‘Crucial’ Adaptation Finance Falls Far Short of What’s Needed

Finance emerged as a key enabler of climate change adaptation, and the concept of loss and damage took its place as an “important topic in international climate policy”, in sections of this week’s mammoth, 3,675-page assessment report from the Intergovernmental Panel on Climate Change (IPCC).

In the occasionally tortured language of the IPCC report, “adaptation finance constitutes a crucial enabling condition and shaper of the solution space, depending on other enabling conditions such as proper planning, implementation, and governance.”

And in purely economic terms, the human, ecological, and societal value of adapting to the climate emergency translates into a stunning return on investment. In 2019, the IPCC authors note, the Global Commission on Adaptation calculated that a US$1.8-trillion dollar investment in adaptation and resilience measures like early warning systems, climate-resilient infrastructure, improved dryland crop production, mangrove protection, and resilient water resources would yield $7.1 trillion in savings.

Limited Results from Private Financing

But so far, “the current public and private financial flows to adaptation are much smaller than needed,” the report states. Since the IPCC’s last comprehensive assessment report in 2014 and 2015, the gap between the estimated costs of adaptation and the available funds has widened, and while the dollar value of adaptation efforts in developed countries is higher, “for developing countries they are much higher as a proportion of national income, making the self-financing of adaptation more difficult.”

Many developing countries are depending on international funding to fulfill the adaptation pledges in their official submissions, or Nationally Determined Contributions (NDCs), under the Paris climate agreement. But the report recalls that rich countries missed their self-declared 2020 deadline to deliver $100 billion per year in international climate finance, in what was declared a “breathtaking” lack of commitment in the days leading up to COP 26.

That failure has African countries diverting billions of scarce dollars per year to deal with climate impacts, rather than investing in community infrastructure like schools and hospitals, The Guardian writes. A seven-country analysis by Power Shift Africa shows extreme weather already costing Ethiopia 5.6% of its GDP.

With only a small proportion of adaptation funding likely to come from public agencies, “private sector financing for adaptation has been increasingly promoted as a response,” the IPCC says. But while private support “has grown substantially since 2015,” it still constituted only 0.05% of climate finance and 0.1% of adaptation finance as recently as 2018.

“A key challenge for private sector financing of adaptation is demonstrating financial return on investment, as many benefits of adaptation arise as avoided damages or public goods, rather than direct revenue streams,” the report explains. As well, “leveraging private finance in developing countries is often more difficult because of risk (perceived and real) to investors,” resulting in higher interest rates and a smaller pool of potential investors.

And while insurance “is increasingly accepted as an adaptation option,” the authors add, it doesn’t always deliver the results communities need.

“First, there are concerns as to whether this will shift responsibility to the most vulnerable people to pay premiums,” they write. “There is also high risk for insurance to cause maladaptation,” for example, by underwriting crops that are more vulnerable to heat stress.

Loss and Damage

Loss and damage, meanwhile, refers to the “residual risks” that countries and communities face after all efforts to adapt to climate impacts have been exhausted. “The loss and damage associated with future climate change impacts, beyond the limits to adaptation, is an area of increasing focus,” the report states, and there is already “increasing evidence of economic and non-economic losses due to climate extremes and slow-onset events” at today’s levels of global warming.

Work is still under way on approaches to assess, avoid, and reduce a wide menu of losses—from economic impacts on assets, infrastructure, and land, to profound non-economic impacts like loss of societal beliefs and values, cultural heritages, biodiversity, and ecosystem services.

“The aggregate losses and damages would be higher if non-economic values were considered in such assessment,” the report notes.

The IPCC working group report refers to “losses and damages” in lower case to distinguish it from “Loss and Damage” (L&D), the high-stakes call for climate finance and compensation that was a subject of intense debate at last year’s UN climate summit in Glasgow. With eight months to go before this year’s conference convenes in Sharm el-Sheikh, Egypt, COP 26 President Alok Sharma is already warning there is scant hope of a deal on Loss and Damage at COP 27—even as he acknowledges that the climate impacts in this week’s report much worse than predicted.

“The international L&D policy debate has seen heightened attention, with some coalescence around key issues, including risk management, limits to adaptation, existential risk, finance and support, liability, compensation, and litigation,” the IPCC writes. “Yet, the policy space and concrete remit for L&D has remained vague,” leading to a “complex” path to effective policy.

Seizing the Moment for Adaptation Action

The report encourages decision-makers to seize the moment when climate disasters, from wildfires and extreme heat to cyclones or coral bleaching, create “windows of opportunity to promote rapid and effective responses”. The list of “catalyzing conditions” for adaptation action includes climate litigation, which is “becoming more frequent and is expected to increase as climate impact attribution science matures further.”

Those responses must increasingly be transformative, not incremental, the IPCC says—in contrast to much of the adaptation work that has gone on so far. As global temperatures rise, examples could include:

• Urban redesign that incorporates nature-based solutions like green roofs and infrastructure;

• Rescheduling outdoor labour to avoid high heat;

• Closer cooperation across disciplines like ecosystem management and urban design;

• Strengthening social safety nets and health systems “that better attend to heat impacts by providing universal coverage.”

But even then, the “hard limits” to climate adaptation “may be breached in some regions where critical heat tolerance thresholds are projected to be surpassed at medium to higher levels of global warming, such as physiological survivability thresholds,” making it impractical or impossible for people to work outdoors in parts of Asia, Africa, and North America.