OPINION: Private sector action in adaptation
Ari Huhtala, CDKN’s Deputy CEO for Policy and Programme and Climate Finance Lead, reflects on government strategies to attract private investors to climate adaptation, as highlighted in several recent expert debates.
I have learned a lot recently on the potential of private sector action in investing in climate resilience, discussed at two events:
Several interesting messages on the role of the private sector in adaptation came out of a session “New incentives for low-carbon, climate resilient growth options” which I moderated at the Carbon Expo held in Cologne 28-30 May. The private sector is very heterogeneous, ranging from gigantic multinationals to mini-hydro operators or small farmers in developing countries. All reports mapping climate finance flows assign almost all private sector flows to mitigation, but these figures do not capture autonomous adaptation.
Sam Frankhauser from the Grantham Research Institute on Climate Change and the Environment, LSE, pointed out that adaptation finance is an integral part of investment and development finance, unlike mitigation for which the world has created innovative mechanisms such as the carbon market. The big demand for adaptation finance comes from climate proofing infrastructure investments which does not create a revenue flow. Also water and agriculture create considerable demand resilience-related investments for which determining a clearly profitable business case is often challenging. Preparing for and coping with climate-induced disasters are often an entry point for the private sector to include resilience into their business planning.
Jilian van der Gaag from the Ministry of Environment of Chile emphasised the role of a strategic approach to scoping needs and planning for resource mobilisation for climate action via a consultative process between the ministries of finance, environment and the private sector (an example of this process is in the report by E3G of a CDKN-project: Strategic National Approaches to Climate Finance.
Kari Hamekoski from the Nordic Environment Finance Corporation (NEFCO) provided concrete examples of action with mitigation and adaptation co-benefits in public-private partnership projects funded by the Nordic Climate Facility (NDF). Sabera Khan from the Zambia National Climate Change Secretariat (ZNCCS) reminded us that communities can and should play a key role in identifying adaptation investment needs including those for the private sector. She cited Zambia’s experience with the Pilot Programme for Climate Resilience (PPCR) as an example of a process to that effect.
Sean Kidney, Chairman of the Climate Bonds Initiative, described the very fast evolution from the experimental climate bonds issues by Multilateral Development Banks to a rapidly growing market with multiple stakeholders and the volume of bonds issued increasing from USD1-2 bn to USD20 bn per year. Institutional investors are looking for scale and there are excellent opportunities in infrastructure, water & irrigation, ports and agricultural storage – all with significant relevance to the resilience agenda. Also, first Green City Bonds are emerging.
In addition to this wide range of initiatives, I drew the sessions’ attention to a CDKN-funded study “Resilience in action: Lessons learned from public-private partnerships around the world” with case studies from financial services, agriculture, ICT and water.
Another interesting event was “Setting a joint agenda for private climate action” organised by the Ministry of Foreign Affairs of the Netherlands in the Hague on 11 June with panels on barriers and opportunities and pitches by ten companies or organisations for concrete action to mobilise more finance for climate action in developing countries. There were several calls for with the private sector in addressing adaptation challenges in agriculture (finding new seeds, sustainable rice intensification, etc.), and the launch of the “Dutch Agro Water Climate Action Alliance, DAWCA”. The Minister of Foreign Trade and Development Cooperation of the Netherlands, Liliane Ploumen, concluded that “Doom and gloom are not the best motivation for action – public, private non-governmental and knowledge institutions should jointly identify and overcome barriers to large-scale innovation.”
She appealed to participants: “Be a pioneer and lead by example.”
Image: Recovering from floods, Zambia, courtesy International Federation of the Red Cross.