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Source: Small Island Developing States

17 July 2019: A report by the UN Environment Programme Finance Initiative (UNEP FI) and the Global Commission on Adaptation (GCA) addresses barriers and opportunities for financing resilience and adaptation, targeting financial system constituents, such as policymakers and financial actors, and the actions required of each.

The report titled, ‘Driving Finance Today for the Climate Resilient Society of Tomorrow,’ refers to adaptation needs as the “biggest investment opportunity of this generation,” and underscores the importance of aligning the financial system with these needs to “unlock” the necessary private and public capital that can support investment in adaptation and resilience.

The paper was prepared by Climate Finance Advisors and is one of a series of background papers on adaptation and resilience finance that will contribute to the GCA’s inaugural flagship report and the GCA’s ‘Action Tracks,’ to be presented in September 2019. The Action Tracks are related to food security and livelihoods, finance, cities, infrastructure, nature-based solutions and empowering local action.

The report argues that failure to act on climate change threatens the financial system and the global economy, while acknowledging that few in the financial sector are currently incorporating physical climate risks into investment decision making.

The report contends that identifying the financial implications of climate risks will lead to opportunities for profitable investment on the one hand, and to potential capital flight from the most vulnerable communities and countries, on the other. In addition, absence of ownership of climate risk has led to expectations of publicly funded assistance following natural disasters, which further discourages investment in resilience. The report therefore identifies the need for: climate risk management and disclosure; harmonization of practices and terminology; and reallocation of capital towards climate resilience, adaptation and sustainability.

The paper identifies five categories of barriers to scaling up financing for adaptation and resilience, namely: inadequate support and/or incentives to act; weak policies and conventions in the financial industry; market barriers; institution-level operational gaps; and low technical capacity for climate risk management. It also cites the perceived lack of private benefits and the immaturity of business models as additional barriers.

Related to these, the paper presents six recommendations: 1) accelerating and promoting climate-relevant financial policies; 2) employing climate risk management practices; 3) developing and adopting adaptation metrics and standards; 4) building capacity among all financial actors; 5) highlighting and promoting investment opportunities; and 6) using public institutions to accelerate adaptation investment by taking more risks and demonstrating new markets.

The recommendations are supplemented by potential actions the GCA can support to accelerate adaptation and resilience financing by: establishing, developing and promoting a network of excellence on climate risk and adaptation; promoting the integration of climate considerations into financial system governance; promoting the development of a climate analytics industry; and innovating adaptation and resilience financial instruments.

The report also identifies current approaches for increasing adaptation financing, such as: blended finance, by using public funds to catalyze private investment; social, green or resilience bonds to promote investment in adaptation; catastrophe (CAT) bonds and other innovative insurance products; dedicated investment vehicles; and prizes and competitions.

Established in 2015, Climate Finance Advisors is a consulting and advisory firm owned by women that works at the private investment and climate change nexus. It helps to integrate climate considerations into investment decision making, portfolio management, financial products, services and policies. The GCA was launched in The Hague, the Netherlands, in October 2018 by the eighth UN Secretary- General Ban Ki-moon with the mandate to encourage the development of measures to manage the effects of climate change through technology, planning and investment. [Publication: Driving Finance Today for the Climate Resilient Society of Tomorrow for the Global Commission on Adaptation] [Climate Finance Advisors Website]

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