Seven guiding principles for preparing financing strategies for climate change adaptation in developing countries

As developing countries transition from planning to implementation in their National Adaptation Plan (NAP) processes, a critical step is securing financing to implement priority adaptation actions articulated through the NAP process. 

Several developing countries are preparing “financing strategies for adaptation” to set out a coordinated national approach to identify investment priorities and financing approaches for the specific adaptation actions in the NAP over the short, medium, and long terms. to capture what we are learning.

Our research—which included a review of 24 strategies for financing adaptation (Murphy, 2022), the preparation of case studies for three countries (Murphy & Parry, 2023), and discussions with developing country governments and multilateral institutions1—led to the identification of guiding principles for the preparation of financing strategies for climate change adaptation. 

Financing strategies for adaptation are defined as nationally coordinated approaches to identifying and encouraging the scaling up of financing for climate change adaptation priorities. They are flexible, inclusive, forward-looking, and structured processes to identify concrete financing needs for adaptation, and most efficient ways of accessing and delivering adaptation finance and enable the implementation of the NAP. The strategy is a matrix of interlinked actions, of which one action may be the preparation of a formal document.

Guiding principles for preparing and implementing financing strategies for adaptation

How financing strategies are prepared and implemented can significantly influence their effectiveness and potential to help close the adaptation finance gap. This process to develop financing strategies for adaptation should

1. Be country-driven and fit for purpose.It should be determined by a country based on its needs, priorities, capacities, and desired outcomes. The strategy should build on existing information, be mindful of available resources, and respond to the stated needs of the country. For many countries, their NAP is a critical foundation for their adaptation financing strategy.
2. Use a whole of government approach, emphasizing engaging ministries of finance and planning. The strategy should be agreed, prepared, and implemented through a coordinated approach across relevant ministries and subnational governments. Finance and planning ministries should play a critical role in developing and implementing adaptation financing strategies.
3. Take a participatory and inclusive approach. Representatives from across relevant sectors, inclusive of the private sector, including financial institutions, development partners, academia, and civil society, should be engaged. In particular, the engagement of representatives of all genders and social groups is essential for ensuring that the financing strategy meets the needs of the most vulnerable groups.

Guiding Principles to Inform the Development of the Content of a Financing Strategy for Adaptation

Whether articulated through a formal document or not, countries should ensure that their financing strategies for adaptation by making sure they

1. Identify the best and most strategic uses of various sources of finance for adaptation. This includes identifying the priority adaptation investment needs based on climate change risk and vulnerability assessments, and an economic assessment; identifying the type of finance and different financial instruments that can best be used to address the identified investments (such as grants, loans, guarantees, and innovative financial instruments); and mapping potential actors involved. Many countries will have completed relevant assessments and mapping exercises through their NAP process. The strengths and best uses of the various pools of finance (public and private, domestic and international) should be assessed. For example, how to use domestic public finance to scale up development partner support, how to best use grant funds to meet the needs of the most vulnerable populations, and how to use concessional loans to reduce risks that inhibit private investment and lower the cost of capital.
2. Confirm that the strategies align (and are consistent) with other processes that are relevant to adaptation finance, including national development priorities and other financing strategies. This can include strategies to finance actions set out in nationally determined contributions, and the United Nations Sustainable Development Goals, biodiversity, and disaster risk reduction plans, as well as the investment plans of multilateral development partners. Critically, strategies for financing adaptation need to be aligned with a country’s national development planning and budgeting decision-making processes and based on a realistic assessment of a country’s public investment management frameworks, funding capacity, broader macroeconomic situation, and fiscal space to fund measures.
3. Identify investments and actions to improve the enabling environment to scale up finance for adaptation. This includes the policy, regulatory, informational, and institutional frameworks that are needed to enable adaptation investments and move to a path toward climate-resilient development.
4. Set out processes to implement the strategy and measure its success. While recognizing that most adaptation finance will be needed for sectoral interventions, the financing strategy should include an appropriate budget for oversight and coordination, project preparation, and monitoring, evaluation, and learning.

Where to Next?

Continued research is needed to analyze the approaches to preparing financing strategies for adaptation, measure the impact of these strategies, and identify approaches that will assist governments to prepare effective and useful financing strategies for adaptation that integrate international and domestic public and private finance.