Climate Action Disparities Risk Compounding Existing Economic Inequality

New World Economic Forum research, released Thursday, highlights the close relationship between lack of access to green financing and technologies and the equitable transition to a greener economy. The report makes an urgent call for an institutional response to ensure an equitable transition and proposes metrics to increase transparency on equity implications.

New data published in theAccelerating an Equitable Transition: A Data-Driven Approachreport highlights that most executives around the world are worried about unequal access to green financing and green technologies among businesses in their countries, suggesting that – without proactive measures to ensure economic equity – the transition to a carbon-neutral economy could exacerbate both between- and within-country inequalities.

Asymmetric access to financing, in particular, is cited as the top economic equity risk for the green transition of all sectors, from energy to infrastructure, transportation, agriculture, heavy industry and the circular economy. Unequal access to technology and know-how is expected to create disparities, especially in the development of the circular economy and the greening of energy sources, infrastructure and heavy industry.

"The transition to a green economy must be inclusive to be sustainable," said Saadia Zahidi, Managing Director, World Economic Forum. "Supporting the transition of workers and addressing gaps in financing and access to technology is crucial to meeting both environmental and socio-economic goals. This report provides new data and tools to guide global leaders in making the green transition equitable for all."

With rising social, economic and humanitarian consequences of extreme weather events such as floods and heatwaves, countries need to step up the pace of the green transition. However, justice and equity considerations of climate action are surfacing and the current policy toolkit is inadequate to forge an equitable transition, eroding public acceptance and policy stability.

The report, developed in collaboration with Boston Consulting Group, explores green transition dimensions – seven high-emitting and major segments of the economy that require transformation to achieve carbon neutrality. It also investigates five equity dimensions that reflect key components of economic participation.

Green Transition and Equity Dimensions for a Better Future

Economic equity risks in the green transition can significantly impact workers and the data released today helps to identify sectors where the risk of workers' displacement is highest. These include, in particular, the decarbonization of the fossil fuel and heavy industries, the development of a circular economy and the greening of agriculture and food production.

Affordability challenges are most likely to emerge in the transition of the energy sector, transportation, agriculture and food production, as the transformation of these sectors are more likely to raise prices of essential goods.

Country Archetypes for Equitable Transition

The research emphasizes that equitable transition is a concern for countries across income and development levels. In the absence of readily available data on how climate policy and the actions of companies in key sectors directly impacts economic equity, it is important to recognize that countries will have varied exposure to equity risks based on economic, institutional, demographic and geographical specificities.

While the exposure and drivers of equity implications of climate action vary, there are shared challenges and opportunities across countries. The report categorizes countries into six archetypes:

1. Inclusive Green Adopters: High-income, service-driven economies making significant strides in reducing emission intensity through available green technologies while ensuring economic equity (e.g., France, Netherlands, Spain)
2. Emerging Green Adopters: Upper-middle and high-income economies with significant industrial employment transitioning to innovation-driven economic models (e.g., Poland, Ireland, Italy)
3. Fossil Fuel Exporters: Economies heavily reliant on fossil fuel rents and subsidized energy consumption, resulting in high-emission intensity (e.g., Kuwait, Saudi Arabia, United Arab Emirates)
4. Growth Economies: Rapidly industrializing emerging economies with growing energy demand, balancing climate mitigation with socio-economic development (e.g., Brazil, South Africa, India)
5. Frontier Economies: Low-income countries with large youth populations and low emissions per capita, in need of investing in the foundations for sustainable long-term growth (e.g., Nigeria, Bangladesh, Pakistan)
6. Green Developers: Highly industrialized and technologically advanced countries leading in green technologies and business models (e.g., China, Germany, Japan, USA).

Understanding different channels through which climate action can create inequities, identifying vulnerable stakeholder groups and increasing transparency through comparable, consistent as well as timely evidence can set the agenda for equitable climate action that serves both people and planet. Ensuring the affordability and accessibility of goods and services is crucial in the green transition.