Bridging the climate adaptation investment gap

Financing climate adaptation took centre-stage at Day 2 of EIT Climate-KIC’s Climate Innovation Summit in Dublin in November. This vital topic was introduced as the delivery mechanism for the Sendai Framework for Disaster Risk Reduction and the UN’s 17 global Sustainable Development Goals.

With mitigation attracting the majority of climate funding today, speakers explored some of the key constraints and opportunities in developing financially sustainable adaptation projects and the innovative financial products, policies, approaches and actions needed to support these.

The challenge of scaling up adaptation finance is both daunting and difficult. It was encouraging to see progress made by EIT Climate-KIC’s innovation community, pioneering data-driven innovation spanning insurance, financial, and market-based approaches with the conversation ranging from insurtech, fintech, micro-finance, blended finance and the expansion of green and blue bond markets. 

Grappling with this challenge of ‘joining up’ and ‘scaling up’ urban resilience since his time as head of Arup’s Global Planning Division, Peter Head, Founder and Chair of Resilience Brokers, said that global infrastructure is already struggling to cope with the demands upon it.  Mega challenges of population growth, urbanisation and climate change meant the window of opportunity was closing to adapt our current infrastructure to tomorrow’s realities. Worryingly, most G20 countries have experienced a growing gap in global infrastructure investment since the global financial crisis – around $2 trillion each year to 2030.  Bridging this gap is best done by adopting a joined-up systemic approach to project portfolio development which could reduce vital investment by up to 40 per cent[1]. The resilience.io system he is developing with EIT Climate-KIC and others takes a holistic approach to help urban decision-makers assess multi-hazard risks from which future land use solutions, transport and infrastructure investments can be modelled.

Monica Altamirano, Senior Financial Expert, Deltares agreed: “We need a paradigm shift in infrastructure investment, from cities to water resources management, so that as we grow we don’t become more vulnerable.”

Climate-KIC Australia’s CEO Christopher Lee explained that there needed to be a better understanding of “avoided costs” to boost engagement from the global finance sector because public finance alone was not enough; patient private capital was urgently needed to close the investment gap. He said the current lack of adaptation investment was driven by three things: ‘a business case based on avoided risk rather than returns’, the need for better risk data to support this case, and a lack of well-defined, finance-ready projects. 

 It was suggested from the floor that talking about ‘investing in livability and quality of life’ might be a better public messaging framework than ‘adaptation’ or ‘resilience’ and drive more local engagement and scale bottom-up demand for infrastructure financing.

With new developments in national development and disaster funds, parametric and ecosystem insurance and open data models, the room felt better scientific data, ICT and insurance solutions had a vital role to play in de-risking adaptation and development finance.

Mark Harvey, CEO of Resurgence said that more could be done to pick ‘low hanging fruit’ to finance improved weather datasets in developing economies and to ensure better data was ‘accessible and actionable’ by local communities, farmers and businesses.

Svante Persson, Senior Operations Specialist, Inter-American Development Bank (IDB) noted the ‘climate credit bind’ but highlighted the success of IDB’s $23 million five-year ProAdapt project in Brazil partnered by the Nordic Development Fund. He explained 30 per cent of the IDB’s loans and technical assistance now supported practical climate-related action for agriculture and the built environment in South America, Central America and the Caribbean. He shared success stories from Belize and in scaling simple but effective adaptation solutions at farm level in the Sertaõ region of Brazil. IDB plans to publish a new study into the global adaptation investment gap later this year.

Finally, the panel asked the room if a new global ‘community of practice’ was needed to boost climate cooperation on adaptation action at necessary scales; however, some felt that expert capacity already existed within the UN’s Global Adaptation & Resilience Investors Working Group (GARI).

All agreed that better business appreciation of long-term, climate-related asset risks was urgently needed to channel necessary public and private finance into safe-guarding global agriculture, landscapes, supply chains and the built environment, to underpin delivery of SDGs, and prevent widespread political, social and economic volatility and disruption.

SUMMARY:

1. Climate is no longer just an environmental issue; it already represents real economic ‘costs’
2. Climate risk management is essential to deliver global sustainable development goals (SDGs)
3. We need to act now to scale the action needed to future-proof our communities and economies by linking bankable adaptation projects with ‘patient’ public and private capital.
4. Closing the global infrastructure investment gap affordably and effectively necessitates scaling innovative, data-driven, whole-systems approaches to financing adaptation and climate resilience, especially in agriculture, landscapes and the built environment.

[1] McKinsey Global Institute Report (2013) “Infrastructure Productivity: How to save $1 trillion a year”