Climate financing is a widely discussed necessity and yet a conflicted topic since the climate change debate has begun. Between the right definitions, huge scope, and adequate amount of climate financing needs and requirements, the world has witnessed plethora of finance commitments. Amongst the many aspects of the climate finance debate, one of the critical factors is the need to adapt, and therefore the need to raise adaptation financing. Climate adaptation plays a pivotal role in determining how climate impacts ultimately manifest and how intense their damaging effects can be.
What is adaptation and what is the chaos about?
Adaptation is the change adopted in ecological, social, or economic systems as a response to actual or even expected climatic changes as well as to their impacts or effects. Adaptation practices and solutions thus form a critical part of countries’ climate change plans in order to be better prepared to deal with past, present or future impacts of climate change. Thus, while mitigation actions help to reduce or ‘mitigate’ emissions , adaptation entails planning for the future to ‘brace for impact’ due to the irreversible changes already in place.
The strategies for adaptation will definitely differ for different countries and communities. The common base however, still remains the need for adequate adaptation financing. With increasing intensity of disasters in recent times, building up the adaptation component and capabilities forms an integral part of the global community. Greater challenges are faced by emerging economies that are required to manage their developmental needs while maintaining sustainable economic growth patterns.
Current adaptation flows
The current climate financing scenario paints a dis-heartening picture with respect to the direction of global climate finance. Trends show that the preferred broader sector destinations of climate finance flows still remains the mitigation sector. Adaptation financing for long, has continued to lag behind. Forming a meagre share of 7.4 per cent in total climate finance for 2019-20, the adaptation agenda continues to be dominantly funded by the public sector. Further, latest estimates with respect to adaptation needs highlight that adaptation costs are rising at a fast pace. Developing countries are facing a widening ‘adaptation gap’ with the costs amounting to be almost five to ten times greater than the current public adaptation finance flows. The persistent focus of global climate finance flows on mitigation sectors therefore is a cause of concern.
The missing share of private sector participation forms a key reason for the lack of adequate financing for adaptation. One of the main reasons for this reluctance at the end of the private sector is perhaps due to the reason that the benefits of adaptation are more local and involve a greater risk appetite, restricting the movement of private players in the sector. The lack of bankability of adaptation projects as well as limited internal capacity at the end of private players to assess, identify, and develop an adaptation activities pipeline serves to widen the adaptation gap further. With the double whammy of smaller share of finance and significant dependence on public sector sources, countries most vulnerable to climate induced changes thus suffer the most.
Need of the hour
With an overlap between adaptation and developmental goals, the likelihood of greater public sector involvement is expected. However, the role of the private sector in channelising bigger quantum of climate finance cannot be discounted. Public sector can play a pivotal role in ensuring greater private sector flows in the adaptation segment as well. First, there is a need to address the ‘higher risk in adaptation’ concerns by ensuring a full disclosure of localized climate risk and vulnerability data. In addition, there is a need for governments to consciously account for climate risks in capital investment planning. This will serve the twin purpose of not only providing better and credible information to private investors, but also to build up investor confidence by showcasing a prioritised approach of the country towards adaptation planning and investment. Further, once the lack of information is looked after, the next step would be to provide a safety net for reducing investment risks. Since adaptation requires substantial investments in multiple developmental sectors with more localised benefits, providing a set of financial incentives will aid in attracting greater investment and also help boost investor credence. These initiatives may take several forms like risk guarantees, credit enhancements, blended financing with the public sector, etc.
While greater efforts are needed at the national government level, the G20 can prove to play a supportive role as well. From the early discussions and conversation in the G20 in Turkey on the issue of developing resilience and disaster risk reduction in countries, to the Japanese presidency agreeing on the ‘Action Agenda on Adaptation and Resilience’, adaptation has been accorded importance at the G20. In order to promote greater investments and bridge the information gap, G20 can stress upon a disclosure agreement on adaptation goals, prioritised sectors, etc. among the member countries. An institutional arrangement can be put in place to serve as an intermediary as well as a facilitator between investors and countries seeking adaptation finance to smoothen the process. Further, there is an overall need to ensure fulfilment of climate finance commitments and to promote conscious choice of financing in adaptation sectors. Therefore, ensuring greater accountability for the amount financed and at the same time, issuing guidelines to promote the adoption of a diversified portfolio with mitigation as well as adaptation components being financed can form one of the aspects of climate change negotiations at the G20.
Conclusion
While the criticality of adaptation finance is understood and recognised, the world has still not seen significant adaptation finance streams. In the current aftermath of the pandemic with greater debts and reduced government revenues, not only are the developmental needs at stake but the ability to ensure better preparedness to climate change is also severely restricted owing to the dearth of finance in adaptation.
There is a crucial need to recognise and promote the substantial role of the private sector in raising adaptation finance. Along with country level actions and initiatives, the adaptation finance agenda can benefit to a large extent from support at the G20 platform. There is a need for a global acknowledgment to re-establish the adaptation focus of climate finance. Delays here will not buy the world community more time to deal with climate change, but will only lead to rising adaptation costs and much more severe damages.
(Views expressed are the author’s own and don’t necessarily reflect those of ICRIER.)
