The Paris Agreement contains a resilience goal, and realizing the ambition of this goal requires the mobilization of finance. We will need to mobilize private sector finance to unlock the trillions of dollars of investment needed for resilience.
Mobilizing finance – both public and private - at scale is essential for driving the transition to a low-carbon, climate-resilient world. Climate finance should not focus exclusively on greenhouse gas emissions reductions but also on the need to build and strengthen adaptive capacity in frontline communities.
Building resilience calls for investments far above the $100bn per year in climate finance promised by developing countries: adaptation costs are projected to rise to $140-300bn per year by 2030. To reach the adaptation goals set out by the Paris Agreement, the private sector has a critical role to play. Its investments will fund project pipelines, its procurement will incentivize resilience across geographically dispersed supply chains, and access to its products and services will enable vulnerable communities and individuals to bounce back from climate impacts.
Climate finance will include project funding matched with project financing – but it must also go beyond these familiar mechanisms. All of the available levers that shift finance around the globe, including public money, private investments, and procurement from both the public and the private sector, must be mobilized. Financial services are essential to building resilience, and the expansion of financial vehicles and products to facilitate investments will determine the success of reaching the ambition of the Paris Agreement as it is laid out in Article 2 (c): “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”
Recent research by BSR on climate resilience suggests investing in a series of capital assets as key to enhancing adaptive capacity. Exploring ways to align these assets with those in the sphere of finance will contribute significantly to ensuring finance is mobilized at scale and in time.
An example of such alignment came with General Mills’ ambitious climate targets in 2015. The US food manufacturer has already made robust short and long-term science-based mitigation targets. On top of this, they will actively build and support adaptation efforts for key commodities and sourcing regions. In particular, investments in adaptation are projected to amount to $100mn and address different types of assets that constitute building resilience throughout its supply chain.
This includes investment in natural assets, by financing proprietary plant-breeding programs with the goal of providing farmers with seeds that deliver high-yield, high-quality crops despite climate variability. It has also included social assets, by fostering collaboration between multi-stakeholder groups such as Field to Market, RSPO, Bonsucro, World Cocoa Foundation as well as governments, NGOs, industry peers, direct suppliers and farmers.
Sompo Japan Nipponkoa, the largest Property & Casualty (P&C) insurance company in Japan, invested in financial assets when it began to see, in 2010, that farmers in Northeast Thailand were suffering significant revenue losses as a result of extreme weather events and other climate impacts. Very few insurance products were available at the time to protect them against these risks and to address this problem, Sompo Japan Nipponkoa launched a new weather index insurance product. This is one of the first financial instruments and insurance products to cover revenue losses caused by extreme weather events.
There are ways the UNFCCC can cement the collaboration with the private sector and scale its participation in building adaptive capacity. Engaging in actionable dialogues to identify challenges and barriers to private sector leadership will help to resolve them in partnership with governments. Involving the private sector in the formulation, implementation, and assessment of national adaptation plans, including in the financing of these plans. Also private sector involvement in the 2017 Adaptation Committee review of adaptation-related institutional arrangements to ensure greater consistency between public and private efforts to build resilience.
Scaling and increasing the number of similar initiatives remains a challenge, as does finding channels for public and private sector bodies to design solutions together. But shifting private sector financial flows at scale is possible. We will explore what these might be by convening a community of practitioners during a session devoted to this topic at Development and Climate Days on November 13, 2016. If you are at COP22, join us at this event by registering your attendance.