The world is getting ready to adapt to the climate crisis, but financing remains an issue

At the Bonn Climate Conference the world’s first global stocktake, described as being a ‘long hard look’ at the state of our planet, it was stated that “collectively, there is increasing ambition in plans and commitments for adaptation, but there also remains an implementation gap, in that plans are implemented inadequately, unevenly and incrementally”.[i]

Released in early October, the 2023 edition of the UN’s adaptation gap report (AGR) set out to analyse the global long term picture of adaptation planning, implementation and financing. Here are their key findings.

Planning

·       Currently, 85 percent of nations have implemented a policy, strategy, or plan, or other type of national-level adaptation planning instrument. As national adaptation planning instruments become fully implemented worldwide, there is a swift transition and thus ongoing iterative planning is essential and it needs to be aided by increased availability to funds.[ii]

·       At the moment, legislative frameworks requiring governments to create a national adaptation planning tool are in existence in 25% of nations. Since the late 2000s, this percentage has gradually increased. More nations should work to produce and implement such instruments in order to guarantee that adaptation planning is given priority and that planning instruments are updated on a regular basis, given their significance in enforcing and strengthening adaptation planning.[iii]

·       Monitoring and evaluation showed less development, which is not surprising given the challenges associated with developing and putting into place the mechanisms and procedures needed to assess the efficacy of adaptation planning and implementation. M&E frameworks will become increasingly crucial as financial and legal tools speed up adaptation implementation and put greater demand on practitioners to show how adaptation efforts have an impact.[iv]

Implementation

·       New adaptation projects worth a total of US$559 million in grants from the Global Environment Facility, the Green Climate Fund (GCF), and the Adaptation Fund (AF) began to be implemented in 2022. This is 10% more than the average amount used in the five years prior to this (2017–2021).[v]

·       Just 6% of the 670 adaption activities had information on their implementation's results provided. This conclusion emphasises how important it is to keep gathering data on outcomes other than adaptation actions' outputs in order to assess their efficacy.[vi]

·       More than half (57%) of stand-alone adaptation messages recognise that risk varies by demographic and emphasise how important it is to address gender inequality. Only 33% of the measures, nonetheless, seemed to be directed towards vulnerable populations. Farmers were the most frequently targeted vulnerable group (46 percent of activities targeting vulnerable groups), with women, fishermen, and Indigenous Peoples receiving less attention.[vii]

Financing

·       According to this updated assessment, poor nations' adaptation expenditures this decade are expected to fall within a reasonable centre range of US$215–387 billion year. Compared to the prior AGR estimate, this is a substantial increase. According to analysis, global public financing flows for adaptation to developing nations reached US$21 billion in 2021, a 15% drop from 2020.[viii]

·       This updated analysis of costs and flows indicates that the adaptation funding gap has expanded dramatically from earlier estimates. Currently, the predicted expenditures and adaptation needs exceed international public adaptation finance flows by a factor of 10–18. [LF1] A growing disparity portends a more serious climate catastrophe and will result in more loss and harm.[ix]

Can the private sector rise to the challenge of climate adaptation finance

Although there are private and public sources of adaptation finance, public capital has provided the great majority of funding thus far. Just $1 billion, or 2%, of monitored adaptation finance in 2019 and 2020 came from corporations and institutional investors; the remaining 98% came from public sources.[x]

Certain adaptation projects, such retrofits to water and sanitation infrastructure, may naturally draw private capital if they are implemented on a shorter timescale and have a demonstrated cash-flow potential. Many adaptation initiatives, however, do not fit into this category and will face more challenges in attracting private investment. A number of major obstacles, some of which are common to climate projects in general and include the mispricing of natural resources and distortionary subsidies, may deter private investors from funding adaptation.[xi]

Despite the current failure for private sector finance to flow into adaptation, the Canadian Climate Institute points out that harnessing the private sector could bring additional benefits beyond increased capital. They report that private sector involvement could increase speed and scale, share risk beyond the public purse, and that increased flexibility and creativity could lead to a more sophisticated adaptive approach.[xii]

There is certainly scope for the private sector to increase it’s involvement in adaptation but the WRI suggest that it’s a collaborative approach between public and private sector actors that is required to mobilise will in the private sector. They recommend that using financial resources from the public sector to reduce the risk associated with investment possibilities for individual investors is one strategy to tackle this problem. One such method is "blended finance," which, by combining capital with various financial and non-financial return expectations within an investment framework, enhances the risk-return characteristics of an investment. By addressing worries about information gaps and financial uncertainties, this kind of strategy can help mobilise private resources that otherwise might not be available.[xiii]

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References

[i] UN: Climate change- Global Stocktake

[ii] UNEP- Adaptation gap report 2023

[iii] Ibid

[iv] Ibid

[v] Ibid

[vi] Ibid

[vii] Ibid

[viii] Ibid

[ix] Ibid

[x] World Economic Forum- How to mobilize private-sector finance for climate adaptation

[xi] Ibid

[xii] Canadian Climate Institute- Mobilizing private sector capital for climate adaptation infrastructure

[xiii] WRI- What It Takes to Attract Private Investment to Climate Adaptation