Finance and Investment Action Track
The economic case for investing in climate adaptation is strong. Benefit-cost ratios range from 2:1 to 10:1. Yet, money is not flowing at the pace or scale needed. The Global Commission on Adaptation’s landmark report, Adapt Now, calls for a transformation in finance by: shifting how investment decisions are made to account for climate risks, scaling up and deploying public finance more effectively, scaling disaster risk finance and insurance, and harnessing private capital for resilience.
Action Track Goal
The long-term goal of the Commission’s Finance and Investment Action Track is to make climate risks more visible and actionable, mobilize public and private investment in adaptation, and promote systemic change in fiscal and financial systems to integrate climate risk into decision-making.
The Commission is mobilizing a wide range of partners and will seek to build bridges between public and private stakeholders to achieve these goals. We will pursue four key areas of action in the Year of Action, which combined, will support increased ambition on adaptation finance to be showcased at the Climate Adaptation Summit and COP26.
1. Align public sector financial decision-making with adaptation goals
We will address the urgent need to promote understanding and uptake of climate risk considerations amongst countries’ finance and planning ministries, so that key decisions are aligned with a more resilient future. This includes:
- Working with the Coalition of Finance Ministers (CFM) and Finance Ministries of the Climate Vulnerable Forum (V20) members to provide the foundational tools for governments to improve management of macroeconomic and fiscal risks; integrate adaptation planning into their budgets; and increase finance, including at the local level. We will provide technical and intellectual support and leadership to the CFM working group on its Principle 4 (“macroeconomic policy, fiscal planning, budgeting, public investment management, and procurement practices”) by developing and disseminating best practices.
- Co-designing a capacity building program to help mainstream climate risk into government decision-making. This program will complement the CFM by supporting developing countries (such as V20 countries) that may not be CFM members; supporting non-finance ministries (such as Ministries of Planning); and supporting subnational governments. The program will provide countries with increased access to best practices, tools, and peer exchange.
- Supporting the International Monetary Fund (IMF) as it scales up its climate change policy assessments (CCPA) into a tool that (a) introduces macro-critical climate risks into its annual Article IV consultations, and (b) is formally implemented together with the World Bank.
Key 2021 deliverables:
- Soft launch a program to support 6 - 10 Finance and Planning Ministries to mainstream climate resilience into their planning, fiscal, and budgeting processes by Climate Adaptation Summit 2021 and to be fully operational by COP26.
- Steps toward launching new IMF-World Bank CCPAs that address macro, fiscal, debt, and financial sector aspects of climate risks and actions, to be monitored via IMF Article 4 consultations.
Partners: CFM working group members include Fiji, France, Mexico, the Philippines, and Uganda. Institutional partners include the World Bank CFM Secretariat, the IMF, the African Development Bank, and other selected multilateral development banks (MDBs). For the mainstreaming program, partners include the Global Resilience Partnership, the V20, the UK Government, and other donors.
2. Open the door to scaled up public, concessional, and contingent finance for adaptation
Public finance for adaptation, including domestic and international flows, currently amounts to roughly $30 billion per year, far short of the estimated need for $140-$300 billion per year for developing countries by 2030. The COVID-19 crisis presents both challenges and opportunities for this financing shortfall, largely hinging on how countries factor resilience into their fiscal stimulus and economic recovery plans. The Commission will seek to mobilize partners to help meet the adaptation finance gap, including by:
- Working with donors, multilateral development banks (MDBs), the IDFC, and other partners to identify opportunities to enhance adaptation finance mobilization for official development assistance, including through mainstreaming resilience into COVID-19 recovery.
- Exploring innovative instruments, such as resilience bonds, to mobilize adaptation finance from new sources.
Key 2021 deliverables:
- Launch an investor and issuer’s guide to resilience bonds, providing the framework for the developments of new instruments.
- Launch research identifying opportunities to enhance adaptation finance, and create a platform for commitments at the Climate Adaptation Summit.
Partners: The V20 Vulnerable Country finance ministries, MDBs, the Coalition for Climate Resilient Investments, the Coalition of Finance Ministers, the African Development Bank, the African Adaptation Initiative, the Climate Bonds Initiative, and E3G.
3. Scale up private finance for climate adaptation and resilient investments
Scaling up private investments in adaptation and resilience has proven difficult to date, partially due to unclear analytics, metrics, and incentives. The Commission is co-leading the new Coalition for Climate Resilient Investment (CCRI), a first-of-its-kind, private sector-led group that seeks to transform how investment decisions are made, starting with infrastructure. The Coalition is interested in strengthening markets for private and public-sector investment in climate-resilient infrastructure and supporting climate vulnerable geographies to attract investment.
In addition, the Commission supports the Climate Resilience Risks & Opportunities Coalition (Climate-RROC), co-led by UNEP-FI and the Global Center on Adaptation, which seeks to enhance disclosure of physical climate risks among financial institutions by sharing experiences and best practices, advancing the knowledge and evidence base in the public sphere, and building support for public policies.
Key 2021 deliverables:
- Enlist 30 leading companies across the investment value chain, totaling over $1 trillion in assets, to commit to full climate screening and financing of only climate resilient investments by 2021.
- 50 financial institutions commit to disclosure of physical climate risk by 2021.
Partners: Our CCRI co-leads include Willis Towers Watson, the World Economic Forum, and the UK Government. CCRI has over 50 members with over $8 trillion in assets. Climate-RROC’s leadership team includes 5 leading banks and investors committed to increasing disclosure practices by 2021.
4. Deepen economic understanding of adaptation
While there is a growing body of economic research on adaptation, this topic has not generally been translated into practical tools to inform decision-makers. To support the three activities above, we will continue building the economic evidence for investing in adaptation and resilience, promoting the translation of these findings into decision-maker friendly tools and methods.
Key 2021 deliverables: Completion of 3 technical notes on topics such as resilience considerations in macroeconomic models, and approaches to better estimate equity impacts, the triple dividends of adaptation investments, and the benefits of investing in nature.
Partners: World Bank, Grantham Research Institute, Imperial College London, London School of Economics, SOAS University of London, and more.