My Climate Risk Interdisciplinary Learning Group

13 May 2024; 13:00-14:00 GMT+1

Presenter: Olga Buto

Biography

Olga Buto is a Program Manager at Pegasys Global Consulting. Olga has more than 10 years of experience in climate resilience, climate finance, and adaptation planning, working with development partners, including most notably the United Nations, international finance institutions, and the private sector. Between 2014 and 2021, Olga was a lead climate expert with the United Nations Food and Agriculture Organization (FAO). In this role, she facilitated the formulation of regional and national climate resilience programs. She led research on climate finance within the agriculture and land use sector and actively contributed to international knowledge exchange events with WMO, UNFCCC, UNISDR, and UNDP. Before joining Pegasys, Olga worked with WSP as a Principal Consultant in Climate Risk and Resilience, where she led the development and implementation of TCFD and ESG-related projects, as well as contributed to the implementation of the UNEP’s NAP program. 

Paper to be presented

Title:    “State and Trends in Climate Adaptation Finance 2023”

Authors: Dharshan Wignarajah, Morgan Richmond, Sean Stout, Guillermo Martinez, Ken Schell-Smith and Rajashree Padmanabhi

Link to paper: https://www.climatepolicyinitiative.org/wp-content/uploads/2023/12/State-and-Trends-in-Climate-Adaptation-Finance-2023_.pdf 

Climate Policy Initiative webpage

Session Highlights:

The May MCRILG session allowed us to dive into the hot topic of finance for climate change adaptation. Our speaker Olga Buto, Program Manager at Pegasys Global Consulting, helped us in this journey by discussing the key findings from the recent “State and Trends in Climate Adaptation Finance 2023”, a report developed by the Climate Policy Initiative (CPI) for The Global Center on Adaptation, with global coverage and a focus on Africa.

 Although the impacts of climate change are increasingly felt worldwide, countries are still – in the words of the latest UNEP Adaptation Gap Report – largely “underfinanced and underprepared” to face them.  While climate adaptation is slowly but surely climbing up the political agenda, finance is emerging as the key barrier to overcome, especially for developing countries, as explored in the CPI report. 

 The total and the gap: The total global climate finance (including adaptation and mitigation) across the globe was estimated at USD 1.3 trillion in 2021-22. This is a strong increase of about double the 2019-20 figures mostly driven by investment in clean energy in China, USA, Japan and India.

 However, adaptation saw only USD 63 billion (5%) of this total. Most of it (56 billion) rightly flowed to developing countries, about 4 times less than the estimated needs. The flow is also not proportionally distributed across regions: Africa received 20% of the total adaptation finance, way behind the 45% of the East Asia and Pacific region.

 CPI analysis shows that between 2021-2035 the total adaptation finance needs in developing countries will be USD 3.3 trillion, but at the current pace only USD 840 billion will be provided, leaving open a stark gap.

 Who provides adaptation finance: Most of adaptation finance in Africa comes from multilateral development finance institutions (63%) and local governments (19%), while the private sector contributes a small proportion (less than 3%). CPI estimate of adaptation finance needs in Africa for the period 2021-2035 is of 1.6 trillion per year, while its currently receiving USD 13 billion: a stark gap which is far from closing.

 What instruments are used to provide adaptation finance: Globally, debt continues to be the most utilized instrument to deliver adaptation finance (80%). The remaining 20% is mostly grants. In Africa only, however, grants dominate the flow at 43% followed by low-cost project debt at 34%.

The report suggest the use of more innovative instruments, especially to attract more private sector, such as sustainability & green bonds, result-based finance and debt for nature swaps.

 The role of the private sector: Private adaptation finance is still very small, both in Africa and worldwide. One of the reasons is that adaptation investments are considered as high-risk due to their perceived/actual low returns and longer time scales to see benefits. A second barrier is the lack of good, quality checked information on climate risks which makes it challenging to price it and identify where investments are most required.

 Summary of recommendations:

Government and regulators:

• Agree on a “North Star” goal for adaptation and metrics to measure progress against it.
• Create clear link between Nationally Determined Contributions (NDCs) and finance tracking mechanisms.
• Invest in capacity building for robust estimate of adaptation needs in NDCs.
• Agree on definition of adaptation finance, unifying the existing ones and clarifying the difference with, e.g. green and sustainability finance.
• Develop a strong domestic budget tagging to fill the current gaps, which includes capacity building at the national level.
• Harmonize regulations on climate-related financial disclosure for the private sector, and support capacity building.

Development financial institutions

• Set public, measurable, and ambitious climate adaptation finance goals.
• Openly share information about the criteria and methodology used to identify and quantify adaptation finance and the data, models, and scenarios that are relevant in the context of tracking adaptation action

Private financial institutions

• Support enhanced disclosure and reporting of critical information related to physical climate risks and opportunities
• Raise awareness within private sector institutions on the benefits of reporting adaptation finance externally, during engagements with investee companies

Civil society and international organizations

• Harmonize, and simplify adaptation finance methodologies coordinating the other actors.

During the Q&A session, Olga stressed on the importance of building the interdisciplinary capacities in climate science and economics, specifically for the national economists in developing countries and bringing them up to speed with climate-related risks and methodologies. There is a big need for capacity building in this sphere, with an interdisciplinary lens, and the establishment of the Taskforce on Access to Climate Finance is a good example.  Discussion moved to incentives for the private sector to invest in adaptation, and Olga noted that many studies are now trying to make the case that adaptation is a money-saving action for companies, because saves them money from emergency response, and brought as example making investment in nature-based solution for coastal flood protection for the tourism sector.

Written by Elena Saggioro. Reviewed by Olga Buto.