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ROADMAP FOR INCLUSIVE GREEN FINANCE IMPLEMENTATION
Financial policymakers and regulators across the AFI network recognize the dual threats of financial exclusion and climate change as key risks to financial stability and sustainable development, and the role of financial inclusion in helping communities build resilience, recover from and mitigate losses caused by climate change, while at the same time supporting broader sustainable development.9
to generate and track, and in many cases, are digitized or automated and responsive to regulatory inquiries.14 This substantial data gap for MSMEs necessitates improving the data-based regulatory approach to IGF.15
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1. INDIVIDUALS AND MSMEs IN FOCUS For AFI member countries, individuals along with micro, small and medium enterprises (MSMEs) are central to increasing financial inclusion, creating climate resilience, and supporting sustainable development across the SDGs. First, the lack of identification needed to open bank accounts and make payments, and other logistical challenges, exposes individuals and MSMEs (especially women, the poor, digitally excluded and those living remotely) to the greatest risk of financial exclusion.10 Further, financially included and excluded populations are vulnerable to climate disaster hazards in the absence of adequate environmental and climate change adaptation capabilities. MSMEs generate the majority of growth, innovation and employment in most economies, including developing countries.11 From a climate change perspective, emissions generated by individuals and MSMEs can be much lower than those by large companies, yet these emissions are mostly dispersed and decentralized, and therefore, more difficult to measure and govern by environmental laws and regulations, especially as the majority of MSMEs are in the informal sectors and outside the reach of most laws and regulations.12 Additionally, if they cannot include adaptation and mitigation initiatives into their own operations, MSMEs will face difficulties once there are mandatory regulations and laws regarding climate response initiatives. In turn, indirect ways to steer the economic conduct of MSMEs and individuals is of the utmost importance and precisely what an IGF strategy may provide. At the same time, a policy focus on MSMEs brings particular challenges. First, any additional regulatory demands may be beyond their capacity or available resources.13 Second, official statistics mainly focus on larger enterprises, given that these are less expensive
9 Alliance for Financial Inclusion. 2020. IGF Working Group. “Inclusive Green Finance.” Available at: https://www.afi-global.org/thematicareas/inclusive-green-finance/ 10 Alliance for Financial Inclusion. 2020. IGF Working Group. “Inclusive Green Finance Policies for MSMEs.” Available at: https://www.afi-global. org/sites/default/files/publications/2020-04/AFI_SMEF_IGF%20 MSMEs_ AW_digital_0.pdf 11 Ibid. 12 Ibid. See also Jong-won Yoon. 2022. “A Sound Investment: Financing the Green Transition of Small And Medium-Sized Enterprises (SMEs).” Available at: https://oecdcogito.blog/2022/04/25/a-sound-investmentfinancing-the-green-transition-of-small-and-medium-sized-enterprisessmes/ 13 S. Koirala. 2019. “SMEs: Key Drivers of Green and Inclusive Growth.” OECD Green Growth Papers, 2019-03, OECD Publishing, Paris, 20-3. Available at: https://www.oecd.org/greengrowth/GGSD_2018_SME%20 Issue%20Paper_WEB.pdf 14 Alliance for Financial Inclusion, ICF and IGFWG, supra 5 at 5 (noting that the majority of AFI members do not collect data on the impact of climate change on MSME finance). 15 Measuring Inclusive Finance Special Report: Available at: https://www. afi-global.org/measuring-inclusive-green-finance