According to the United Nations Environment Programme’s Adaptation Gap Report, the estimated costs to adapt in developing countries are five to ten times greater than current public adaptation finance flows.
In other words, there is an urgent need to boost climate adaptation finance and integrate climate change impacts across business models. This requires consistent awareness across sectors and a willingness to address the issue.
This topic was raised during the African Climate Week (ACW), held from 29 August 2022 to 2 September 2022 in Gabon. The five-day event provided a space for different African leaders and stakeholders to come together and discuss climate-related issues, ahead of COP27.
During the African Climate Week, UNEP and the governments of Ghana and Uganda organised a panel on blended finance. It included speakers from the African Development Bank (AfDB), Agro Insurance Consortium Uganda, Ghana Agricultural Insurance Pool, Ghana Incentive-Based Risk-Sharing System for Agricultural Leading Project (GIRSAL), the Dutch Fund for Climate & Development, and UNEP’s NDC Action Project.
The three key takeaways from the session were:
1) International climate funds have a crucial role in de-risking adaptation investments.
A key aspect of de-risking adaptation investment is the need for early-stage, non-commercial support that cannot be made available from profit-focused actors. To achieve this, more guidance and focus on climate adaptation, with an early involvement of financial institutions, is necessary.
2) The private sector is still facing challenges to design climate adaptation project pipelines
There are still challenges in the design of climate adaptation projects. First, the applications are mainly grant-focused without clarity on investment concepts because of the misconception of climate finance as “free money”. Second, there is a widespread misunderstanding of what constitutes a climate change adaptation project. Thirdly, for small and medium economies, proper financial records are usually not kept; thus, they miss on opportunities to apply for concessional climate related loans.
3) Neither the government nor the private sector can do it alone.
Private-public initiatives must work together, mainly when designing programmes at scale with the potential for higher impact. In doing so, it is important to recognise and address the underdeveloped financial and capital markets in developing countries to create successful pipelines for green finance. Ideally, there should be collaborations with financial institutions and fintech.
Also, from a governance perspective, there is still a need for well-intended climate change policies that facilitate private sector green investments, including adaptation, as well as providing fiscal incentives to promote ways to create investable adaptation projects and to de-risk the investments for the private sector.
In light of this, the NDC Action Project supports partner countries in developing tools to attract public and private climate finance in sector specific NDC implementation. It engages financial institutions in developing climate-friendly investment plans, which are led by governments, to create climate investments that support NDC implementation.
In Uganda, the NDC Action Project focuses on agroforestry and solar-powered irrigation. The project translates NDC priorities into investment opportunities for clean energy and climate smart agriculture.
In Ghana, the NDC Action Project focuses on e-mobility and solar-powered irrigation systems. For example, the project has contributed to securing an additional funding of $250,000 to mobilize private sector finance for smallholder farmers.
