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Digital payments hold the key to climate resilience

Investing in digital-payment infrastructure could help mitigate the effects of extreme weather and transform despair into hope

Over the past 60 years, temperatures in Asia and the Pacific have increased faster than the global average. The region is home to six of the ten countries most affected by climate-related disasters, with rising temperatures disrupting food systems, damaging economies, and destabilising societies. My country, the Philippines, is a prime example.

The increasing frequency and severity of extreme weather events in the region underscore the urgent need to bolster our collective resilience. This fundamental task requires governments to allocate sufficient funding from their national budgets while mobilizing private-sector contributions and development financing.

Forging multi-stakeholder partnerships and securing commitments for future action are at the top of the agenda at the United Nations Climate Change Conference (COP28) in Dubai. The Philippine government, together with other emerging-market governments, have taken a leading role in the efforts to bolster climate finance by urging the international community to embrace the transformative potential of responsible digital payments. This initiative aims to strengthen our collective ability to adapt to climate-induced shocks.

As an active member of the V20 Group – which represents the world’s most climate-vulnerable countries – the Philippines has sounded the alarm about the threat climate change poses to payment systems, emphasizing the urgent need for financial and technical support to adapt to the effects of climate change while pursuing the UN Sustainable Development Goals.

Since 2000, extreme weather events have cost V20 countries $525 billion. In the Philippines, it has been estimated that annual losses from typhoons amount to 1.2 per cent of GDP. Alarmingly, 98 per cent of the nearly 1.5 billion people living in these countries lack adequate financial protections.

Innovation is critical to boosting resilience. Digital-payment systems offer governments an essential tool for addressing climate change, especially for aiding women who are disproportionately affected by it.

During the Covid-19 pandemic, as millions of people were confined to their homes and businesses were forced to shutter, digital payments emerged as a financial lifeline. These systems provided scalability, remote access, accountability, and rapid response capabilities, demonstrating the agility necessary to tackle a global health emergency.

In the Philippines, government initiatives like the Pantawid Pamilyang Pilipino Program and the Social Amelioration Program ensured that financial aid reached those who needed it most. By leveraging existing digital-payment infrastructure and working with financial institutions, the government was able to reduce inefficiencies and minimize physical contact, thereby assisting the broader containment effort. This experience underscores the crucial role that a robust digital-payment ecosystem can play in providing timely support during emergencies.

The effectiveness of digital payments during the pandemic provides a useful model for building climate resilience, particularly in vulnerable communities. These technologies could be harnessed to create similar mechanisms for providing anticipatory funding and responding to climate-related crises. By investing in robust digital infrastructure, championing financial inclusion, and nurturing robust public-private partnerships, governments can lay the groundwork for resilient and adaptive social-protection systems. Such systems have been instrumental in managing crises like Covid19 and tackling the myriad economic and social challenges arising from climate change.

Now is the time to turn words into action. Governments and humanitarian agencies must fully embrace digital payments, using the UN Principles for Responsible Digital Payments, formulated by the Better Than Cash Alliance, as a guiding framework. Ensuring responsible and secure delivery of these services to underserved populations and new users is necessary to build trust and mitigates potential risks.

Digital financial services – including savings, loans, insurance, and payment products – are critical to helping vulnerable communities address climate-related challenges and thrive. By expanding and harnessing these services to facilitate anticipatory financing, governments could achieve scalability, enhance accountability, and cultivate public-private partnerships, thereby ensuring seamless integration with social safety nets.

To realize this vision, we must expand digital access and connectivity, especially in the world’s most climate-vulnerable regions. Recognising that climate change disproportionately affects historically underrepresented populations, enhancing the gender responsiveness of protection systems and fostering cooperation among various stakeholders such as governments, humanitarian groups, financial institutions, and the private sector are critical to equitable efforts to strengthen climate resilience.

The significance of digital payments in bolstering resilience and protecting vulnerable communities in the face of an escalating climate crisis cannot be overstated. But acknowledging this is merely the first step. COP28 provides an opportunity for governments, international organizations, and private companies to foster global cooperation.

Investing in digital-payment infrastructure and extending essential digital services to the regions most affected by climate change could help mitigate the effects of extreme weather and transform despair into hope. The potential return – a more equitable and resilient future – is invaluable. — Project Syndicate

Benjamin E. Diokno is Secretary of Finance of the Philippines.