Following the 2021 COP26 summit (formally known as the United Nations Climate Change Conference) in Glasgow, there are a few pressing questions around challenges and knowledge gaps that may impact implementation of the agreed-upon measures – how do we encourage private investment by better aligning efforts of public institutions with needs of the private sector? How do we avoid embedding further risk and proactively build resilience? How do geopolitical factors impact the establishment of adaptation measures? In a panel titled “Climate Adaptation Post-COP-26: Challenges and Knowledge Gaps” from the PSDRN 3rd Annual Conference, Stacey A. Swan (CEO, Climate Finance Advisors), Rebecca Nadin (Director of Programme – Global Risks and Resilience, ODI) and Amal-Lee Amin (Director of Climate Change, CDC Group) discuss the hurdles impacting implementation of COP26 measures and the need to address these at the earliest.
- While there are improvements in quantifying and developing practical management approaches to address climate-related financial risks, we need to improve public-private partnerships by better connecting on-the-ground investments, especially from the private sector, with government-led adaptation planning and policymaking
- As we continue to retroactively integrate resilience into investment strategy, we should avoid embedding further risks and consider proactive investment in innovative business solutions that will be critical for bringing adaptation and resilience services
- Institutions (especially governments) should deepen their understanding of pan-/cross-region climate change drivers and develop country-agnostic measures, especially considering threats and hazards other than climate change that some countries/regions may face and that may impact implementation in such regions
“We don’t have that much time and perfect may not be attainable, so we need to work hard and work fast as a community” – Stacey A. Swan
Promoting Public Private Partnerships
Despite improvements in quantification of climate-related risks, there is a perceived gap between the private investment work conducted by organizations such as CDC Group and the adaptation planning and policy-making initiatives that ODI supports. This disconnect is likely because plans developed by environment ministries and the like lack critical financial details that investors are looking for, rendering the plans more akin to risk assessments than investment drivers. Additionally, it is possible that there may be a gap in the public sector’s understanding of private investors’ risk criteria – as studied by ODI, risk tolerance varies strongly across different parties such that neglecting to take a nuanced understanding of the risk private investors may be willing to bear compared to the same for government funds may lead to a disconnect between the two.
Fortunately, there is work already underway to bridge this gap. Firstly, in terms of appraising adaptation options proposed by public entities, private sector organizations such as CDC Group are working to determine the appropriate metrics for level of risk exposure, vulnerability of the asset or company, degree of adaptation measures in place etc. that will provide transparency around risk and resilience as well as incentive to spur private investment. Given that risk appetite directly impacts level of investment and that current levels of investment may be impacted by lack of information about risk factors, outlining these metrics should ideally boost private investors’ awareness of/ability to estimate risk factors involved with climate-related investments. Secondly, in terms of improving public sector understanding of private sector risk appetite, organizations such as Climate Finance Advisors (CFA) are leveraging enhanced climate risk quantification approaches to help governments determine the right mix of public and private funds that can address climate adaptation and resilience measures. Instead of relying solely on private investment to solve all current problems, CFA advocates that determining the right allocation of public vs. private investment on a national level can translate government-provided risk assessments into a tangible investment pipeline and direct private sector funds towards areas where they can be most effective.
Holistically Managing Risk
While current efforts to retroactively integrate resilience into investment strategy are valuable, it is equally imperative to ensure that such efforts are not embedding further risk into the system. this can be mitigated by conducting conflict-sensitivity checks to ensure that the whole spectrum of ESG is ticked when classifying assets, initiatives, or companies as “green”. Private investors (e.g., CDC Group) are also looking into what is good practice, what the research is showing and how relevant tools can be made available to ensure that the full picture is considered when making investment decisions.
Another key tactic within holistic risk management is proactive identification of and investment in businesses that are providing adaptation and resilience services. While this approach is relatively new, it is important to ensure that we are driving climate-resilient growth and job creation. Organizations like CDC Group have already found several innovative and high-impact business solutions that are changing how certain sectors approach adaptation, e.g. CropIn (an Indian AgTech start-up that is using Artificial Intelligence to provide more effective farm data and adaptation resilience services for farmers) and Pula (a Kenyan fintech that offers farmers insurance and digital products linked with novel metrics such as yearly harvest). Such businesses will be critical to embed adaptation and resilience not only in their local economies but in also other countries that can benefit from their novel approach, indicating the urgent need for private (and public) investors to identify and support them.
Thinking Beyond Geopolitical Factors
While most measures outlined in the COP26 summit focus on national issues and adaptation tactics, it is important for governments to consider cross-border climate change risks/drivers as well as regional nuances when building their adaptation strategy. ODI is addressing the first issue of cross-border (“transboundary”) climate risk through an initiative called “Adaptation without Borders”. This initiative focuses on promoting the understanding that certain climate impacts and drivers (such as natural resource management, global supply chain risks etc.) are not confined to one country but can be felt across borders. Thus, a pan-region approach to climate risks is crucial to ensure that measures taken by various playersare holistically complementary, mutually exclusive, and collectively exhaustive. A country-agnostic approach can also help governments consider the threats and hazards other than climate change that impact certain countries and ensure that investments are being directed to the right opportunities based on a deeper understanding of how climate may be intersecting with these other hazards.
ODI is also addressing the second issue of regional nuances by working with governments and large corporates to develop regional adaptation plans that can address unique challenges and better manage cross-border issues. Such plans will be beneficial to ensure that countries with unique regional struggles are able to provide the adaptation action, planning, support, and implementation. Additionally, such plans will be particularly valuable in Fragile and Conflict-Affected Situations (FCAS). Such regions are unlikely to receive private investment on account of not meeting the risk criteria of private investors – thus, governments must “unpick the barriers that we’re creating ourselves”, as Rebecca puts it, and take a more nuanced and practical approach to support regional adaptation, which is what ODI is enabling.
It is no secret that climate change is one of the biggest threats to our survival today. As outlined in this blog post, there are several questions and challenges that may impact the execution of adaptation measures outlined in the COP26 conference. Nonetheless, it is reassuring to know that there are several organizations already undertaking the necessary steps to address these challenges and enable faster implementation. The path forward is challenging and will require considerable effort by everyone involved, but there is hope.
Nandini Mazumdar (MBA 2022) is a Co-President of the Tech & Media Club at London Business School. Prior to the MBA, she completed her undergraduate studies in Econometrics and Political Science at New York University and worked at Mastercard Advisors, offering consulting and advisory services in the payments, fintech and technology sectors. Nandini is an intern for the Wheeler Institute, contributing to the creation of content that amplifies the role of business in improving lives.
The Private Sector Development Research Network is a community of institutions with an active research agenda on Private Sector Development. The PSD Research Network is a collaboration between the Wheeler Institute, CDC Group, Center for Global Development, European Bank for Reconstruction and Development, IBD Invest, International Finance Corporation, International Growth Centre and the Think Tank ODI which aims to promote the exchange of ideas and facilitate collaboration.
Key Terms to guide your understanding of this sector:
- ESG: Environmental, Social, and Corporate Governance, a metric for evaluating companies’ ethical status in terms of their attitude towards social and environmental factors
- Fragile and Conflict-Affected Situations (FCAS): The list of fragile and conflict-affected situations (FCAS), released annually by the World Bank Group (WBG). While not comprehensive or ranked, the list functions primarily as a tool to help the WBG adapt its approaches, policies, and instruments in difficult and complex environments. The WBG also uses it for monitoring and accountability around its support for the most vulnerable and marginalized communities. The list is based on publicly available global indicators and is updated every year to reflect changes in country situations.
- Global Goal of Adaptation: The Paris Agreement aims to strengthen the global climate change response by increasing the ability of all to adapt to adverse impacts of climate change and foster climate resilience. It defines a global goal on adaptation – the goal is:
- to enhance adaptive capacity and resilience;
- to reduce vulnerability, with a view to contributing to sustainable development; and ensuring an adequate adaptation response in the context of the goal of holding average global warming well below 2 degrees C and pursuing efforts to hold it below 1.5 degrees C.
- In summary, the GGA aims to provide a system for tracking and assessing countries’ progress on adaptation actions, and for catalysing adaptation funding. Countries’ progress will be assessed through the global stocktake, with the first phase of data collection starting December 2021.
- TCFD: The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information. The TCFD has developed a framework to help public companies and other organizations disclose climate-related risks and opportunities.
Beauchamp, E., 2021. Five key questions for making the Global Goal on Adaptation work for local people and places. [Online]
Available at: https://www.iied.org/five-key-questions-for-making-global-goal-adaptation-work-for-local-people-places#:~:text=The%20GGA%20aims%20to%20provide,data%20collection%20starting%20this%20December.
[Accessed January 2022].
Task Force on Climate-related Financial Disclosures, n.d. [Online]
Available at: https://www.fsb-tcfd.org/
[Accessed January 2022].
The World Bank, n.d. Classification of Fragile and Conflict-Affected Situations. [Online]
Available at: https://www.worldbank.org/en/topic/fragilityconflictviolence/brief/harmonized-list-of-fragile-situations
[Accessed January 2022].
UNFCC, 2015. New elements and dimensions of adaptation under the Paris Agreement (Article 7). [Online]
Available at: https://unfccc.int/topics/adaptation-and-resilience/the-big-picture/new-elements-and-dimensions-of-adaptation-under-the-paris-agreement-article-7
[Accessed January 2022].
World Wildlife Org, n.d. What’s the difference between climate change mitigation and adaptation?. [Online]
Available at: https://www.worldwildlife.org/stories/what-s-the-difference-between-climate-change-mitigation-and-adaptation#:~:text=Climate%20change%20adaptation%20means%20altering,we%20can%20no%20longer%20avoid.
[Accessed January 2022].