emissions while meeting rising energy needs will need heavy investments that are estimated at $1 trillion per year. To date, these emerging markets make up two thirds of the global population but hold only 10 percent of financial wealth. This is indeed one of the biggest challenges for this transition and to meet the targets of the Paris Agreement, both the private and public sectors need to band together to close this gap.

Protecting the most vulnerable

While certain measures are already being implemented, there’s still much that needs to be done in the transition to a low-carbon economy, especially in emerging markets such as Africa and Asia.

In order to achieve a fully low-carbon economy around the world, these markets must be given enough attention and assistance through a just and inclusive transition, a greening of the economy that is fair to everyone, one that leaves no one behind.

The ill-effects of climate change in these parts of the world are even more devastating due to various economic, social and political barriers.

Access to health care remains a problem and with clean air, safe drinking water and nutritious food supply getting compromised by the day, helping these countries keep in step with how first world countries approach decarbonization is an absolute imperative.

The Prudential solution to a global problem

Prudential has pledged to become a net zero asset owner by 2050 and, recognizing that our responsibilities go beyond finance and into supporting the communities in which we operate, we complement these corporate initiatives with sustainable long-term solutions that ensure emerging markets are not left behind in the global energy transition.

We do this by: raising awareness on the challenges for emerging markets in the energy transition and seeking to contribute toward solutions; actively considering the impact on emerging markets in all activities on climate change that we undertake, most importantly on responsible investment; and taking a holistic approach to the challenges of emerging markets.

We expound on these points in our white paper released in October on “Supporting a Just and Inclusive Transition.” (www.prudentialplc.com/~/media/Files/P/Prudential-V13/content-pdf/prudential-plc-just-and-inclusive-transition-white-paper.pdf)

Managing the risks of climate change

Among the emerging markets where Prudential operates is the Philippines. The just and inclusive approach to low-carbon transition is very relevant to the Philippines as the country remains heavily reliant on coal for its energy use.

The Philippines is largely a coal consuming country with coal having the highest contribution to the power generation mix at 58 percent in 2021, based on government data. Its transition to green energy must be implemented gradually as an abrupt transition may leave Filipinos disenfranchised and derail the country’s economic development.

Reported as among the most vulnerable countries to climate change, climate health risk is a serious concern in the Philippines. This has prompted our business in the Philippines, Pru Life UK, to commission an independent study in 2021 to better understand the impact of climate change on Filipinos.

It revealed that climate change poses a direct and significant effect on the overall wellness of the people and that no disease group is immune to the impact of climate change. Particularly, certain diseases are seen to increase in intensity and number as global warming progresses. With the persistent problems surrounding the country’s health-care system, Filipinos, especially those among the vulnerable populations, are at an even greater risk.

To help Filipinos manage the financial risks associated with global warming, Pru Life UK introduced affordable climate-smart insurance products that protect against common diseases such as dengue, typhoid, measles and malaria.

The case of the Philippines brings to the fore the need for equity in climate adaptation and mitigation especially in the global economy’s low-carbon transition. While the country accounts for only about 0.3 percent of the global greenhouse gas emissions, it now suffers tremendously from the irreversible impacts of climate change, putting the lives and health of Filipinos even more at risk.

In closing, Prudential believes that a just and inclusive transition is essential to achieving a low-carbon world. Different countries will have certain challenges or may not be able to decarbonize at the same pace, or via the same methods.

Only when we consider these country-specific barriers can we adopt a holistic approach to energy transition—and only then can we hope to have a greener, more sustainable future. —contributed INQ

Kerry Adams-Strump is director of group ESG at Prudential.