Adaptation Finance

Why was this Project needed?

The financial sector today resoundingly identifies climate change as and area of focus, both for risk management and opportunities. The problem is there is a mismatch between acknowledging this urgent need to adapt, and the amount of investment flowing to adaptation projects. This situation is referred to as the adaptation finance gap. The result of this gap is a significant and growing risk to the Australian and global economy which, if unaddressed, will have major economic consequences, entrench inequality and stagnate social prosperity.

What the project set out to do

To overcome the adaptation finance gap, Climate-KIC Australia (Climate-KIC) brought together a cross-sectoral group of people from state government, local government, climate risk analysis service providers, insurance and banking with a goal to demonstrate how the financial sector could invest in climate adaptation to deliver commercial returns and greater community resilience. Aligned on a goal, this multi-sectorial group and were motivated to see real world action.

Initially the group collectively set investment criteria for finance ready adaptation projects. This was used to run a market scan to find adaptation projects which matched the criteria. The idea was, projects which met the criteria would be wrapped up into an investment deal, for example the first adaptation bond in Australia. The aim was that this deal, and the underpinning investment criteria developed through the process, would set a precedent and catalyse broader investment in adaptation projects in Australia.

What did the Project reveal?

No investment ready adaptation projects were found.

This fundamental Project impasse sparked an iterative process of testing new theories and reflecting why they may or may not achieve the Project goals. Eventually this process led to a breakthrough by articulating the deeper cause of the adaptation finance gap. This report shares those insights and makes recommendations so that current and future projects focused on addressing the adaptation finance gap might benefit. These insights reframe the discussion on how to address the adaptation finance gap and demonstrate why the initial Project approach did not work. The intention is to open a new, more productive conversation about what is causing this gap and how to confront it so that communities have a chance to thrive in the future.