Finance is a primary constraint to implementing, driving and sustaining adaptation in human systems and ecosystems globally. Despite climate finance increasing over the past decade, flows to adaptation are significantly below the levels they need to be, limiting the implementation of adaptation options, particularly to the societies and in the regions most vulnerable to climate change. UNEP’s Adaptation Gap Report 2022 estimates that adaptation needs in developing countries could be over US$ 200 billion/year by 2030 in the absence of significant action to reduce emissions.
Indeed this may be an underestimation given that this figure builds on estimates from 2016. Furthermore, much of this finance for adaptation comes from public sources.
In the meantime, societies and economies are facing increasing losses from climate change. Insured losses from natural climate related events have increased over the last decade, with extreme events such as heatwaves, extreme precipitation and droughts all expected to increase in a warming world. Tipping points such as the collapse of the Amazon rain forest and irreversible melting of the Greenland ice sheet are believed to be rapidly approaching. Increasing evidence of impacts from climate change is driving action on emissions reductions from governments, policy makers, companies and society, but climate impacts are with us now and adaptation to a changing climate requires as much attention as mitigating as far as possible those climate impacts. Action on adaptation is particularly salient for countries in many emerging markets and developing countries where the costs of climate impacts will far outweigh the costs of emissions reductions.
However, physical climate impacts are both highly location specific and affect multiple sectors as well as public infrastructure. Future climate impacts are also poorly understood at the local scale and estimating financial impacts is subject to considerable uncertainty. Furthermore, the economic benefits of climate adaptation are almost always systemic or public. Add to that the uncertainty around multiple or cascading climate impacts and it is unsurprising that private finance is finding it hard to develop a business case for adaptation financing at the institutional level. Indeed private flows may be counter-productive if other social and environmental aspects are not taken into account.