New report surfaces fundamental impasse in climate adaptation finance gap

Published 23 Nov 2020

By Genevieve Mortimer, Climate-KIC Australia

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19 November 2020, Sydney – The Adaptation Finance Gap is real. Although governments and the finance sector alike recognise the opportunity in creating more resilient regions and cities, a lack of tangible financial flows into adaptation projects persists.  A new report from Climate-KIC Australia explains why this gap is so intransigent and hence, how to close it.  The solution – a fundamental paradigm shift in infrastructure project design and financing – is daunting.  However, the juxtaposition of this challenge with economic rebuilding after COVID-19 creates an opportunity for Australian governments, businesses and the finance sector.  The opportunity is to spend millions, catalyse billions and inspire trillions. 

The Adaptation Finance Gap 

In 2018, Climate KIC Australia formed the Adaptation Finance Project.  We engaged the right people from critical sectors – banking, finance, insurance and different levels of government.  The need was clear – from flood risk, water insecurity to the impacts of extreme weather events.  There was great initial optimism that we could develop project investment criteria, assess potential projects and facilitate an investment strategy to both meet an urgent need and establish a template for future adaptation investment. 

But it didn’t work.  Despite the overwhelming need, no projects were investment-ready according to our assessment criteria.  And no amount of modification of the criteria or supplementing data could create an investable business case. The problem wasn’t the criteria or the data – it was the mismatch between the finance system with its focus on individual items of infrastructure, and the adaptation challenge for which a system of inter-related future impacts require a system of inter-related interventions.  This is the Adaptation Finance Gap.  It requires nothing short of a fundamental change in our current investment model – a paradigm shift. 

How to attract millions to climate change adaptation 

The traditional model of assessing needs, developing a business case and accessing funding, cannot work. A new paradigm is needed, in which we set a vision, identify the points of strategic leverage, and attract catalytic investment. Regions and communities need to establish an integrated social, environmental and economic vision.  The new adaptation capability is to identify the key initial and connected initiatives that will breathe life into the vision, creating the momentum and overcoming the risks perceived by cautious investors.  Governments need to take leadership, but increasingly there are private sector investors, including philanthropists prepared to invest in good ideas advocated by good people. 

How to catalyse billions 

A high-profile precedent of this investment model is the 1960s US aspiration for the moon landing.  This was never about a business case. Here, the Federal Government established the vision and made the initial investment.  Subsequently the private sector adapted its resources and ingenuity to supporting the vision. 

Similar things happened in Australia during the Millennium Drought, with governments winning community support for a vision of long-term water security, providing subsidies and regulatory changes to drive adaptation through manufacturing, urban development and housing design.  Some of us lament that the achievements of communities at that time weren’t further developed to underpin long-term climate change adaptation. We see the economic recovery from COVID-19 as offering the scale of disruption to facilitate an openness to transformational change across all sectors. 

Inspiring trillions 

The long-term legacy of the moon landing vision was the imagination it engendered in generations of young people. Education, entertainment, technology are just some of the sectors in which trillions have been invested and made. It is impossible to plan (in a business-case sense) for how trillions are inspired.  There is a strong role for leadership to recognise and respond to opportunities and emerge. 

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