Investing in Human Capital for a Greener Future

The economic losses from climate change are enormous. In 2022 alone, recovery from natural disasters—many climate-driven—cost US$300 billion globally. 

The human cost of climate change is harder to quantify but has broad and long-lasting impacts. Climate shocks interrupt schooling and health services, limit people’s ability to earn an income, and displace millions. Slow onset climate trends may not make headlines, but they are no less dangerous.  Drought and desertification reduce crop yields, increasing malnutrition and pushing many families into poverty. The poverty cycle can be long-lasting as jobs are lost and children miss out on proper health and education.

Unfortunately, both across and within countries, the poorest and most vulnerable people are most exposed to climate risks.  Health impacts, destruction of livelihoods, and increasing food prices due to climate change are likely to drive the largest increases in climate-induced poverty levels.

At the 2023 Spring Meetings of the World Bank Group and IMF, over 40 Ministers of Finance and Planning from Human Capital Project Network countries gathered to discuss investing in human capital for better climate outcomes.  At a public event that followed, Human Capital Network Chairperson, Minister Oulimata Sarr from Senegal, was joined by Nobel laureate Esther Duflo, the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics at the Massachusetts Institute of Technology, Andrew Steer, President and CEO of the Bezos Earth Fund, and Axel van Trotsenburg, Senior Managing Director at the World Bank.

The discussions emphasized that, with proper investment, people do not have to be passive victims of climate change.  Indeed, education is the greatest predicator of climate-friendly behavior.

Healthier, better educated people are more resilient, better equipped to work in green jobs, and critical to spur innovation and climate solutions. Human capital is foundational to the green industries of tomorrow which need skilled, healthy people to power them.

To improve people’s resilience and prepare them to drive—and thrive in—a low-carbon economy we must integrate climate considerations into how we invest in education, health, nutrition, and social protection.

Growing evidence demonstrates how countries can adopt human capital policies that deliver on both their climate and development goals by:

• Protecting people against climate shocks and longer-term climate trends.  Maintaining access to services in the face of climate change requires more resilient delivery systems, such as climate-resilient classrooms that shield from rising temperatures.  In the face of shocks, adaptive social protection services provide income support and economic inclusion opportunities and, in the longer-term, promote household resiliency against climate trends. With support from the World Bank, the Moroccan government provided pre-planned disaster risk financing to more than 8 million people—almost one-quarter of the population—affected by catastrophes.
• Building people’s resilience and preparing them for a green economy.  Reforms in health, water, and agriculture can foster climate-smart food systems and nutrition support which are foundational to strong human capital.  Education policies can encourage behavior change for climate action, empower people to find solutions through STEM education and research, and reskill and upskill workers for new opportunities. A recently released World Bank study in OECD countries found that reforms promoting compulsory education increased pro-climate beliefs and behaviors.  When well-targeted, these investments can also help overcome barriers to good jobs for girls and women, young people, and the poor. 
• Using human capital for green jobs and equitable access to the labor market. Sustainability standards can increase demand for green skills, while financial incentives for entrepreneurs can promote green innovation.  Human capital policies also support a just transition.  In Poland, the Government and World Bank created a machine learning tool to help former coal miners identify new job opportunities by looking at their transferrable skills.  And when properly designed, economic inclusion and public works programs help mitigate greenhouse gas emissions while providing jobs to vulnerable workers.  With World Bank support, the South Sudanese government recently launched the Safety Net Social Opportunities Program to help build climate resilience through climate-smart public works.

However, the question remains as to how to finance these investments. The magnitude of the need demands both strategic reforms within countries and innovative platforms to attract external resources. 

On one hand, domestic resources need to be spent more efficiently.  Countries can reallocate existing resources to policies that foster greener, more resilient, and inclusive growth. In Indonesia, for example, fuel subsidy reforms helped create fiscal space to finance a massive expansion of poverty-targeted programs such as cash transfers that reach 10 million poor households—about 28 percent of the country’s poor.

On the other hand, this needs to be a global effort. Only a fraction of current climate financing, estimated at US$630 million annually, goes to developing countries.  Compare that to an estimated need of trillions annually between now and 2050.

Leveraging the private sector can help. In Vietnam, the World Bank is supporting a US$50 million Emission Reduction-Linked Bond that leverages Verified Carbon Units for private sector investment to pay for 300,000 water purifiers and distribute them to schools.   These will make clean water available to around two million children and—by avoiding traditional methods of boiling water—reduce carbon dioxide emissions by almost three million tons over five years. 

Human capital—protecting it, building it, and using it—must be at the center of climate action. Together, we can invest in people for a more sustainable and inclusive future.

The public panel event recording is available on World Bank Live. Visit the Human Capital Project to learn more about human capital and climate change.