Out-Law News 2 min. read
29 Nov 2023, 9:59 am
A UN report into how countries are adjusting to the effects of climate change has highlighted the role that private finance can play in protecting people.
According to the report (112 pages / 10.2MB PDF), progress on climate adaptation – taking measures to avoid current or expected harm for people and nature – is “slowing when it should be accelerating”.
It also found that the adaptation finance gap – the difference between estimated adaptation costs – has grown in the last year. While around $21.3 billion of finance has so far been raised, the UN estimates that between $215bn and $387bn will be needed for the world to adequately adapt to unavoidable impacts of climate change.
“Bridging the adaptation finance gap requires more international, domestic and private finance, ideally a reform of the global financial architecture and better international cooperation. Domestic expenditure and private finance are potentially important sources of adaptation finance, but quantitative estimates are not yet available because their flows remain difficult to track,” the report concluded.
Senior Sustainable Finance Advisor
There is a heightened interest in financing adaptation and climate-resilient assets, driven by the growing demand for investments that align with clients’ sustainability objectives
James Dunham, climate risk and sustainable finance expert at Pinsent Masons, said: “Traditionally, private investors have not regarded adaptation as a specific asset class. However, there is a heightened interest in financing adaptation and climate-resilient assets, driven by the growing demand for investments that align with clients’ sustainability objectives.”
“In this competitive market, the opportunity to invest in adaptation can also serve as a differential factor and provide an avenue for portfolio diversification. Investors and asset managers are also now beginning to consider physical climate risk and the necessity for investment in adaptation to make more informed investment decisions,” Dunham said.
He added: “This awareness is further fuelled by evolving and more stringent regulations, standards, and stakeholder expectations regarding the identification, management, and disclosure of climate-related risks. Many investors and asset managers are also expanding their focus beyond immediate financial gains, prioritising the creation of long-term value as the evidence linking climate performance and financial performance continues to grow.”
According to the report, progress in adaptation implementation in developing countries is plateauing. In total, 29 countries still do not have a national adaptation planning instrument – and most of them are particularly vulnerable to climate impacts.
The report said more must be done to support these countries urgently, but warned that flows of international public adaptation finance to developing countries have slowed significantly since 2020.
“To mobilise greater private investment in adaptation, a clear market signal, supportive policy and regulatory frameworks, as well as demonstrable risk-adjusted commercial returns and positive outcomes, are essential,” Dunham said.
He added: “Knowledge sharing and building the private sector's capacity to assess and finance adaptation projects are also crucial. Therefore, financing mechanisms such as public-private partnerships will be essential for attracting private capital to adaptation initiatives.”
Sustainable finance expert Hannah Brown of Pinsent Masons said that financial products tied to nature-based solutions can provide adaptation with the co-benefit of conservation and increasing biodiversity. “The UK is in the top 10% of the most nature-depleted nations globally and the worst of the G7 nations. Public-private partnerships have emerged in response to this acute biodiversity loss, as exemplified by the UK's Natural Environment Investment Readiness Fund (NEIRF),” she said.
“Such funds leverage incentives like social investment tax relief to attract private finance, with NEIRF aiming to secure £500mn for nature projects by 2027. For one project, NEIRF attracted £1.5m seed funding from private investors to provide loans to local landowners and farmers for natural flood management projects in the Wyre Valley,” Brown added.
02 Aug 2023