Revolutionizing climate adaptation financing: The untapped potential of private investment in resilience
Directing increasing funds towards climate change adaptation solutions is not only a widely shared necessity but also an opportunity for the private sector, both in emerging and developed markets. Part of the challenge is quantifying the actual adaptation finance gap and tracking funds already allocated to resilience worldwide. Experts from the Climate Policy Initiative guide us through this aspect of climate finance and how its narrative is changing, including successful experiences with private sector investments in the field.
In the ever-pressing battle against climate change, securing funds for climate adaptation remains a pivotal yet underserved element. As the world grapples with the consequences of a changing climate, the urgency to fund adaptive solutions has never been more evident.
Climate finance encompasses a complex landscape, marked by existing gaps in both the required funding and the ability to track them accurately, particularly in the realm of adaptation. Innovative solutions aimed at enhancing the resilience of communities to climate change exist, but investors need to allocate funds in that direction, which requires improved data and information. A better understanding of the climate adaptation finance space, and the opportunities it holds, is critical to closing these funding and information gaps.
The adaptation finance gap
The recently released Global Landscape of Climate Finance by Climate Policy Initiative (CPI) reveals a milestone: total global climate finance surpassed a trillion dollars annually for the first time in 2021 and 2022, almost doubling over the past four years. This increase was primarily driven by new financial flows, especially in the renewable energy and transportation sectors.
“We are heading in the right direction, but these data do not entirely constitute good news,” explains CPI Global Managing Director Barbara Buchner, emphasizing that the financing needs to meet the Paris Agreement goals by 2030 are five times higher. “Worse still, the adaptation finance gap is widening. Adaptation finance grew modestly in absolute terms, reaching USD 63 billion on average per year in 2021 and 2022, but has decreased in terms of overall share of global climate finance, dropping to only 5%.”
CPI projects that developing countries will require an estimated USD 212 billion annually in adaptation finance by 2030. The UNEP estimate is even higher: the average adaptation finance needs for all developing countries from 2021 to 2030 are estimated to be around USD 387 billion per year (with a range of USD 101–975 billion per year) in the Adaptation Gap Report 2023.
As for the sources of funding, mitigation funds primarily originate from the private sector, whereas adaptation finance is still funded mainly by the public sector (98%), according to the CPI report, which highlights that adaptation finance tracking challenges continue to impede the understanding of progress of both public and private flows.
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