The flow of finance plays a crucial role in shaping global environmental outcomes, especially in the context of the climate crisis. The September 2024 report by ActionAid titled How the Finance Flows: Corporate Capture of Public Finance Fuelling the Climate Crisis in the Global South highlights how financial systems, particularly public finance, are exacerbating climate change, food insecurity, and energy crises in vulnerable regions. In a world grappling with the escalating impacts of climate change, finance flows are either mitigating or worsening the crisis, and in many cases, they are contributing to the deepening of these global challenges.
A report has exposed the alarming financial drain on the Global South, as climate-wrecking industries like fossil fuels and industrial agriculture receive over US$600 billion annually in public subsidies. The report reveals that an average of US$677 billion in public finance is directed towards climate-destructive sectors each year, depriving crucial social sectors such as education. The amount could fund schooling for all sub-Saharan African children 3.5 times over.
Finance flows: The direction of public finance
Climate change disproportionately affects the Global South, a region comprising countries that have contributed minimally to greenhouse gas (GHG) emissions yet bear the brunt of its impacts. The report outlines that millions of people across the Global South are living with the devastating consequences of climate-related disasters, such as floods, droughts, and storms. Despite this reality, public finance continues to flow into industries that are not only responsible for climate change but also exploit natural resources in these countries.
Subsidies to fossil fuels and industrial agriculture
Between 2016 and 2021, the fossil fuel sector in the Global South received an annual average of US$ 438.6 billion in public subsidies. This figure has only grown, with fossil fuel subsidies reaching US$ 495.3 billion in 2023. Similarly, industrial agriculture received US$ 238 billion annually in public subsidies during the same period, rising to US$ 276.4 billion by 2021. These sectors, which are responsible for deforestation, water contamination, and significant GHG emissions, are capturing the lion’s share of public finance, locking countries into pathways that undermine their capacity to transition to more sustainable, climate-resilient economies.
The report highlights the stark contrast between public finance for harmful industries and the insufficient climate finance grants from the Global North, which are a mere fraction of the funds required to support much-needed climate transitions. Global South countries allocate 40 times more public finance to fossil fuel sectors than to renewable energy, despite needing trillions of dollars to address the growing climate crisis.
Public financing for renewable energy, by contrast, has remained starkly insufficient. The report highlights that public investment in renewable energy in the Global South averages just US$ 10.3 billion annually, and this figure has been on a downward trajectory since 2016. This financial imbalance is a significant barrier to addressing the climate crisis and building more resilient energy systems.
"This report shows how the Global South continues to suffer from what is clearly a form of neocolonial exploitation, where multinational corporations and wealthy nations extract resources under unfair terms, leading to environmental harm, economic inequality, and displacement. These practices, reinforced by unequal trade and debt dependency, deepen poverty while eroding sovereignty, trapping local economies in low-value production," said Sandeep Chachra, Executive Director of ActionAid Association.
Chachra emphasised the need for greater accountability from corporations and governments: "We must adopt a multi-faceted approach to ensure that fossil fuel industries do not drain public funds, which are crucial for sustainable development. By joining forces, countries of the Global South can prevent harmful practices such as tax avoidance and redirect public finance towards renewable energy and sustainable infrastructure."
The report calls for significant reforms, including redirecting public finance from fossil fuels to people-led climate solutions, scaling up decentralised renewable energy systems, and demanding trillions in climate finance from the Global North. These efforts are vital to supporting just transitions in climate-vulnerable countries and ending the destructive financial flows that worsen the climate crisis.
Corporate influence and public policy
The report highlights the significant role that multinational corporations play in shaping public finance decisions in the Global South. Through lobbying, multinational companies exert influence over policymakers, ensuring that public finance continues to support climate-destructive industries. For instance, in Brazil, lobbying by agribusiness corporations such as JBS and Cargill has led to policies that undermine Indigenous land rights and prioritise industrial agriculture.
This corporate influence extends to international financial institutions (IFIs), such as the International Monetary Fund (IMF), which frequently pressures countries in the Global South to expand fossil fuel extraction and implement austerity measures that harm low-income communities. The IMF’s policies often result in regressive subsidy reforms, such as the removal of subsidies that benefit marginalised communities, while fossil fuel subsidies remain intact.
Public finance and climate solutions
The imbalance in public finance flows is not just an economic issue but also a moral one. The Global South is being deprived of the financial resources necessary to transition to greener, more resilient systems, even as these countries face the worst impacts of climate change. Wealthy countries in the Global North, which are historically responsible for the bulk of GHG emissions, have failed to meet their climate finance obligations.
Climate finance grants from the Global North amount to just one-twentieth of the public finance that Global South countries are funnelling into fossil fuels and industrial agriculture.
The report provides detailed case studies of how public finance is misallocated in specific countries. In Zambia, the industrial agriculture sector consumed 80% of the national agricultural budget, mainly in subsidies for synthetic fertilisers and commercial seeds. Despite this, only 6% of the budget was allocated to agroecological practices, which are more sustainable and climate-resilient.
Zimbabwe, on the other hand, has made some progress towards a more balanced approach, with 34% of the agriculture budget supporting agroecology. However, approximately half of Zimbabwe’s agricultural budget still goes to industrial agriculture, indicating the continuing influence of corporate interests.
This report exposes wealthy corporations’ parasitic behavior. They are draining the life out of the Global South by siphoning public funds and fueling the climate crisis," said Arthur Larok, Secretary General of ActionAid International.
The way forward
Redirecting public finance: To achieve meaningful progress in the fight against climate change, the report emphasises the urgent need to redirect public finance away from climate-destructive sectors and towards people-centred solutions. This involves shifting investments from fossil fuels and industrial agriculture to renewable energy and agroecology.
Scaling up renewable energy: One of the report's key recommendations is to prioritise the scaling up of renewable energy, especially decentralised systems that provide energy access to underserved communities in the Global South. Solar, wind, and micro-hydro energy systems not only mitigate GHG emissions but also offer adaptation benefits by providing reliable electricity for irrigation, food processing, and other critical needs. Additionally, renewable energy can empower women and marginalised communities by reducing the labour associated with tasks like collecting firewood and improving access to services such as lighting and communication.
Supporting agroecology: The report also highlights the potential of agroecology as a climate solution. Agroecological farming practices are based on working with nature rather than against it. These systems enhance biodiversity, improve soil fertility, and reduce the need for fossil fuel-based inputs such as synthetic fertilizers. In addition to their environmental benefits, agroecological systems provide social and economic advantages by supporting smallholder farmers, particularly women, who make up a significant portion of the agricultural workforce in the Global South.
Only by fixing the flows of finance can we address the root causes of the climate crisis and build a more just, sustainable future for all.