Engaging the private sector in financing adaptation to climate change: Learning from practice

A new paper released by the Action on Climate Today (ACT) programme provides a framework to help development and climate practitioners to better engage with the private sector on climate change adaptation.

The paper, titled “Engaging the private sector in financing adaptation to climate change: Learning from practice”, provides practical advice to encourage private sector organisations and institutions to invest in climate change adaptation measures.

Stimulating flows of private finance is essential for developing countries to meet the cost of climate change adaptation, which has been estimated to reach $100 billion per year to 2050.

Authored by Acclimatise’s Virginie Fayolle and Caroline Fouvet along with Vidya Soundarajan, Vandana Nath, Sunil Acharya, Naman Gupta and Luca Petrarulo of Action on Climate Today, the paper identifies key barriers and challenges for engaging with the private sector, as well as drivers and enablers that could lead to increased investment.

The paper draws on ACT’s experience supporting national and sub-national governments in five South Asian countries: Afghanistan, Bangladesh, India, Nepal and Pakistan.

Adapting to climate change is costly, with recent estimates suggesting that $70 – $100 billion per year is needed between 2010 and 2050. Countries in South Asia are some of the most vulnerable to climate change and stretched public budgets will not be able to provide the necessary levels of finance on their own. Finance from the private sector is, therefore, essential if countries are to be prepared for climate change and its impacts. The new paper aims to help stimulate flows of private finance by providing a framework to help climate and development practitioners, and public sector institutions better engage with the private sector.

As well as stimulating flows of finance, the paper argues that public decision-makers can also benefit from leveraging the ingenuity, skills, and capacity of businesses and the wider financial sector. It also makes clear that the companies in the private sector will themselves benefit from climate change adaptation, and will not be immune to the physical risks arising from a changing climate.

The paper provides a framework that identifies key enablers that can be used to successfully engage private sector entities on climate change adaptation. These include: awareness raising, enhancing access to technical resources, enhancing access to finance, reforming the regulatory framework, and strengthening governance.

The framework is supported by practical examples and case studies, drawing from ACT’s experience working in partnership with ten national and sub-national governments in South Asia to assist in integrating climate change adaptation into development planning, and delivery.

The paper identifies six key considerations when engaging private sector organisations:

1. Use real-world examples of climate imapacts that are relevant to the business in question;
2. Build a shared vision between the public and private sector by identifying overlaps between the government’s priorities and private sector interests;
3. Develop the capacity and expertise of private sector champions to take action by identifying and supporting industry champions;
4. Bridge the gap between the demand and supply of private finance by bringing institutional investors together with businesses that provide investment opportunities in the real economy;
5. Allow adequate time and resources to influence or shape the governance and regulatory framework; and
6. Bring on board relevant technical expertise by building partnerships and collaborating with other businesses, associations, civil society organisations, government agencies, and development partners.

These strategies can help to break down the barriers preventing businesses from investing in climate change resilience.

ACT is a £23 million UK government-funded regional programme managed by Oxford Policy Management (OPM) in collaboration with many consortium partners. It has been working since 2014 in partnership with national and sub-national governments of Afghanistan, Bangladesh, India, Nepal and Pakistan to assist the integration of climate adaptation into development policies and actions while transforming systems of planning and delivery, including leveraging additional finance.