Environmental degradation is occurring in many parts of the developing world. Nationally and locally, it is the result of deforestation, soil degradation, the depletion of water resources, and environmental pressures linked to urbanization and economic change. Globally, the overall process of climate change is expected to gradually but sharply increase in the coming decades with mean temperature rises, sealevel rises, and spatial changes in rainfall and other climatic conditions as well as the increased frequency or severity of extreme weather events.

Environmental change is rarely equity neutral. The poor are generally considered the main losers from both climate change and the burdens of local environmental damage and natural resource degradation. They are typically more dependent on environmental capital and climate for their economic activities because most of the poor still live in rural areas that are dependent on agriculture. Those in urban areas face the consequences of environmental hazards linked to overcrowding, pollution, and inadequate water and sanitation provision. The poor are also more vulnerable to extreme events affecting economic productivity, health, and security of livelihood with limited insurance or social protection. Furthermore, informal insurance mechanisms are not suited to address covariate risks such as climate risks or other risks affecting entire communities. The poor may also find it more difficult to adapt their livelihoods to changing environmental conditions because they lack the resources to invest in appropriate and profitable economic activities.<sup>1</sup> Development and poverty reduction investments are powerful instruments to mitigate these environmental impacts on the well-being of the poor and to offer them the resources to develop their resilience to further environmental pressures. Economic growth and development in the poorest economies is essential to build this resilience to adapt to and cope with the new reality (World Bank 2010a). It has been the key element in large-scale poverty reduction, most notably in Asia, although there are considerable geographical, sectoral, and structural differences in the speed with which poverty reduction is delivered in the context of growth (Ravallion 2000). Growth has been found to be important specifically for increased climate change adaptive capacity. For example, examining time series data across countries over the last 50 years, Dell et al. (2008, 2009) found that higher temperatures significantly reduced economic growth rates in poor countries but not in rich countries. Raddatz (2009) showed large declines in GDP per capita from climate-related disasters in low-income countries; in percentage terms, these declines were four times the size of the declines in rich economies. Noy (2009) showed that higher GDP per capita and better institutional and human development indicators reduced losses from climate-related disasters. Raddatz (2009) also found that the larger impacts in low-income countries are much more than could be explained by the relatively high share of agriculture in these countries, so this issue is not simply solved by diversification away from agriculture. Although they are difficult to identify statistically, Fomby et al. (2012) also found losses in both agricultural and non-agricultural growth, although the type of shocks appears to affect generalizations on this issue.

Unfortunately, engineering these growth and poverty reduction processes in a world of environmental change is problematic. It is generally acknowledged that the pressures of climate and other environmental changes will have serious implications for the growth prospects of some of the poorest countries in the developing world over the coming decades (IPCC 2007; World Bank 2010a). Changes in climatic conditions will change the mean return to agriculture and increase its variance. Furthermore, the increased impacts of extreme weather events will affect the accumulation of productive assets, not least in low-lying areas such as coastal cities, where the potential returns to economic activity are 2