The need for robust social protection systems has never been more critical. As extreme climate events and economic instabilities become more frequent, the demand for comprehensive social protection that can support people during life-cycle contingencies, life and work transitions, and shocks and crisis linked to climate change grows. Yet, in many countries, the effectiveness of social protection systems hinges on sustainable financing. Understanding the complexities of funding social protection amid the evolving challenges of climate change is essential to building resilient societies.
Social protection as an investment, not a cost
Social protection is an investment in people that generates substantial socioeconomic returns. Various studies have demonstrated that investment in social protection not only supports those in need but also stimulates economic growth. Moreover, social protection systems act as economic stabilizer, enhancing resilience and fostering social cohesion. This was particularly evident during the COVID-19 pandemic when employment retention benefits, unemployment benefits, and other cash assistance programs helped stabilize aggregate demand and supported workers’ incomes. These measures underscore the critical role of social protection in maintaining economic stability during shocks and crises.
The urgency of expanding social protection
Despite strong evidence that social protection is a key driver of inclusive socioeconomic development, countries in Asia and the Pacific on average only spend 8.2% of gross domestic product (GDP) on social protection, compared to the global average of 12.9% (2024). The Social Outlook 2024, just released by the Economic and Social Commission for Asia and the Pacific (ESCAP), highlights that if social protection spending is not increased, poverty in the region is likely to rise significantly due to factors such as climate change, uneven progress in digitalization, and demographic shifts. Therefore, countries need to consider ways to scale up current levels of social protection to meet the growing needs.
Exploring diverse financing sources
To address the critical financing gaps in social protection, countries must explore a wide range of revenue sources. Taxation remains the most crucial fiscal tool, especially in developing countries in the Asia-Pacific region. However, there is a need to shift from regressive taxes, such as consumption taxes, to more progressive taxes, like personal and corporate income taxes or taxing the superrich – a proposal recently made by Brazil during the latest Group of 20 (G20) meeting, with a view to increase fairness and redistributive capacity.
Expanding coverage of contributory social security schemes is another reliable means to finance social protection. In many countries across Asia and the Pacific, there is ample opportunity to expand fiscal space through the establishment and enforcement of contributory schemes. Through risk pooling and mechanisms of redistribution, social insurance schemes have the potential to strengthen solidarity between the healthy and the sick, economically active and economically inactive persons (e.g. people in old age, children), and, most importantly, between those who are affected negatively by climate change events and policies and those who are not.
By cutting funds from areas with less desired social outcomes, such as fossil fuel subsidies, and reallocating them to social protection, governments can also free up significant resources, such as during Indonesia’s and Iran’s energy subsidy reforms, which have shown positive redistributive effects, while also supporting climate policies.
Innovative and climate-aligned financing
In addition to traditional financing methods, innovative approaches like green and social bonds offer promising avenues for funding social protection. These debt instruments allow investors to support both social initiatives and climate action, aligning financial goals with sustainable development. The growing market for green, social, and sustainability bonds highlights the potential for these instruments to bridge the gap between social protection and climate resilience.
Furthermore, synergies between social protection and climate financing mechanisms, such as multilateral climate funds, disaster risk reduction (DRR) frameworks, and insurance alliances, can be leveraged to support vulnerable populations in the face of climate-related shocks. Humanitarian assistance, integrated with social protection systems, offers another path to ensure that immediate relief efforts contribute to long-term resilience and development.
The role of political will and public support
Ultimately, the success of any resource mobilization effort for social protection depends on a society’s willingness to support these policies – and the political will of governments to implement them. Public support for universal social protection schemes, considered by society as fair and inclusive, is crucial. Governments should cultivate a culture of social justice and solidarity, where social protection is viewed as a public good that benefits everyone.
Political leaders play a key role in prioritizing social protection and ensuring that these systems are effectively implemented and sustainably funded. By recognizing social protection as an essential investment with the potential to generate positive economic and social outcomes, governments can build the necessary fiscal space to support these critical systems.
As the world faces more frequent challenges due to climate change, strengthening social protection financing is not just a moral imperative but an economic necessity. Countries must explore all available financing options, from taxation and contributory schemes to innovative financial instruments, including forging synergies with climate and other funding mechanisms. By doing so, they can build resilient social protection systems that safeguard the most vulnerable and foster inclusive and sustainable development for all.