A Relationship between Climate Finance and Climate Risk: Evidence from the South Asian Region

Abstract

South Asia is the most vulnerable region in the context of global warming, climate change, and climate risk. Climate finance is the most useful tool for combating climate challenges worldwide. The study explores the present picture of climate finance in South Asian (SA) countries. The study uses multilateral development bank (MDB), Green Climate Fund (GCF), and Germanwatch supplied data from 2011 to 2021. Under the theoretical lens of institutional capacity development, the study attempts to correlate climate finance and climate risk. The study indicates an increasing trend of MBDs’ and the GCF’s climate finance in many countries worldwide. The study finds that MDBs’ total global climate finance is USD 446,977 million, while the SA region has received USD 59,301 million since 2011. It also reports that MDBs provide 77% and 23% of the money to the mitigation and adaptation areas. Moreover, the study reports that, after COVID-19, MDBs substantially increased the amount of global climate financing, but this increase was not seen in the SA region. Our climate risk data indicate that most of the SA countries are highly long-term climate risky and lose, on average, 0.378% of GDP. The correlation matrix finds a negative and significant correlation between climate finance and long-term and yearly climate risk. The study identifies that the region’s climate financing flow of money is not rationally distributed based on the short-run and long-run climate risks. The study presumes that more climate finance would be the most effective mechanism to mitigate climate risk. Therefore, SA region leadership drastically requires a holistic framework to address the prevailing climate problems and to ensure regional coordination and cooperation toward climate finance and policies. The research findings have significant implications for climate policy and climate finance.