Just as major global powers are retreating from climate finance commitments, a new empirical study provides, for the first time, evidence of a direct link between climate finance and a lower risk of resource-related conflict in developing countries.
This is especially the case with climate finance which alleviates water stress and boosts renewable energy projects. And the more climate finance is given, the greater the peace-promoting impact.
Previous research has identified climate change as a significant driver of conflict over resource allocation. Scarcity of resources, social discontent and inequity are all factors which drive conflict.
But this new study, published in the peer-reviewed journal Climate Policy today, is the first to systematically prove that climate finance reduces the risk of conflict.
Understanding within academic fields has previously reached mixed conclusions on how different forms of aid affect conflict risk. By contrast, this study suggests that climate finance may help reduce the risk of resource-related conflict.
The authors reviewed 85 developing countries over more than two decades. Climate finance is defined in the paper as international funding which is directed towards low-carbon and climate-resilient development.
Commenting on the findings, lead author Chin-Hsien Yu from Southwestern University of Finance and Economics in Chengdu in China said: "Our study shows that climate finance can play an important role in reducing conflict, especially in small-scale intra-state conflicts and those linked to competition for resources. Looking more closely, investments in social infrastructure stand out as particularly impactful.
"They don't just support development, they also strengthen the resilience and wellbeing of vulnerable communities by improving access to essential resources such as water and energy, which are vital for livelihoods and can in turn help lower the risk of conflict.
"What's more, our results show that the more climate finance that flows to recipient countries, the lower the incidence of resource-related conflicts. Investment in flood defences, water management, and climate-resilient agriculture all help a region to adapt to an unpredictable climate. This reduces the pressures on the people who live there, and lessens the chance of conflict."
Co-author Xinrui Li, who is also at Southwestern University of Finance and Economics, adds: "Our study finds that climate finance does a lot more than just helping nations to adapt to a changing climate. It also contributes to peace and stability in fragile regions. Governments, policymakers and donors should consider the wider implications when deciding how much to invest in climate finance."
Based on their findings, the authors of the paper recommend that:
- Large climate funds, finance institutions and donors should prioritise regions where climate vulnerability and the risk of conflict overlap. That way, limited resources can be used most effectively to improve the chance of peace.
- Policymakers should give greater priority to water and renewable energy investments in conflict-affected and highly vulnerable contexts, as these appear especially relevant for reducing conflict risk.
- Strong governance is needed 'on the ground', including involving local communities and marginalised groups.
- Those running projects should help the countries which receive the finance to strengthen their systems for planning, carrying out and tracking projects, so they can use the money efficiently, even in difficult and unstable situations.
To address potential endogeneity concerns, including reverse causality and omitted variables, the study applies a two-stage least squares approach, a standard econometric method used to isolate more plausibly exogenous variation in climate finance.
