Philanthropy's Role in Financing a Climate-Resilient World
In April of this year, leaders from 177 countries signed the Paris Agreement, with a goal to put the world on track to keep global warming below 2°C in order to avoid the catastrophic impacts of a warming planet. While mitigating the future impacts of climate change is crucial, there is a concurrent need to address the effects that are already present, and that are sure to increase. The Paris Agreement also raised the political profile of climate resilience, recognizing that adaptation represents a challenge with local, national, and international dimensions.
This is good news given that the effects of climate change are already threatening communities around the world. The Guardian recently reported that five islands in the Pacific have already been lost due to rising sea levels, and just last month US$49 million was committed to relocating an entire community of ‘climate refugees’ in rural Louisiana, with plans to move several other towns in the United States for similar reasons.
With the Paris Agreement—as well as the UN Sustainable Development Goals adopted in 2015—international attention on climate adaptation and resilience is rising, but so too are the costs.
The 2016 UNEP Adaptation Gap report estimates that adapting to climate change in developing countries could cost between US$280 and US$500 billion per year by 2050. Despite these rising costs, actual investments in climate adaptation lag. According to the Global Landscape on Climate Finance, only US$25 billion was invested in climate adaption activities globally in 2015—around 7 percent of total climate-related investment. While this is only a rough estimate due to a lack of information on domestic and private resilience investments, current investments clearly constitute only a fraction of what is needed to avoid costly and catastrophic future impacts.
Further compounding this gap is the fact that climate change disproportionally affects the poorest communities and individuals globally—those that often lack the means to build adaptive capacity. For example, the world’s 450 million smallholder farmers are especially vulnerable to droughts, extreme weather events, and other climate-related shocks, but have little financial or educational resources to build the resilience necessary to withstand this volatility.
“What’s needed is a paradigm shift to ensure that the benefits of building climate resilience—and the costs of failing to do so—are integrated into investment and planning decisions in both public and private sectors.”
It is clear from the rising costs and impacts that investing now in climate resilience makes good economic sense in the near and long term, but constrained national and local public budgets will not be enough to finance this transition.
What’s needed is a paradigm shift to ensure that the benefits of building climate resilience—and the costs of failing to do so—are integrated into investment and planning decisions in both public and private sectors.
Understanding climate vulnerability and risk is essential to integrating climate change risks (or opportunities) into investment or finance decision-making. While public policy and finance will play a key role in this transition globally, philanthropy can serve as a catalyst, acting in more nimble and strategic ways, augmenting the work of public donors who may be constrained by competing political priorities, or slower-moving processes.
Through its Zero Gap innovative finance portfolio, The Rockefeller Foundation seeks to play a key role in catalyzing this transition to a more climate-resilient world through the support of initiatives that innovate on current practices and financial flows in ways that are immediately actionable, and that hold the ability to drive significant investments in adaptation and resilience.
For example, The Rockefeller Foundation supports The Global Innovation Lab for Climate Finance (the Lab), a public-private sector initiative that identifies, develops, and launches innovative financial instruments to unlock private investment at scale by addressing key barriers to building climate mitigation and adaptation in the developing world.
Last year, the Lab was able to help raise more than US$500 million for pilot instruments, which has the potential to mobilize billions more in private capital.
With support from The Rockefeller Foundation, the Lab launched a climate resilience-specific ‘Call for Ideas’ in November 2015. After identifying three promising ideas, the Lab has been working over the past several months to develop them into instruments that tackle core challenges in climate resilience. Each one takes existing finance flows, such as insurance, lending, or funding infrastructure, and adapts these structures to the needs of current and future generations who will be living in a more climate-constrained world:
- By providing access to transparent and standardized analytics for pricing risk from catastrophic events, The Oasis Platform for Catastrophe and Climate Change Risk Assessment and Adaptation aims to enable better management of climate-related risks through investments in insurance and/or risk reduction. The Oasis Platform reflects the fact that insurance can play a key role in increased community resilience, and seeks to play a role in bridging the stark gap in insurance coverage in regions of the world that are most vulnerable to climate shocks.
- In an effort to address a US$150 billion financing gap for the world’s smallholder farmers, The Climate-Smart Lending Platform brings together the tools, actors, and finance necessary to reduce climate risk in lending portfolios, and scale up climate-smart lending to smallholders globally. The Platform provides much-needed capital and credit to an under-served population, while ‘baking-in’ climate-smart loan conditions and disseminating best practices related to climate-smart agriculture.
- In response to the threat that climate change poses to water resources, particularly for poor countries that are more vulnerable to extreme weather events, the Water Financing Facility aims to mobilize large-scale domestic private finance resources for the water sector in countries subject to climate-related water stress. The Facility seeks to improve long-term climate resilience in up to seven pilot countries identified, while helping to bridge the investment, infrastructure and sustainability gaps these countries face.
In early May, The Global Innovation Lab for Climate Finance met to discuss the final instrument designs and hopes to launch the instruments through pilot programs later this year. These designs will fill important gaps in the market, moving from ideas to investments that will improve the resilience and well-being of vulnerable communities in the developing world.
Helping these initiatives move quickly to action is crucial. We have no time to waste. Not only do we have a responsibility and commitment to maintain the momentum of the “Paris moment” but adaptation to the increasingly destructive effects of climate change will be critical for ensuring our global well-being, prosperity, and peace.