Promoting private sector adaptation investment Richard J.T. Klein and Aaron Atteridge (richard.klein@sei.se, aaron.atteridge@sei.se)
WBCSD and WEF (2008) “Adaptation to climate change is a critical challenge for all countries, particularly for poor countries that will be hit hardest and earliest, and for all business sectors… The international business community is starting to develop products and services that can help with adaptation… In partnership with governments, international business can do much more in this space, particularly if the economic case for adaptation activities or markets for adaptation products is further developed.”
Private sector roles in adaptation • Source of new finance – Carbon market (incl. auctioning AAUs, levies etc.) – Commercial provision of capital – Direct investment (incl. climate proofing) – Philanthropy
• Provider of risk-sharing mechanisms • Supplier of innovative goods and services
WBCSD and WEF (2008) “Even under the most optimistic scenario of donor commitments, public funds will be nowhere near sufficient to meet the investment requirements of a successful climate change strategy.�
Persson et al., 2009
Private sources of adaptation finance • Carbon market (incl. auctioning AAUs, levies etc.) • Commercial provision of capital • Direct investment (incl. climate proofing) • Philanthropy
Private sources of adaptation finance • Carbon market (incl. auctioning AAUs, levies etc.) • Commercial provision of capital • Direct investment (incl. climate proofing) • Philanthropy
Commercial provision of capital • Market finance (e.g. loans, credits, venture capital) • Innovative products, e.g. Green Bonds (World Bank and SEB) – In response to demand from Scandinavian investors – Mitigation and adaptation projects (20% for adaptation) – World Bank: issues bonds, administers lending – SEB: intermediary with investors, defines criteria – Two bond issues: USD 665 million (November 2009)
Direct investment • All privately owned assets (e.g. buildings, land) and business practices (e.g. agriculture, water management) that are sensitive to climate change will have to be adapted. • Global gross fixed capital formation: USD 12.25 trillion (2007). • Climate proofing in sectors with long “forward commitment” periods (e.g. infrastructure, utilities, forestry).
Conclusions • There is an emerging market for raising new finance from the private sector for adaptation. • There are various ways in which private finance can support adaptation (e.g. debt, equity, front-loading). • Voluntary private finance for adaptation is not new and additional. • Private finance will not be distributed evenly among countries and sectors.
Recommendations • Raise awareness among the investor community. • Raise awareness among finance institutions. • Bridge the gap between finance and projects. • Use public finance to help spread private finance more evenly.