Proactive Policy Measures to Respond to Climate Risks to and from Land-based Investments

The agricultural, forestry, and other land use (AFOLU) sectors are responsible for 22% of global Greenhouse Gas (GHG) emissions. As many AFOLU investments exacerbate climate change impacts – including land degradation, water scarcity, extreme weather events, and biodiversity loss –  the investments themselves are suffering from these same climate threats. The climate change-induced erosion of agricultural production is cascading into various social ills including food insecurity, public health crises, and increases in conflict and crime. These forms of social degradation are not distributed equally and are particularly acute in the Global South.

Fortunately, some national and sub-national governments are implementing policies that respond to the climate risks both from and to AFOLU investments. With the aim of protecting their country’s people, the environment, and achieving low-carbon, resilient, sustainable economies, these governments are incorporating climate considerations into investment assessment processes. The investment assessment process (IAP), which comes in as the second stage of the broader investment lifecycle (see Figure 1), includes all the legal frameworks and related regulatory processes which establish requirements for investors to operate their proposed project in a host country. Below are some examples of useful approaches governments have taken to incorporate climate considerations into IAPs.

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2024-10-22T18:10:39+00:00

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1. Establish a coordinated, transparent, and adaptable system of institutions, policies, processes, and incentives that attract and support investments that incorporate climate considerations.

Peru’s Framework Law on Climate Change of 2018 establishes an institutional framework with specific mandates for the Ministry of Environment, sectoral agencies, and regional and local authorities on how to respond to climate change. The law creates two separate commissions dedicated to proposing climate policy measures and to monitoring climate policy implementation to ensure accountability for government climate efforts. 

2. Strategically delegate investment governance responsibilities to sub-national governments, who can nimbly respond to local climate impacts.

Kenya’s Climate Change Act (2016) requires county governments to mainstream climate action through the development of local legislation and development plans. The Lamu County Climate Change Act of 2022, for instance, creates adaptation standards for specific sectors and establishes mechanisms by which the county can create climate-related reporting and compliance obligations for investors. 

3. Approve, conditionally approve, or reject investments based partly on anticipated climate risks to the project and the integrity of their climate mitigation and adaptation plans.

Under South Africa’s landmark Climate Change Act of 2024, the Cabinet Minister responsible for environmental affairs must assign a carbon budget to any legal person (e.g., investor) who conducts an activity which emits greenhouse gasses above a certain threshold. Those subject to a carbon budget must prepare, submit, and annually report on a GHG mitigation plan specifying how they plan to keep to their budget and comply with other applicable national or subnational climate regulations. 

4. Consult with project-affected communities early in the IAP to develop a more complete understanding of the social and physical environment and potential climate change risks.

If the affected communities are Indigenous Peoples, governments must obtain their free, prior, and informed consent (FPIC) on an ongoing basis, including before a project breaks ground, as is required under international law. In some cases, best practice may be to also apply the principle of FPIC to other project-affected communities whose tenure or human rights stand to be impacted by the project. Sierra Leone’s landmark 2022 Customary Land Rights Act requires all investors interested in developing on land subject to customary law obtain the free, prior and informed consent of at least 60% of a fair representation of the community with rights (including customary rights) to the land. Requiring FPIC not only brings governments into alignment with international law, but can be a durable way to facilitate successful projects by building trust between investors and affected communities.

5. Evaluate the project’s anticipated social, human rights, climate and environmental impacts.

Cambodia’s Code on Environment and Natural Resources establishes climate-related impact assessment requirements for projects with the potential to cause environmental, health, economic, social, and cultural impacts. Under the code, projects which the Ministry of Environment and Natural Resources determines have a “severe” social and environmental impact must, among other things, include in their Environmental Impact Assessment (1) the impacts of a proposed project on climate change, including a calculation of initial and future project-induced GHG emissions; and (2) the project’s vulnerability resulting from climate change, and intersecting environmental, economic, societal, and cultural factors. 

6. Set out the rights and obligations of all stakeholders in relevant national, local, and project contexts in investor-government, investor-community, or tri-party lease or concession agreements.

IAPs should ensure, through contracts or other mechanisms, that all project decision-making accounts for climate risks and complies with all climate-related governance frameworks. Grounding contracts in relevant international law, standards, and best practices (see the UN Guiding Principles on Business and Human Rights and the UN Principles for Responsible Contracts) can support the development of equitable contracts which address climate-related risks and include mutually agreed-upon responsibilities for project stakeholders to adapt to and mitigate risks.

As the examples above highlight, governments are proactively implementing legal and regulatory mechanisms to consider the extent to which an investment contributes to, and may be impacted by, climate change before the investment is approved or begins operations. This helps mitigate the social, economic, and environmental costs of the realization of local and global climate risks. It is in a government’s own interest, as well as their people’s and the climate’s, to allocate time and resources to facilitate climate-resilient investments which do not exacerbate climate change.