Innovative Finance for Climate Change Adaptation
Although it is difficult to quantify adaptation finance, adaptation costs are estimated to rise with costs being higher in industrialized countries, but higher per gross domestic product (GDP) in developing countries. Efforts are however being made to expand the actors, approaches and instruments through which adaptation finance is delivered. Some of the innovative finance options for adaptation include focus-based finance, results-based finance, loans, grants, bonds and multi-lateral finance options. Partnerships between the government and the private sector to secure finance is also on the increase. There is increasing momentum to ensure a sustainable finance system. The challenge however exists in estimating the climate change adaptation cost and finance as there is no agreed global metric to quantify adaptation. There has been a diversification of instruments and sources in the evolving financial modalities coupled with signs of more climate proof and sustainable financial systems and investments.
Nature-based solutions Financing
Nature-based solutions play a pivotal role in climate change adaptation. However, financing for nature-based solutions is still low, currently at 13% of cumulative investment in adaptation projects. Addressing the gaps that exist in financing nature-based solutions would include diversification and expansion of the funding base and creating enabling conditions. Gauging the current status of nature-based solutions funding is challenging due to the nebulous nature of nature-based solutions.
There had been an exponential increase in nature-based solutions for adaptation activities from 2005-2015 but these plateaued to about 70 new initiatives per year with over half of nature-based solutions initiatives carried out in rural areas, approximately 30% in urban areas and 20% in coastal areas. Nature-based solutions for adaptation are often low-cost options that bring environmental, economic and social benefits to a wide range of stakeholders including marginalized groups. A small proportion of climate finance is unfortunately targeted towards nature-based solutions. Deploying innovative mechanisms and blending funding sources could amplify financing in nature-based solutions.
International development banks and other finance institutions can support the adaptation process. Banks are doing this by exploring innovative mechanisms to finance adaptation, because giving a value to adaptation is challenging, unlike in mitigation. Banks are putting together the adaptation benefit mechanism, that gives adaptation a value and financing based on tangible results. They are developing a mechanism where they are able to attract private financing. Innovative financing such as blended finance not only brings together the global climate funds and multilateral development banks and agencies but also the private sector and government funds. It is also important to ensure that there are enabling frameworks and regulations that ensure that these financing options are successful.
The cost of adaptation investments are much lower than the losses that would be incurred by avoiding investment in adaptation hence the reason why it remains vital to develop innovative finance mechanisms for adaptation even if quantification still remains a challenge.
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