Finance

Eliminate harmful subsidies and investments

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 goods and services that cut demand for high-carbon technologies. Public and private financial institutions should also be challenged to constrain the availability of financing for harmful activities by setting clear engagement policies and stringent criteria for screening and divestment. These measures should raise the cost of capital for harmful activities — the expected risk and return to investors and lenders — and, over time, reduce the amount of capital available for them.

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

Is the world making enough progress toward the most important outcomes?

Systems Change Lab assesses progress made toward targets across 7 outcome indicators. Click a chart to explore the data.

What factors may enable or prevent change?

Systems Change Lab identifies 12 enablers and barriers that may help spur or impede change. Click a chart to explore the data.

Progress toward targets

Systems Change Lab tracks progress made toward targets across 7 outcome indicators. outcome indicator. Explore the data and learn about key actions supporting systems change.

Fossil Fuel

Total capital investment in high-carbon assets, starting with fossil fuel production and power generation

Capital investment in fossil fuel production and power generation is expected to reach over $1 trillion in 2023, up 5% from the previous year.

When companies and governments make capital investments, they create or maintain the physical fixed assets (plants, properties and equipment) that drive emissions. This is the physical capital stock that produces emissions directly, demands energy or other resource and greenhouse gas (GHG)-intensive inputs, or creates products that emit, making capital investment the pivotal financial decision that drives the growth of GHG emissions or decarbonization of the energy system. Capital investments in fixed assets that produce or demand fossil fuel effectively lock in higher future carbon emissions.

According to the International Energy Agency’s (IEA) Net Zero 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 assets that emit GHGs or produce goods that emit. Instead, they must scale up sustainable, clean alternatives.

Capital investment in fossil fuel production and fossil fuel-based power generation is expected to total about $1 trillion in 2023, up 5% from the previous year. Capital investments for oil and gas supply (up-, mid- and downstream) are expected to reach $805 billion in 2023 (up 6% from 2022), and investments in coal supply are projected at $148 billion (9% higher than 2022). Investments are expected to rise in 2023 as tight supply and high prices attract new projects, although at a slower pace than the previous year.

Capital investment in fossil fuel power generation is expected to reach $98 billion in 2023, an 8% decrease from the previous year. Not all capital investments are intended for expansion of new supply; a portion is allocated toward maintenance. According to IEA estimates, capital investments in fossil fuel production and power generation need to reverse course and fall by an average of $80 billion each year to meet the 2030 target.

Capital investment in emissions-intensive transportation and industrial assets is not yet tracked alongside low-emissions substitutes but it should be.

Cost of capital for high-carbon assets, starting with fossil fuel production

The cost of capital for fossil fuel companies has remained between 10% and 14% over the past decade. Fossil fuel companies have been able to rely on access to consistently low-cost debt financing, while the cost of equity and cost of capital for project financing has been more volatile.

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.

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 fossil fuel companies has remained between 10% and 14% over the past decade. Fossil fuel companies have been able to rely on access to consistently low-cost debt financing, while the cost of equity has been more volatile.

The cost of capital for project financing has also been volatile, and has even shown signs of increasing. Offshore oil project cost of capital reached as high as 22% in 2019. Various factors may contribute to this: 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.

Even with the recent surge in fossil fuel prices, Goldman Sachs estimates a 15% divergence between the cost of capital for certain oil and gas projects relative to renewable energy projects, as the cost of capital for renewable energy has declined.

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.

Public finance for fossil fuels

In 2021, public finance for fossil fuels totaled over $1 trillion, needing to fall by an average of $120 billion per year between 2022 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 remove public concessionary support for fossil fuels, eliminate finance for coal power generation and phase out oil and gas investment. Public policy should redirect investment and job growth toward clean energy and support the 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 2021, public finance for fossil fuels increased and totaled over $1 trillion, with $732 billion directed to subsidies, $33 billion to financing of projects, and $323 billion to capital expenditures. As a result, progress toward phasing out public finance of fossil fuels globally by 2030 is moving in the wrong direction in 2021. It will need to fall by an average of $120 billion per year between 2022 and 2030 to meet the 2030 phaseout target.

Private lending and underwriting for fossil fuels

Fossil fuel financing from the world’s 60 largest banks reached $673 billion in 2022 and needs to decrease in line with the decline of capital investments in fossil fuels required to reach net zero.

Private funding will need to be redirected from fossil fuels 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 fuels 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 lending and underwriting supporting fossil fuels.

In 2022, fossil fuel support from the world’s 60 largest banks reached $673 billion, with $43 billion related to coal and $630 billion related to oil and gas. Private financing will need to decrease in line with the decline of capital investments in fossil fuels required to reach net zero. This indicator will include other types of private financing for fossil fuels once data becomes available.

Agriculture, Forests and Fisheries

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 $631 billion in 2021, 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 $631 billion in 2021 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.

Decline of corporate deforestation, as measured by the share of the world's corporations most responsible for forest loss that are implementing their deforestation commitments

Out of the 500 firms tracked by Forest 500, only 30% have reported any material 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.

While there is little data on the impact most companies have on deforestation, many have acknowledged its harmful effects and pledged to enact new deforestation commitments.

Today, we can observe how many corporations that are most responsible for deforestation are implementing strategies to reduce deforestation while publicly and transparently reporting on their progress. With more data available, civil society and regulators can demand greater action. We expect new frameworks like the Task Force on Nature-Related Financial Disclosures to help inform future data on corporate impact on deforestation.

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, only about 30% have reported material 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). The decrease in 2022 compared to prior years is mostly due to methodological changes. 45 new firms will need to implement deforestation commitments every year until 2030 in order to reach 100% coverage by 2030.

Enablers and barriers

We also monitor change by tracking a critical set of 12 enablers and barriers enabler or barrier that can help spur or impede change. Explore the data and learn about key actions supporting systems change.

Fossil Fuel

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

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.

Fossil fuel subsidies

The IPCC finds that removing fossil fuel subsidies could reduce global emissions by up to 10% by 2030 while reducing government spending; however, in 2022 fossil fuel subsidies reached over $1.3 trillion, a record high.

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 also 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 from removal of fossil fuel subsidies.

The Fossil Fuel Subsidy Tracker estimates that global fossil fuel subsidies reached over $1.3 trillion in 2022, a record high. $356 billion was directed to petroleum, $643 billion to natural gas, $318 billion to end-use electricity and about $9 billion to coal. This represents an almost threefold increase from 2021, marking the highest recorded level ever. The dramatic increase was largely due to major economies subsidizing 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. Fossil fuel subsidies need to be phased out globally by 2030 to meet climate targets.

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

As of 2022, the International Institute for Sustainable Development reports only 16 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 greenhouse gas (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 2022, only 16 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.

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

In the European Union in 2018, the oil and gas industry spent $27 million on lobbying. In 2023, the fossil fuel industry spent about $153 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 2023, the fossil fuel industry spent $153 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 bulk of this lobbying expenditure, amounting to $129 million, was directed toward oil & gas interests, with substantial sums also dedicated to natural gas transmission and distribution ($21 million) and coal mining (about $4 million). The European Union’s oil and gas industry spent $27 million in 2018 on lobbying. With continued pressure from fossil fuel lobbyists, the coal and oil & gas sectors exert an enormous influence on political systems and obstruct critical climate policies.

Campaign finance contributions from the fossil fuel industry

According to Open Secrets, the oil and gas industry contributed $133 million to the U.S. congressional election cycle in 2022, and the coal mining industry contributed about $7 million in 2022.

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 $133 million to the U.S. congressional election cycle in 2022, with similar spending in 2020. The coal mining industry contributed about $7 million in 2022, 20% less than in 2020.

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.

Number of financial institutions stopping new fossil fuel investment, as measured by institutional investor commitments to divest from fossil fuels

As of 2023, according to the Global Fossil Fuel Divestment Commitments database, 1,612 institutional investors have committed to divesting about $40.6 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. As of 2023, according to the Global Fossil Fuel Divestment Commitments database, 1,612 institutional investors (faith-based organizations, education institutions, philanthropic foundations, governments and non-governmental organizations) have committed to divesting approximately $40.6 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.

Agriculture, Forests and Fisheries

Fishing subsidies reallocated toward sustainable fishing practices, as measured by subsidies to management of fishing resources, stock enhancement programs, and research and developments

According to the Organisation for Economic Co-operation and Development (OECD), government subsidies targeted to management of fishing resources, stock enhancement programs and research and development totaled $2.9 billion in 2020.

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 Food and Agriculture Organization, “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 Organisation for Economic Co-operation and Development (OECD), government subsidies targeted to management of fishing resources, stock enhancement programs and research and development totaled $2.9 billion in 2020.

Fishing subsidies that support fishing communities

An estimated $35 billion is spent worldwide in fisheries subsidies per year, but according to the Organisation for Economic Co-operation and Development (OECD), 18 countries earmarked only about $107 million in 2020 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 fisheries 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 Organisation for Economic Co-operation and Development (OECD), 18 countries earmarked about $107 million in 2020  to support fishing communities.

Government support repurposed for sustainable agricultural research and technical assistance, as measured by government support for agricultural research, education, and technical assistance

Governments allocated about $35 billion to agricultural research, education, and technical assistance in 2021, in line with historical averages.

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 greenhouse gas (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. According to the Organisation for Economic Co-operation and Development (OECD), governments allocated $34.8 billion to agricultural research, education, and technical assistance in 2021, in line with historical averages and corresponding to about 8% 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, as measured by total crop insurances

Crop insurance reached a record high of $24 billion in 2021.

Crop insurance programs make agricultural producers more resilient by protecting them 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. In 2021, total crop insurance reached a record high of $24 billion. 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

Out of the 500 firms tracked by Forest 500, about 22% have company-wide deforestation commitments in place as of 2022, up from 20% in 2021.

Deforestation is harmful to ecosystems, biodiversity and local indigenous communities that rely on forests for their livelihoods. Moreover, it releases carbon dioxide (CO2) into the atmosphere. Ending deforestation is one of the most effective ways to reduce greenhouse gas (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 22% have company-wide deforestation commitments in place as of 2022, up from 20% in 2021. 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, as measured by countries with substantial effectiveness in implementing preventative anti-money laundering measures

While the Financial Action Task Force standards do not specifically address environmental crimes, only six 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 six 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