Finance

Eliminate harmful subsidies and financing

Public and private investments and public subsidies continue to support activities incompatible with a sustainable future — the development of new fossil fuel reserves, overfishing, land-degrading agricultural practices and more. Governments and financial institutions enable practices that harm society and the environment, misuse valuable financial resources, distort the market and expose those institutions to financial risks.

These financial flows must stop and be redirected to support a sustainable, decarbonized economy. Subsidies are non-market benefits that governments give to individuals, businesses or institutions. They include benefits like direct funding, preferential tax treatment, non-commercial loans or guarantees, or preferential pricing schemes. When subsidies support activities that conflict with climate and sustainable goals, they can cause environmental harm and create economic inefficiencies that unfairly hinder sustainable industries.

For example, subsidies for fossil fuels reduce the prices of carbon-intensive energy relative to the price of clean energy, creating an unfair advantage for fossil fuels and shrinking the market for clean energy alternatives. 

Harmful subsidies do not happen in a vacuum: they are often the result of political lobbying. The world's largest corporate greenhouse gas (GHG) emitters and their industry associations use political spending to influence policies that preserve government support and impede climate policy. Therefore, political spending that props up harmful industries and delays climate action needs to be highlighted and phased out.

While subsidies use government resources that are not otherwise commercially available, public and private financial institutions also perpetuate harmful practices through the use of financing that is offered on commercial terms.

Capital flows will shift as governments and the private sector invest in the green economy, creating better goods and services that cut demand for high-carbon technologies. To eliminate harmful capital flows, however, public and private institutions should also be challenged to constrain the availability of financing for harmful activities by setting clear engagement policies, stringent screening criteria, and criteria for divestment. Shifting capital flows may increase the cost of capital — the return expected by the company’s investors and lenders, primarily based on the perceived risk — and, over time, reduce the amount of capital available for harmful activities.

Ultimately, financial decisions to undertake unsustainable activities are made at the corporate level — capital investments to, for example, build a coal plant (capital expenditures or “capex”) or to maintain that plant and buy more coal to operate it (operating expenditures or “opex”). Investors in these companies can influence those decisions. Achieving a sustainable future will require changing company-wide capex decisions in the most climate-relevant sectors.

Eliminating harmful financing by disinvesting or changing the behavior of investee companies not only reduces societal harm. It also presents opportunities for financial institutions to eliminate their exposure to climate-related risks and expands the availability of resources to scale public and private investments for more sustainable activities.

Data Insights

What targets are most important to reach in the future?

Systems Change Lab identifies 8 targets toward which to track progress. Click a chart to explore the data.

What factors may prevent or enable change?

Systems Change Lab identifies 11 factors that may impede or help spur progress toward targets. Click a chart to explore the data.

Progress toward targets

Systems Change Lab tracks progress toward 8 targets. target. Explore the data and learn about key actions supporting systems change.

Fossil Fuel

Fossil fuel subsidies

The IPCC finds that removing fossil fuel subsidies could reduce global emissions between 1% and 10% by 2030 while improving public revenue, and as of 2020 fossil fuel subsidies were estimated to reach $375 billion.

Subsidies are non-market benefits governments give to individuals, businesses or institutions. According to the Intergovernmental Panel on Climate Change (IPCC), removing fossil fuel subsidies could lower global emissions between 1% and 10% by 2030 while reducing government spending.

Phasing out fossil fuel subsidies is necessary to ensure that the production and consumption of fossil fuels are not inflated by government support. Without subsidies, these activities would be subject to market competition, with their costs reflected in their prices. (Fully reflecting their costs also entails pricing their harmful emissions.)

Studies of fossil fuel consumption subsidies across many countries have shown that they are regressive: the richest households capture most of the benefits. Nonetheless, eliminating some subsidies can raise energy costs in ways that do impact lower-income groups. Rebates and financial support can help relieve the burdens created by changes in energy costs when subsidies are withdrawn. These support mechanisms can be funded by revenue that is generated by removal of fossil fuel subsidies.

The Fossil Fuel Subsidy Tracker estimates that global fossil fuel subsidies reached $375 billion in 2020, with $203 billion directed to petroleum, $63 billion to natural gas, $89 billion to end-use electricity, and about $20 billion to coal. This represents a 29% decrease from 2019. However, though global data is not yet available, subsidies are expected to have risen again in 2021 as major economies almost doubled support for fossil fuels in response to the sharp increase in energy prices caused by Russia’s invasion of Ukraine.

G20 countries have reiterated commitments to phase out inefficient fossil fuel subsidies since 2009 and the G7 has announced its goal to phase them out by 2025. Yet, these commitments have not translated into reductions at the scale needed to meet the phaseout targets as subsidies have remained near historical levels. Fossil fuel subsidies need to be phased out globally by 2030 to meet climate targets. In order to achieve this, they will need to fall by an average of $38 billion per year between 2020 and 2030, almost double the historic rate of decrease.

Public financing for fossil fuels

In 2020, public finance for fossil fuels totaled $687 billion, needing to fall by an average of $69 billion per year between 2020 and 2030 to meet the 2030 phase-out target.

Public finance, whether on concessional or commercial terms, plays a critical role in propping up fossil fuel industries, especially coal. It materializes via production and consumption subsidies, financing from development finance institutions and export credit agencies, and capital expenditures and project financing from state-owned enterprises. It is estimated that 93% of coal power plants are well insulated from market forces and benefit from public support through long-term supply contracts, tariffs and other means. 

In order to meet Paris Agreement goals, public funders need to act swiftly to eliminate finance for coal power generation and phase out oil and gas investment, redirecting investment and job growth toward clean energy and providing economic transition for affected communities. Although leaders of the G20 countries, comprising the world’s 20 largest economies, pledged to stop public financing for new coal power plants overseas by 2021, no commitment was made to stop using coal domestically. And the G7 countries have not been able to agree on fully ending public finance for fossil fuel energy.

In 2020, public finance for fossil fuels totaled $687 billion, with $375 billion directed to subsidies, $62 billion to financing of projects, and $250 billion to capital expenditures. This number will need to fall by an average of $69 billion per year between 2020 and 2030 to meet the 2030 phaseout target, almost five times the historic rate of decrease.

Private financing for fossil fuels

Fossil fuel financing from the world’s 60 largest banks reached $742 billion in 2021, and to meet the 2030 phase-out target, private financing will need to decrease by an average of $82 billion per year between 2021 and 2030.

Private funding will need to be redirected from fossil fuel to clean energy for the world to be able to reach net-zero carbon dioxide (CO2) emissions by mid-century.

According to several analyses, coal power generation needs to be phased out in advanced economies by 2030 and globally by 2040, while fossil gas power generation needs to fall to very low levels globally by 2040. Large-scale oil-fired power generation must also follow a phaseout schedule by 2040. The sale of new passenger cars with internal combustion engines needs to be phased out by 2035. Finally, investments in new fossil fuel supply need to be stopped — and not simply shifted to other countries. This is especially important for the private sector in advanced economies, which fund the majority of overseas coal finance.

Phasing out fossil fuels globally will require private finance to shift away from investing in fossil fuel toward clean energy, and instead support transition planning in high-carbon sectors. While there have been encouraging signs of investment shifts in the private sector, actions have lagged far behind the pace and scale necessary, and additional transparency will be crucial to catalyze change. 

Phasing out fossil fuels makes sound investment sense. It’s estimated that investors risk losing $1.4 trillion from fossil fuel assets becoming “stranded” (devalued and unable to generate economic return), underscoring the need for the market to incorporate climate risks. Although there is no comprehensive source of information on private financing that includes all types of financial flows, the Banking of Climate Chaos database tracks bank financing supporting fossil fuels.

In 2021, fossil fuel financing from the world’s 60 largest banks reached $742 billion, with $61 billion related to coal and $681 billion related to oil and gas. To meet the 2030 phase-out target, private financing will need to decrease by an average of $82 billion per year between 2021 and 2030, more than 20 times the historic rate of decrease. This indicator will include other types of private financing for fossil fuels once data becomes available.

Cost of capital for high-carbon activities, starting with offshore oil production

The cost of capital for oil and gas projects reached 22% and 11.9%, respectively, in 2019 — far higher than the cost of capital for renewable energy.

Private investment in a company or project is a combination of investors providing equity that bear more risk but expect higher returns, and lenders providing debt that expect lower risk but lower returns. The combination of the two determines the cost of capital for that company or project. 

The cost of capital for fossil fuel projects has increased over the past several years due to various factors: increasing recognition of climate transition risks, such as demand destruction from technologies like electric vehicles; public policies signaling a future with reduced fossil fuel demand and supply; investor engagement on decarbonization; and a smaller pool of capital willing to invest in the industry due to climate concerns or recent investment losses in energy.

Higher cost of capital for fossil fuel can reduce new investments in fossil fuel infrastructure and ultimately lower supply. It is therefore a crucial finance indicator, revealing whether financial conditions for fossil fuels and investments are becoming economically unfeasible. The cost of capital for oil and gas projects reached 22% and 11.9%, respectively, in 2019 — far higher than the cost of capital for renewable energy. Even with the recent surge in fossil fuel prices, Goldman Sachs estimates a 15% divergence between the cost of capital for fossil fuel projects relative to low-carbon energy projects.

The cost of capital for other high-carbon activities, including heavy industry, shipping and aviation, should rise as competing technologies enter the market and economic, social and political pressure encourages substitutions for low-carbon alternatives.

Total capital investment planned in high-carbon activities misaligned with a 1.5°C pathway, starting with fossil fuel production and power generation

Capital investments in fossil fuel production and power generation totaled $897 billion in 2021, up 15% from the previous year.

Capital plans articulate the investments that corporations intend to make in physical fixed assets (plants, properties and equipment) and ongoing operations. These are the investments that drive future production and emissions. Capital expenditure in fixed assets for fossil fuel production and consumption is particularly important, because investments in new fossil fuel infrastructure today effectively lock in higher carbon emissions in the future.

According to the International Energy Agency’s (IEA) Net Zero Emissions by 2050 scenario, global energy demand and net-zero carbon emissions can both be met by mid-century.

This will require funding for the development of new fossil fuel supply to be eliminated and major sources of demand for fossil fuels — such as fossil fuel-based power generation and transportation — to be phased out. Corporations need to take the critical step of aligning their capital plans with net-zero pathways by eliminating capital investments in new fossil fuel production and coal power generation and phasing out capital investments in other high-carbon infrastructure. Instead, they must scale up sustainable, clean alternatives. 

Data on unaligned capital investment plans will be tracked once it is available. In the meantime, total capital investments can be used as a proxy to track the level of investments being made in fossil fuel production and power generation. 

Capital investments in fossil fuel production and fossil fuel-based power generation totaled $897 billion in 2021, up 15% from the previous year. Capital investments for oil and gas supply (up/mid/downstream) reached $673 billion in 2021 (up 17% from the previous year), and investments in coal supply totaled $105 billion (more than 10% higher than 2020). Investments are expected to increase in 2022 as tight supply and high prices attract new projects.

Capital investment in fossil fuel power generation reached about $119 billion in 2021 and is expected to reach similar levels in 2022. Not all capital investments are intended for expansion of new supply; a portion is allocated toward maintenance. Capital investments in fossil fuel production and power generation need to fall by an average of $100 billion each year, twice as fast as the historic rate, to meet the 2030 target. 

Agriculture, Fisheries and Deforestation

Harmful fisheries subsidies

Initial targets to end these subsidies by 2020 were delayed in part due to COVID-19, but in June 2022, the World Trade Organization reached a milestone agreement to curb harmful fisheries subsidies.

Harmful fisheries subsidies include any monetary or in-kind government support to the fishing industry that contributes to overfishing or illegal, unreported and unregulated fishing.

The intent of these subsidies is to supplement income or lower costs for fishing operations, but they can have significant negative impacts on fish stocks. Additional payments can allow fishing fleets to fish more, at greater distances, and for longer amounts of time. Harmful fisheries subsidies contribute to overcapacity — more labor, and more and better equipment than the fisheries can support — that further exacerbates fishing beyond sustainable limits. 

According to the Food and Agriculture Organization (FAO), about 34% of the world’s fish stocks are fished beyond their biological limits. Harmful fisheries subsidies were estimated to total around $22.2 billion globally in 2018, with China, the European Union, Japan, Russia, South Korea, Thailand and the United States providing two-thirds of these subsidies.

The Pew Trusts estimate that if all subsidies were eliminated, fish biomass could increase by at least 12.5% globally by mid-century. One of the targets under the United Nations Sustainable Development Goals (SDGs) aimed to prohibit these subsidies by 2020, but an agreement was postponed in part due to COVID-19. In June 2022, members of the World Trade Organization reached a milestone agreement to curb harmful fisheries subsidies.

Harmful fisheries subsidies will need to fall by an average of about $3 billion per year between 2018 and 2025 to meet the 2025 phase-out target.

Agricultural subsidies that incentivize unsustainable intensification and overuse of natural resources

According to the OECD, agricultural support reached $832 billion in 2020, with different studies estimating that only 5% is dedicated to conservation while 87% is considered harmful to humans and nature.

Governments provide agricultural support in many ways. Agricultural subsidies can be implemented via lower costs for consumption, guaranteed market prices, trade barriers, and direct government spending to support production and farmer income. These instruments and policies are designed to create incentives for specific practices or types of production, lower price risk and uncertainty, and benefit local farmers. However, if not designed properly, they can lead to distortion in the markets,  unsustainable management and overuse of land.

According to the FAO, current agricultural support is “unequally distributed, and harmful for the environment and human health.” It has found that the reduction and redirection of harmful agricultural subsidies is essential for the world to meet the SDGs by 2030. Support that is based on pricing and output levels is typically the most environmentally harmful. Agricultural subsidies should be structured to reduce their environmental harm and encourage sustainable production practices that mitigate CO2 emissions.

Some countries have already shifted support toward sustainable practices by decoupling payments from production and reducing input subsidies, thereby discouraging inefficient production and excessive use of fertilizers and pesticides. Another policy with some evidence of effectiveness is the structuring of farm payments to be contingent on environmental goals. 

According to the OECD, agricultural support reached a total $832 billion in 2020 for the 38 OECD countries plus 11 major developing economies. Together, they account for two-thirds of all agricultural production. Different studies estimate that only 5% of agricultural support is dedicated to conservation, while 87% is considered “price-distorting or harmful to nature and health.” Although simply removing support can bring adverse effects (such as impact on diets, higher food costs and undernourishment), agricultural support should be repurposed to do less environmental harm and support healthier, equitable and sustainable measures.

Harmful subsidies need to be phased out and, most importantly, repurposed to support sustainable agricultural production by 2030. This indicator will be updated once more precise data on unsustainable agricultural subsidies is identified and made available.

Share of the world's corporations (financial and non-financial) most responsible for forest loss that are implementing their commitments to reduce deforestation

Out of the 500 firms tracked by Forest 500, about 48% have reported progress toward implementing their deforestation commitments for at least one of the high-risk commodities identified.

Deforestation leads to the loss of biodiversity and critical ecosystem services and contributes to climate change. Many companies have acknowledged the harmful effects of deforestation and have pledged to enact new deforestation commitments. But commitments alone are not enough.

To hold corporations accountable, we must measure the number of corporations implementing their strategies and commitments and publicly and transparently report on the progress of these pledges. With more data available, civil society and regulators can demand greater action.

Forest 500 tracks the 350 non-financial corporations and 150 financial institutions that are most influential in causing tropical deforestation. Out of the 500 firms, about 48% have reported progress toward implementing their deforestation commitments for at least one of the high-risk commodities identified (beef, leather, palm oil, pulp and paper, soy and timber). Between 2021 and 2030, each year, 30 new firms will need to implement deforestation commitments in order to reach 100% coverage by 2030.

Enablers and barriers

We also monitor change by tracking a critical set of 11 factors factor that can impede or help spur progress toward targets. Explore the data and learn about key actions supporting systems change.

Fossil Fuel

Number of countries committed to fossil fuel subsidy reform in their Nationally Determined Contributions

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As of July 2021, the International Institute for Sustainable Development reports only 15 countries that had included fossil fuel subsidy reform in their nationally determined contributions commitments.

The transition to a decarbonized global economy hinges on the phase-out of fossil fuel subsidies. These subsidies allocate public resources inefficiently. They also generate higher GHG emissions and local air pollution, which disproportionately harm lower-income households. The phase-out of fossil fuel subsidies will reduce GHG emissions, promote energy security and produce environmental and socioeconomic benefits. 

G20 countries have reiterated their commitments to phase out inefficient fossil fuel funding since 2009 and G7 members have announced a goal to phase them out by 2025. Additionally, at 26th Conference of the Parties (COP26) in 2021, 197 countries agreed to phase out “inefficient” fossil fuel subsidies. Yet, few governments have delivered on their commitments: total spending from fossil fuel subsidies in the Organisation for Economic Co-operation and Development (OECD) and emerging economies amounted to $345 billion in 2020. 

According to the International Institute for Sustainable Development (IISD), as of July 2021, only 15 countries had included fossil fuel subsidy reform in their nationally determined contributions (NDC) commitments under the Paris Agreement. Additional countries have announced net-zero emission goals and could eventually fulfill their previous pledges and include fossil fuel subsidies phase-outs in their updated NDCs.

Number of financial institutions committed to no new fossil fuel investment and to fossil fuel divestment

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According to the Global Fossil Fuel Divestment Commitments database, 1,511 institutional investors have committed to divesting about $40.4 trillion in assets under management from the fossil fuel industry.

Investors and financial institutions have been reducing their exposure to the fossil fuel industry to manage financial risks and lower their contributions to rising global GHG emissions. 

According to the International Energy Agency’s (IEA) Net Zero Emissions by 2050 scenario, no new investment in fossil fuel development is necessary to meet global energy demand. Instead, it is essential to eliminate these investments to reach net-zero CO2 emissions by 2050.

Financial institutions and investors across different sectors (including, for instance, university endowments, government pension funds and foundations) are increasingly aligning their financing and investment decisions with this new reality and committing to phase out and divest from fossil fuel investments. In theory, as more financial institutions foreclose financing to the sector, the cost of capital for companies seeking to develop new fossil fuel resources will increase, making it more difficult to do so. In addition to divestment, financial institutions can also implement engagement and stewardship strategies to incentivize their portfolio companies to transition away from fossil fuels. 

Activists and smaller institutions have been at the forefront of reducing financing for fossil fuel expansion. Now, larger firms are joining the movement to transition away from fossil fuel toward clean energy. According to the Global Fossil Fuel Divestment Commitments database, 1,511 institutional investors (faith-based organizations, education institutions, philanthropic foundations, governments and non-governmental organizations) have committed to divesting approximately $40.4 trillion in assets under management from the fossil fuel industry. These commitments vary in terms of scope, processes and timelines. However, the rapid financial migration away from oil, gas and coal activities is a critical step in the transition to net-zero. Financial institutions committed to stop funding new fossil fuel supply will be tracked once data is available.

Number of countries and development finance institutions (including multilateral and national development banks) with plans to phase out fossil fuel projects and financing

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As of April 2022, 82 countries have energy systems that do not include coal, 18 countries have committed to phasing out coal by 2030, eight have promised to do so by 2040, and nine during the 2040s.

Fossil fuels are the dirtiest and most polluting sources of energy and contribute a majority of the GHG emissions that drive climate change. To reach net-zero emissions around mid-century, national governments and development finance institutions need to stop financing fossil fuels. 

The International Energy Agency’s (IEA) Net Zero scenario outlines an energy transition that would meet global demand for energy, equitable energy access for developing countries, and climate objectives to eliminate carbon emissions by 2050. In order to reach net-zero, no new coal power generation, oil or gas supply should be developed. Simultaneously, demand for fossil fuels needs to fall drastically. 

Unabated coal plants (those without technologies such as carbon capture to reduce emissions) in advanced economies need to be phased out in advanced economies by 2030 and globally by 2040, and oil and gas power generation needs to fall to very low levels by 2040.

Countries and development finance institutions, including multilateral and national development banks, have made commitments to phase out coal and fossil fuel investment to varying degrees. G20 countries made a commitment in 2021 to stop financing coal-fired power plants overseas.

Multilateral development banks (MDBs), are international financial institutions like the regional development banks or World Bank, provide financing to assist economic development. With significant pools of capital and ties with national governments, they have the ability to support a just transition to a sustainable global economy. Most MDBs have continued to fund fossil fuel infrastructure in client countries, which could deepen dependence on fossil fuels and delay the transition to renewable energy. 

As of April 2022, 82 countries have energy systems that do not include coal, 18 additional countries have committed to phasing out coal by 2030, eight have promised to do so by 2040, and nine during the 2040s. Five MDBs have made commitments to not provide any more direct coal funding.

Corporate spending on anti-climate lobbying, starting with fossil fuel lobbying

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In the European Union in 2018, the oil and gas industry spent $27 million on lobbying. In 2021, the oil and gas industry spent $115 million on lobbying in the U.S. on a range of issues.

Companies in the fossil fuel and related industries spend significantly to influence policymakers to pass policies in favor of production and consumption of fossil fuels, or to delay climate policies that accelerate the transition to a zero-carbon economy. Lobbying, like campaign financing, is intended to drive political interests, but it takes a more direct approach by influencing decisions through written or oral communication. Lobbyists are industry representatives who influence government officials to align with their clients’ agendas. 

A common anti-climate lobbying tactic is to acknowledge climate change while misleading the general public about the severity of the crisis and turning policymakers away from solutions. 

In 2021, the oil and gas industry spent $115 million on lobbying in the United States on a range of issues, many designed to prevent the passage of policies that are crucial to meet national climate targets. The European Union’s oil and gas industry spent $27 million in 2018 on lobbying. With continued pressure from fossil fuel lobbyists, the oil and gas sector exerts an enormous influence on political systems and obstructs critical climate policies. 

Campaign finance contributions from the fossil fuel industry

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According to Open Secrets, the oil and gas industry contributed $139 million to the U.S. congressional election cycle in 2020, and the coal mining industry contributed about $9 million in 2020.

For decades, major fossil fuel companies have leveraged their political influence through campaign donations, lobbying associations and close relationships with policymakers. This has undermined efforts to decarbonize the economy and stall climate policy. By channeling millions of dollars toward political candidates in countries like the U.S., where this is allowed, companies expect decision-makers to create favorable fossil fuel policies and vote in favor of their interests. 

According to Open Secrets, the oil and gas industry contributed $139 million to the U.S. congressional election cycle in 2020, a 60% increase from 2018. The coal mining industry contributed about $9 million in 2020, with similar spending in 2018.

A 2020 Proceedings of the National Academy of Sciences study found a positive relationship between members of the U.S. Congress voting against environmental policies and the campaign funding received from fossil fuel companies. As long as the fossil fuel industry continues to make major contributions to election campaigns, the transition away from fossil fuels will face significant political obstacles. Data on countries in addition to the U.S. will be added when available.

Agriculture, Fisheries and Deforestation

Fishing subsidies reallocated toward sustainable fishing practices

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According to the OECD, government subsidies targeted to management of fishing resources, stock enhancement programs and research and development totaled $2.7 billion in 2018.

The global fishing industry is a major recipient of government subsidies, but mismanagement of marine resources has placed food systems and ocean ecosystems in jeopardy. Today, 63% of the estimated $35 billion of global government spending to support fishing is considered harmful, contributing to overfishing and depletion of fisheries. These harmful subsidies need to be phased out and shifted to more sustainable practices.

According to the FAO, “the fraction of fish stocks that are within biologically sustainable levels decreased from 90% in 1974 to 65.8% in 2017.” Governments can redirect fishing subsidies and protect these valuable marine resources through a range of actions. They can establish catch shares to allocate fishing rights, appoint marine commissions to act as regulatory bodies and conduct ecosystem risk assessments, and develop certifications to establish environmental standards for fishing companies. 

The phase-out of harmful subsidies and reallocation toward sustainable practices will be critical to ensure food security, protect marine biodiversity and safeguard the fishing industry. According to the OECD, government subsidies targeted to management of fishing resources, stock enhancement programs and research and development totaled
$2.7 billion in 2018.

 

Fishing subsidies shifted to support fishing communities

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An estimated $35 billion is spent worldwide in subsidies per year, but according to the OECD, 15 countries earmarked only about $81 million in 2018 to support fishing communities.

Harmful fishing subsidies provide international fishing corporations and local coastal communities with incentives to overfish — often via illegal, unreported and unregulated practices — which contributes to the depletion and collapse of fisheries. An estimated $35 billion is spent worldwide in subsidies, and $22 billion of that amount is considered harmful, favoring industrial fishing and driving further inequality with artisanal fishing. As a result, fishing communities face major financial challenges from fishery depletion, competition from commercial fishing companies, and climate risks such as sea level rise and ocean acidification. 

To support fishing communities and protect livelihoods, policymakers can decouple subsidies from fishing effort and re-orient subsidies toward sustainable fishery management. They can also provide payments for poverty alleviation. Rather than encouraging overfishing through activities related to output (catch) or effort (number of boats), governments can set fishing management frameworks and provide additional financial support that allows fishing communities to work within economically and ecologically feasible boundaries.

The continued employment of fishing communities and additional financial support for them can help communities shift the fishing industry away from unsustainable practices. According to the OECD, 15 countries earmarked about $81 million in 2018 to support fishing communities.

Government support repurposed for sustainable agricultural research and technical assistance

Innovation
The World Bank estimates that governments allocated $35.5 billion per year to agricultural research and technical assistance on average from 2014 to 2016, corresponding to 12% of total direct government agricultural spending.

Agriculture is a major beneficiary of government subsidies and a primary driver of land degradation. Governments have spent nearly $540 billion to support the agriculture industry, but 87% of spending has supported unsustainable practices that distort market prices, erode natural environments and ultimately harm human health. Subsidies to support agricultural producers are projected to triple to $1.8 trillion by 2030.

Rather than continue business-as-usual practices that exacerbate the overuse of natural resources, government spending can be re-oriented to research, development and implementation of sustainable agricultural innovations. Improvements in productivity would no longer depend on toxic pesticides and resource exploitation, but on improved farming techniques and technologies. Higher proportions of such government funding will have many spillover benefits, such as increasing crop yields, avoiding land-use changes and reducing GHG emissions.

According to the International Food Policy Research Institute (IFPRI), global spending from public, nonprofit and higher education sources toward agricultural research amounted to $46.8 billion in 2016, a 51% increase from 2000. The World Bank estimates that governments allocated $35.5 billion per year to agricultural research and technical assistance on average from 2014 to 2016, corresponding to 12% of total direct government agricultural spending. These amounts aren’t exclusively for sustainable agricultural research, so it’s likely that some of the support is being directed to harmful technologies and practices. The indicator will track support to sustainable agricultural research once the breakdown becomes available. 

Crop insurance reformed to include sustainable conditionalities

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According to the OECD, crop insurance averaged about $14 billion a year from 2014 to 2016. Data on crop insurance with sustainable conditionalities isn’t available but would be important to track.

Crop insurance programs protect agricultural producers against financial losses from market price drops, natural disasters and low crop yields. These programs are heavily subsidized. Crop insurance is a direct form of payment to farmers and runs the risk of distorting market signals. Unless these programs provide financial incentives for sustainable methods, producers may continue unsustainable farming practices that would be covered by the insurance programs. Crop insurance also tends to favor the largest farmers: in the U.S., 50% of crop insurance goes to the top 10% largest-selling farms. 

Farm subsidies, including crop insurance, can be designed to include sustainability conditionalities that incentivize sustainable practices and land restoration while supporting farmers. According to the​​​​​​​ OECD, crop insurance averaged about $14 billion a year from 2014 to 2016. Data on crop insurance with sustainable conditionalities isn’t currently available but will be tracked once it is reported.

Share of the world's corporations (financial and non-financial) contributing the most to deforestation that currently have commitments to reduce deforestation

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Out of the 500 firms tracked by Forest 500, about 48% have company-wide deforestation commitments in place as of 2021, down from an estimated 49% in 2020.

Deforestation is harmful to ecosystems, biodiversity and local indigenous communities that rely on forests for their livelihoods. Moreover, it releases CO2 into the atmosphere. Ending deforestation is one of the most effective ways to reduce GHG emissions.

Corporations play a critical role in reducing and stopping deforestation related to their operations, supply chains and financing decisions. Establishing corporate deforestation commitments (such as zero-gross conversion, zero deforestation or deforestation-free) is an essential first step that corporations can take to build deforestation-free supply chains. After commitments are made, corporations need to take real action and report on progress transparently.

As part of reducing forest loss, deforestation commitments can result in more private sector investments toward biodiversity protection and nature-based solutions. While commitments alone do not guarantee action, they lay the groundwork for successful implementation.

Forest 500 tracks the 350 corporations and 150 financial institutions that are most influential in causing tropical deforestation. Out of the 500 firms, about 48% have company-wide deforestation commitments in place as of 2021, down from an estimated 49% in 2020. Progress on implementation is tracked in the indicator corporations implementing on commitments to reduce deforestation.

Number of countries that mandate the inclusion of environmental crimes in due diligence obligations and mechanisms

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While the Financial Action Task Force standards do not specifically address environmental crimes, only five countries (out of 127) have been assessed to have substantial effectiveness in ensuring that financial institutions are implementing anti-money laundering measures.

Natural and environmental crimes threaten the environment and undermine international security and the rule of law. Such crimes can include illicit logging, mining, fishing, wildlife trade or land conversion, all of which can be financial drivers for criminal organizations and terrorism. 

Environmental crimes are costly, amounting to about $280 billion in criminal gains and costing governments $30 billion in lost tax revenue each year. The clandestine nature of these crimes means that it is often difficult for businesses or financial institutions to recognize the activities within their portfolios or supply chains without concentrated, investigative due-diligence policies.

Public and private institutions should implement Anti-Money Laundering (AML) and Know Your Customer due-diligence regulatory frameworks to uncover and prevent unintended support of environmental crimes and activities. The Financial Action Task Force, an inter-governmental body, sets standards to prevent global money laundering and rates countries in terms of the effectiveness of their anti-money laundering systems.

According to the Task Force’s latest assessment ratings, out of 127 countries analyzed, only five have substantial levels of effectiveness (none for high levels) to ensure that financial institutions are implementing preventative AML measures and reporting suspicious activities. Although the rating doesn’t specifically address natural resource infractions, countries that have financial institutions effectively applying AML measures are best placed to track environmental crimes.

Photo credits

Photo by Jason Leung

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