Climate adaptation has taken centre stage at COP29, the UN global climate summit. The problem is that the amount of adaptation finance needed dwarfs the levels currently available. And poor countries, which have contributed the least to climate change, bear the most impact. Anna Beswick writes that to avoid increasing the financial instability of these countries, finance should be provided in the form of grants, rather than loans.
The topic of climate adaptation finance is front and centre of negotiations at the COP29 United Nations Climate Change Summit taking place between 11 and 22 November in Baku, Azerbaijan.
Climate adaptation focusses on increasing resilience and adapting to the unavoidable impacts of climate change. Action to reduce greenhouse gas emissions can limit the amount of future climate change but cannot turn the clock back. We are now living with the consequences of past and present-day emissions and further significant changes in climate are already locked in up to 2050. In the decades ahead we will continue to see increases in extreme and average global temperatures, changes in rainfall, sea level rise and more frequent and severe catastrophic events.
Adaptation finance gap
There are significant economic benefits to taking early and proactive action to increase resilience and adapt. The Global Centre on Adaptation estimates that $1 invested in adaptation and resilience can deliver between $2 and $10 in net economic benefits. The UNDP annual Adaptation Gap report estimates that global adaptation finance needs are in the region of US$215–387 billion a year and that there is a huge gap between the amount of finance needed and the level currently available.
The report estimates that around two thirds of adaptation finance will need to come from public finance sources because adaptation actions frequently deliver public goods that generate economic, but not necessarily financial, returns. The remaining third could come from a wide range of private and blended finance sources.
Discussions in Baku will seek to agree a new global finance goal to cut greenhouse gas emissions, boost resilience, help communities adapt to the impacts of climate change and cover the costs of loss and damage. This is known as the new collective quantified goal (NCQG) and countries are required under the Paris Agreement to agree this goal before 2025. It is well established that countries across the global south, who have contributed least to causing climate change, are now bearing the brunt of climate impacts. These countries must receive an increased flow of adaptation finance from the nations responsible for the majority of historic emissions. This will enable fair and equitable action to increase resilience and adapt to climate change. It is crucial that vulnerable communities are prioritised for investment and do not continue to carry the burden of financing climate adaptation.
The 2024 UNDP Adaptation Gap report highlights that most adaptation finance is provided through loans, which further exacerbates the overall debt burden of countries across the global south. To avoid increasing the financial instability of these countries , focus should be on providing finance in the form of grants rather than loans. The Zurich Climate Resilience Alliance report on making climate finance work for all highlights five tests for a robust new collective quantified goal, summarised in the alliance’s COP blog and including a call for at least $1 trillion annually in public grant-based funding.
Opportunities from financing adaptation
Businesses providing adaptation services
Investing in the growing market for climate resilience solutions is described by the Global Adaptation and Resilience Investment working group in their white paper as an unavoidable opportunity brought about by the tragedy of increased climate impacts. Opportunities for providing adaptation products and services and developing investment opportunities will grow in the years ahead. This raises important social and ethical challenges, with countries in the global north expected to benefit from these opportunities.
The UK government has recognised that climate adaptation and resilience has the potential to be an important and growing export sector for UK businesses. UK Export Finance’s sustainability strategy for 2024-2029 confirms that climate adaptation fits within the sustainability topics that UK Export will finance and sets out an ambition to provide £10 billion of clean growth finance by 2029.
The finance sector
Globally, adaptation accelerator programmes such as the Climate Finance Lab and the Global Innovation Fund’s climate resilience programme have been established by research, innovation and finance partnerships to stimulate innovative adaptation products, services and investment opportunities. Further, the inclusion of climate adaptation in green taxonomies around the world, such as the EU taxonomy for sustainable activities, is also a step forward in identifying economic activities that are aligned with a climate resilient future.
Addressing inequalities
In addition to increasing the amount and quality of adaptation finance, funds must be targeted effectively. The 2024 Adaptation Gap Report highlights that most adaptation finance is targeted at incremental, low-regret technical solutions, such as major capital projects that address climate risk for a specific sector or hazard. The report highlights that it is much harder to secure adaptation finance for projects that have the potential to contribute to transformational change and address multiple priorities, for example projects focused on sustainable land use and urban planning that are aligned with wider development priorities and have the potential to address multiple climate hazards.
In November, the government of California won approval for a new $10 billion bond measure for environmental initiatives. This will include $3.8 billion for water projects with groundwater storage and flood control, $1.5 billion for wildfire protection, and $1.2 billion to protect the coast from sea level rise. At least 40 per cent of the bond money is required to be spent in disadvantaged communities, which often have the largest numbers of people vulnerable to climate risks such as extreme heat.
The time is now
The challenge of increasing flows of adaptation finance and developing more effective finance mechanisms cannot be overstated. However, deeper private sector involvement, both in financing adaptation and developing products and services, presents a huge opportunity. The innovation, drive, creativity and entrepreneurial spirit present in the private sector can provide inspiration and solutions, often pioneering progress much more quickly than government-led, bureaucratic processes.
Great examples include Love Design Studio and NGO Shade the UK, both based in London and founded by Andy Love. They are leading crucial work, providing creative, innovative built-environment products and services through Love Design Studio and sharing wider learning and benefits for society through Shade the UK. This local example provides inspiring insights into the contribution that the private sector can make in collaboration with non-profit initiatives.
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- The author thanks Daisy Jameson, of the Grantham Research Institute on Climate Change and the Environment, for her review and input.
- This blog post represents the views of the author(s), not the position of LSE Business Review or the London School of Economics and Political Science.
- Featured image provided by Shutterstock
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