This project is funded by the European Union.
Oct 30, 2020
Publisher: Global Commission on Adaptation, UNEP
Financial institutions are taking an increasing number of mitigation actions to prepare for a low-carbon future. These actions range from divesting from or engaging with firms that are highly dependent on the use of fossil fuel, to accelerating investment in green technologies, where, for example, solar build-out represented 38% of all new generating capacity added in 2017. However, even if we fully deliver on the mitigation objectives of the Paris Climate Agreement, we will end up with between +1.5°C and +2°C of warming, which is double the warming we see today. Even in that best-case scenario, the physical impacts of climate change will be significant and potentially disruptive. Climate change is already affecting our economy, our society and our environment and these material impacts will continue to increase even if we manage to hit mitigation targets. It is therefore of paramount importance that adaptation to climate change is considered as important as reducing carbon emissions. Yet the gap between the financing required for adaptation and the funds currently available continues to grow. According to the 2018 Adaptation Gap Report, the annual costs of adaptation could range from US$140 billion to US$300 billion by 2030 and from US$280 billion to US$500 billion by 2050. Furthermore, the physical impacts of climate change are likely to have a disproportionate impact on the poorest countries, regions and sectors of society. This is why the Global Commission on Adaptation was convened in 2018 to elevate the political visibility of climate adaptation and to encourage bold solutions such as smarter investments, new technologies and better planning. Financial institutions have a key role to play in unlocking investment for a climate-resilient economy.
An evolving landscape of adaptation investment opportunities are emerging, which will allow for both a societal impact and financial returns. For example, specific microfinance and microinsurance products could deliver investments in climate-resilient farms and businesses. Targeted savings products aimed at promoting climate resilience could be made available to vulnerable populations, while transfer and remittance facilities will help to facilitate emergency funding to communities affected by climate change-driven events. Financial service companies are also in a position to raise awareness and build capacity around climate risks. Governments could incentivize investment in adaptation through the use of blended finance instruments or other forms of public-private financing models that facilitate scale and pooling or diversifying of risks. Furthermore, integrating climate resilience into project development makes investments both robust and long term, which is a clear advantage for private investors. Offshore wind farms in tropical regions that are able to survive hurricane or typhoons, for example, or investments in low-cost products to cool buildings, such as roofing materials or paint, would provide clear investment opportunities.
Finally, systemic changes, including physical risk disclosure and the integration of climate change assessments in investment decision-making will help to mainstream adaptation and build a more resilient financial sector. This report provides a thorough analysis of the current situation, identifying the barriers
that restrict the financial system’s resilience and limit financial flows to adaptation-related investments, while underlining the potential opportunities that we highlight above. We are pleased to endorse this report’s concrete and ambitious recommendations, which, if fully implemented, would make a real difference in unlocking financial flows for adaptation. We sincerely hope that the partnership between UNEP FI and the Global Commission on
Adaptation will continue to develop over the coming years and help to deliver the actions and initiatives necessary to build a more resilient financial sector.