We are all connected

What to know about transboundary climate risks

June 4, 2024
People walk across small wooden footbridge

If left unmanaged, transboundary climate risks could impede progress towards the Sustainable Development Goals by increasing food and water insecurity and escalating geopolitical instability.

Photo: UNDP Kyrgyzstan

From a global pandemic to a cascading cost-of-living crisis, and the spread of online misinformation and disinformation, the last four years have provided a stark reminder that risks spread quickly. 

In our globalized world it is impossible for any country to fully protect its people, economy and ecosystems from such risks – key, however, is recognition of our interconnectedness as both a strength and a vulnerability.  

As our world increasingly warms, we urgently need to reframe our understanding of climate risk and how we respond.

The new concept of transboundary climate risk is timely. In simple terms, these risks manifest when an impact from climate change in one place generates a risk to people in another. They can materialize within a country or connect two or more countries. 

They can have regional repercussions, affecting countries that share a national border. They can also have international implications, if climate change disrupts the movement of people, trade, financial flows or natural resources on which two or more countries depend. 

At last year’s COP28 in Dubai, parties recognized for the first time the transboundary nature of climate change impacts, the importance of complex and cascading risks, and the need for knowledge-sharing and international cooperation to address them. 

Here are five reasons why is it time for us all, particularly climate finance providers, to start paying more attention.

1. The humanitarian and economic cost of transboundary climate risks loom large

The potential cost of transboundary climate risks can be vast. Two-thirds of respondents to the 2024 World Economic Forum’s Global Risks Perception Survey ranked extreme weather as the risk most likely to present a global material crisis, and a recent study projected that climate disruption to supply chains could lead to US$25 trillion net losses by mid-century. 

At the same time, if left unmanaged, transboundary climate risks could impede progress towards the Sustainable Development Goals by increasing food and water insecurity to escalating geopolitical instability. We are far from prepared to withstand their effects. 

2. Collaboration is necessary, and cost-effective

Countries must collaborate to address transboundary climate risks. This starts with acknowledging that the success of adaptation in one place can determine the level of risk in another. 

It also entails recognizing that collective investment in adaptation is a financially sound strategy. 

The cost of inaction is high. Investing in climate adaptation now will help prevent and offset future losses by mitigating damage to infrastructure and other assets – safeguarding a country’s long-term development plans. Adaptation can also stimulate economic growth and foster supplementary benefits, such as this investment in regional flood-risk management in the Western Balkans.

When adaptation helps to both avoid losses and make economic gains, it’s a “double dividend”, when investors can maximize the return. Pooling resources to address transboundary climate risk also provides an opportunity to build resilience in many places at the same time, what we might call a “triple dividend”. 

An investment that strengthens the resilience of rice producers in South-East Asia, for example, can not only protect producers’ livelihoods but also improve food security in rice-importing countries in Africa.

Woman sellling grains in market

An investment in rice producers in South-East Asia can not only protect their livelihoods but also improve food security in rice-importing countries in Africa.

Photo: UNDP Somalia

3. Private sector incentives 

While climate adaptation projects often bring broad public benefits, they may not result in clear financial returns. It’s not surprising, then, that only 1.6 percent of all adaptation funding comes from private investment. 

The lack of investment is due to several factors. Investors may not see the business case clearly and may require more support from governments to level the playing field or may be put off by the long-term investment horizon. 

Yet private companies are at significant risk of transboundary climate impacts themselves. Global manufacturing hubs have among the highest capital value at risk from climate change, while value chain disruptions due to climate risks already account for most corporate credit-rating downgrades. 

There are significant incentives for businesses to invest in reducing the transboundary climate impacts that put their global value chains at risk. 

The market size for adaptation is expected to grow to $2 trillion per year by 2026, from developing and distributing new products and services to harnessing cost savings. Entering this market early can compound the benefits. 

4. Growing international consensus

It’s not only parties to the United Nations Framework Convention on Climate Change (UNFCCC) that are now recognizing transboundary climate risks. The IPCC warns that “increasing transboundary risks [are] projected across the water, energy and food sectors” and that “multiple climate hazards will occur simultaneously, and multiple climatic and non-climatic risks will interact, resulting in compounding overall risk and risks cascading across sectors and regions".

National governments are looking for support to incorporate transboundary climate risks into their national climate risk and vulnerability assessments. 

The EU Adaptation Strategy (2021) recognizes that climate change can have 'knock-on' effects and that climate impacts from outside the EU can cascade and spill-over into the EU. The ASEAN State of Climate Change Report (2021) places the ‘assessment of transboundary climate risks and actions’ as one of the prioritized actions for enhancing adaptation by 2030. The African Union Climate Change and Resilient Development Strategy and Action Plan (2022-2032) proposes to "enhance coordination between the regional economic communities and Member States in addressing and managing transboundary and cascading climate risks".

The World Trade Report (2022) also finds that “although climate change adaptation initiatives are mostly locally-led, international cooperation is essential to enhance the resilience of international trade with regard to climate-induced shocks and to improve economies’ capacity to adapt to climate change”. 

The climate finance community needs to catch up or risk being left behind. 

5. We need a paradigm shift 

Only a small proportion of multilateral adaptation finance has focused on addressing transboundary climate risks; most finance still flows to individual countries for national or local adaptation. 

Yet countries’ National Adaptation Plans – critical to accelerating climate adaptation – need to be complemented with cross-border collaboration. And we need greater understanding of these complex risks in order to shift international finance towards “systemic resilience”, that is, interventions that enhance resilience at all levels: local, national, regional and global. 

Such an approach will require donors to support long-term cooperation between countries. It will demand a broader set of multilateral organizations recognize adaptation and resilience as within their mandates, and the development of innovative solutions and financial instruments. 

By pooling resources through its regional insurance scheme and leveraging collective understanding of regional climate risks, The African Risk Capacity provides timely payouts to its members when severe weather events occur. This not only mitigates immediate financial burden on affected countries but also enables an effective response to disasters in the future. 

While such efforts may seem daunting, there are practical steps which can pave the way.

A transboundary approach 

A decade into the Paris Agreement, adaptation efforts are increasingly denounced as too incremental, fragmented and small in scale. Supporting efforts to adapt to transboundary climate risks is one means of making adaptation ‘transformational’ - to help build systemic resilience to multiple threats and crises. 

Such efforts would usher in a new era of adaptation more fit-for-purpose for managing the global risks of climate change. They would also ensure adaptation investments are more sustainable and resilient, avoiding new transboundary risks. 

Governments, multilateral organizations and private investors all have a role to play. As parties to the UNFCCC meet at the Bonn Climate Change Conference in June, the opportunities such risks afford to scale up adaptation – and, crucially, adaptation finance – should be raised in both negotiations on the “Global Goal on Adaptation” and the “new collective quantified goal” to be decided at COP 29 in November, and as part of the Expert Dialogue on Mountains and Climate Change. 

Investing in transboundary climate adaptation is not just a necessity. It is a powerful commitment to fortifying systemic resilience for our shared future.