Report: 7 Ways to Boost Stagnant Climate Adaptation

The frequency and impact of extreme climate events like flash floods, storms, and wildfires, is increasing at an alarming rate. These events have been intensified by man-made climate crisis, leading to over 2 million deaths and $4.3 trillion in economic losses over the past fifty years. In the U.S., last year alone, extreme weather caused 18 disasters, costing 474 lives. Despite this, the UNEP Adaptation Gap Report 2023 reveals a shortfall in climate adaptation funding and preparation.

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What is the climate adaptation gap?

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The adaptation gap is the difference between the estimated costs of meeting a given climate adaptation target and the amount of finance available. Currently, the gap is failing in all key areas: finance, planning, and implementation. It stands between $194 billion and $266 billion USD annually. This lack of adaptation progress has severe consequences, especially for vulnerable communities.

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More than 90% of deaths caused by extreme weather disasters worldwide happen in developing countries. To address this worsening situation, developing countries need 10-18 times more funds than they currently receive. Developed nations pledged $100 billion annually in climate finance to assist poorer countries but are far from delivering that goal. That’s evident by the fact that adaptation finance flows declined by 15% in 2021 when they should have been going up.

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What will help bridge the adaptation gap?

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The report suggests seven ways to boost adaptation funding:

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1. Increase public adaptation finance

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The 2021 Glasgow Climate Pact urges developed countries to double their collective adaptation finance by 2025. Ongoing negotiations for a post-2025 goal may result in a significant increase, potentially reaching $139 billion annually with inflation correction.

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Emphasizing the needs of developing countries, the new goal could allocate a larger share to adaptation. While vital, an uptick in international public adaptation finance alone is unlikely to completely close the adaptation finance gap.

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2. Enhance domestic expenditure on adaptation

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Current budget tagging and tracking methods fall short of estimating the impact of the adaptation budget. The report advises improving tracking to foster awareness among policymakers and integrating adaptation into long-term budget planning. This can help spend government funds more consciously and integrate climate risks more effectively.

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3. Increase private-sector finance

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Rather than relying solely on the public sector, the report suggests creating conditions that promote private investments in adaptation. To achieve this, addressing market imperfections like positive externalities and imperfect financial markets, is crucial.

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Various instruments, including guarantees, insurance, and concessional finance have proven helpful. Public provision of climate risk information or government-based financing support can also help. For example, the Government of Malaysia secured private investments for a stormwater diversion tunnel project by allowing the private investor to toll a portion of the tunnel for traffic.

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4. Increase financing for SMEs

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The report highlights that SMEs hold tremendous potential to unlock climate adaptation solutions and engage the private sector. Initiatives that tailor financing to their needs can help stimulate adaptation-relevant products and services.

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Global efforts like the G20's Financial Inclusion Partnership can mobilize and scale adaptation finance for SMEs. Moreover, local efforts to enable financial de-risking and targeted investments in SMEs can also help bridge the gap.

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5. Promote remittances

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Remittances or money sent by migrants to their home countries, are a vital funding source for less developed nations. These transfers directly benefit households and address areas that public efforts struggle with. Unlike private finance, remittances are driven by personal bonds thereby enabling investments in adaptation needs even without immediate returns.

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Governments can enhance household adaptation by encouraging remittances. However, more research is needed on how government actions influence this, considering climate justice concerns.

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6. Reform the global financial architecture

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The report suggests modernizing the global financial architecture, including institutions like the IMF, World Bank, and WTO. Originally designed post-World War II, this system is ill-suited for current global challenges, evident after the 2009 financial crisis and COVID-19 pandemic.

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The existing architecture, along with other financial institutions like MDBs, remains largely untapped. Reforms can unlock its potential to aid developing countries in addressing contemporary issues, including climate adaptation.

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7. Implement article 2.1(c) of the Paris Agreement

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Aligning financial flows with a low-carbon, climate-resilient development path is a global objective (UNFCCC 2016). Implementing this goal not only supports developing countries in closing the adaptation gap but also addresses risks requiring attention.

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There is a need for the UNFCCC to address these risks while enhancing guidance on scaling up climate resilience through the financial system.

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