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3 Ways Governments Can Involve the Private Sector in Climate Change Adaptation

This is the fourth installment of WRI’s blog series, Adaptation and the Private Sector. Each post explores ways to engage the private sector in helping vulnerable communities adapt to the impacts of climate change. See past posts.

As the impacts of climate change become ever-clearer, so does the challenge of adaptation. While the World Bank estimates that developing countries will need $70-$100 billion annually through 2050 to adapt to climate change, the public sector alone cannot meet this financial goal. Rather, the world needs the human, technical, and financial resources of the private sector to help bridge this significant adaptation finance gap and make vulnerable communities more climate-resilient.

National governments have a critical role to play in supporting and stimulating private sector investment in adaptation. In order to engage the private sector in helping vulnerable populations prepare for the effects of climate change, developing country governments can take three types of actions:

1. Scaling Up Private Sector Investments for Resilience

Some private firms are already investing in adaptation – whether it is through designing or redesigning climate-resilient products, protecting their supply chains from extreme weather, or incorporating climate change into their philanthropic and community outreach endeavors. In these instances where the private sector is already investing in adaptation, government action is most useful in scaling up investments and ensuring that they reach vulnerable populations.

Governments can do this by raising awareness about climate change and providing technical assistance to help companies in specific sectors adapt to its effects. Other options include concessional loans, match funding, tax credits for strategic adaptation investments, grants or subsidies, or extension of credit lines to the financial industry. The actions that governments take to support current adaptation investments will vary according to the maturity of the private sector, the type of the private firm, and the industry.

Some governments, for example, may find that their agricultural sector will be particularly vulnerable to drought. They can investigate whether there are businesses in the agricultural sector that are already investing in making climate-resilient products and processes. If a business has created a water-pump system to reach deep wells that remain full during droughts, for example, governments might support this product by giving vouchers to small-holder farmers to purchase this pump.

Making actionable information on climate change available and providing technical assistance can also support private sector action in an agricultural sector vulnerable to drought. For example, small-scale farmers may already be engaged in climate-smart agriculture practices, like planting trees to shade crops from the heat. But if the government provides these farmers with access to reliable precipitation forecasts, they can take greater precautions by collecting and storing rainwater for dry spells. Governments can also provide technical assistance in drip irrigation and other interventions that can safeguard crops from drought.

2. Correcting Market Failures

While some private companies are already taking action, others have yet to invest in adaptation. In these cases, government action can help correct these market failures.

Private firms are hesitant to invest in adaptation when climate-resilient investments present an added cost or a higher risk. Yet in many cases, this investment is necessary for the sustainability of the firm or the benefit of the community. Governments can address this inaction in a few ways. They can create policies that have indirect effects on building resilience among vulnerable populations--such as introducing tiered water-pricing schemes as a way to stimulate investments in water conservation. More judiciously managed water could help provide a stable supply in drought-prone regions. Governments can incentivize innovation, such as creating business competitions or small business incubators that stimulate the development of local climate change solutions. Governments can also set standards and regulation. Developing and enforcing climate-smart building standards, for example, would ensure that businesses invest in climate-resilient structures, such as hotels that can withstand storm surges or high winds if they’re located near the beach. Climate-smart zoning regulations might shift new hotel development back from the water altogether.

Government actions in this category will again depend on maturity of the private sector, the type of the private firm, and the industry. Regulations, for example, won’t have the same effect on Micro, Small, and Medium Enterprises—which often operate in the informal sector—as they do on Multinational Corporations, which almost always conduct business in the formal sector.

3. Public-Private Partnerships

There are certain situations where private sector investments are unlikely. These typically occur when an investment is seen as a public good that is unprofitable, as is the case with water infrastructure, flood protection, social safety nets, and disaster management. The public sector is the main source of investment for goods and services like these. Nevertheless, governments can still urge the private sector to play a role, either by implementing government-funded projects or through public-private-partnerships.

For example, let’s look again at the agricultural sector. If a drought hits a country, the public sector will pay for and supply the population with food provisions. But governments can enlist the private sector to deliver these supplies throughout the country. The private sector has the transport capability, while the government has supplies that need to be delivered. Additionally, the public and private sector could partner together to build large-scale water tanks or construct canals that bring water to areas that are water-scarce. This type of relationship benefits the private sector, public sector, and vulnerable communities.

Spurring Greater Climate Adaptation

These are just a few examples—there are numerous actions governments can take to support, incentivize, or partner with the private sector on adaptation initiatives. With sea levels rising, floods intensifying, and drought periods extending in many countries, it’s time for governments to consider the tools and processes at their disposal for ensuring their private sectors are helping build a climate-resilient society.

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