Study on the Involvement of the Private Sector in Financing Climate Adaptation Actions

The impacts of climate change are unequally distributed worldwide, and affect especially Least Developed Countries (LDCs) and Small Island Developing States (SIDS). The scale of these impacts leaves no other choice but to adapt. Yet, adaptation is not taking place at the required scale and pace, and often it is not prioritised at the national level when establishing investment priorities. At the global level, climate financing for adaptation lags behind financing for mitigation, even though significant efforts can be seen in response to the Paris Agreement’s call for achieving funding parity. The latest OECD report on Climate Finance Provided and Mobilised by Developed Countries in 2019 shows that adaptation finance only accounts for 25% of the total funding. Most investments for adaptation are currently financed by public finance through grants and, to a lesser extent, loans or de-risking facilities. Finance for adaptation needs to be scaled up, as reiterated by all Parties at the UNFCCC COP26, and include private financing as it is happening for mitigation.

There is limited information available on private sector investment in adaptation, in part because of the difficulties of differentiating investment in adaptation from standard business activities. Although reported figures are an underestimate, it is clear that the level of private sector investment is far lower than what is necessary, with the latest estimates of tracked private investment in adaptation representing just 1.6% of total adaptation finance.

This study aims to identify new avenues for the involvement of the private sector in climate adaptation finance. It does so by:

• Outlining the current private sector adaptation finance landscape.
• Identifying and analysing the barriers and enabling factors for increasing private sector investment in adaptation.
• Assessing the policy, legislative and regulatory conditions needed to support private sector finance in adaptation through selected case studies, highlighting current good and bad practice within legislative and regulatory frameworks.
• Assessing the potential for the European Fund for Sustainable Development plus (EFSD+) to leverage private sector finance for adaptation, including operational considerations for how this can be strengthened within EFSD+
• Developing operational recommendations on how the EU can support partner countries to create an enabling environment to catalyse private sector finance in adaptation.

A policy brief summarising the study's finding is available upon request at INTPA-F1@ec.europa.eu.