CLI MATE ACTI ON NETWORK

Europe
Climate change
adaptation and the role of
the private sector
CreaLng eecLve Lools or prvaLe secLor engagemenL
April 2013
Adaptation acronyms
CSR Corporate Social Responsibility
CTCN Climate Technology Centre and Network
DFIs Development Finance Institutions
EBRD European Bank for Reconstruction and Development
EIB European Investment Bank
FDI Foreign Direct Investment
GDP Gross Domestic Product
GIIF Global Index Insurance Facility
IATI International Aid Transparency Initiative
IFC International Finance Corporation
IMF International Monetary Fund
IPCC Intergovernmental Panel on Climate Change
LICs Low Income Countries
LMICs Lower-Middle Income Countries
MDBs Multilateral Development Banks
DDA DmcIal DevelopmenI AssIsIance
OECD Organisation for Economic Cooperation and Development
OECD DAC OECD Development Assistance Committee
PPPs Public-Private Partnerships
SMEs Small and Medium Size Enterprises
UN United Nations
UNFCCC United Nations Framework Convention on Climate Change
WB World Bank
Contents
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
AdapIaIIon nance and Ihe prIvaIe secIor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Direct instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Indirect instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Enabling environment as a pre-condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Prioritising the needs of the most vulnerable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TrackIng Ihe ow oI nance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Issues underpinning private sector involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
EhecIIve saIeguards and prIvaIe secIor sIandards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
EhecIIve saIeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Private sector standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Conclusions and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CreaLng eecLve Lools or prvaLe secLor engagemenL
Climate change
adaptation and the role of
the private sector
Research and writing completed by Javier Pereira.
Edited by Joanna Dober Sullivan, Conscience Consulting.
Many thanks and appreciations for comments and contribution to
Barbara Buchner, Mattias Sderberg and Jochen Harnisch.
CAN Europe gratefully acknowledges support
from the European Commission.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 1
Executive summary
Financial support to developing countries is crucially important to enable their transformation to low-carbon
development pathways as well as to allow them to adapt their societies to a changing climate and deal with the
unavoidable impacts. Promises were made by developed countries at the UN climate summit in Copenhagen end
oI 2UU5 Io mobIlIse new and addIIIonal nancIal supporI Io Increase Io 1UU bIllIon US dollars per year by 2U2U.
WhIle mosI oI IhIs amounI Is expecIed Io be meI Ihrough publIc nance, mosI commenIary wIIhIn developed
countries argues that private sources will make up the bulk of these funds.
This focus on the private sector in the adaptation debate is wholly relevant.
The prIvaIe secIor accounIs Ior 85% oI all InvesImenIs worldwIde.
5U% oI people In developIng counIrIes depend on prIvaIe secIor generaIed Income.
The prIvaIe secIor represenIs close Io 75% oI global clImaIe nance ows.
However, given the diversity of the private sector and of the adaptation challenges facing developing countries,
its not be taken for granted that the private sector will succeed in tackling all kind of adaptation challenges. In
the past, support from the private sector has often failed to alleviate poverty and livelihood threats in many of
the poorest parts of the world.
Private investment activity to date has been unevenly distributed amongst countries and economic sectors, and
often it appears not to match developing countries most pressing adaptation needs. It rarely meets the needs
the most vulnerable and poor communities and Least Developing Countries (LDCs).
These patterns of private sector behaviour have important implications, not least that the discussion on private
nance needs Io sharpen. I musI dIssecI dIherenI kInds oI nancIal ows - Irom porIIolIo equIIy, Io dIrecI In-
vesImenI, Io commercIal bank lendIng, Io bond nance. Each oI Ihese ImplIes a dIherenI qualIIy oI nance Ior
Ihe recIpIenI, wIIh ImplIcaIIons Ior how II mIghI supporI adapIaIIon ehorIs.
The gaps In delIvery oI prIvaIe nance also pose a major challenge Ior publIc nance, whIch musI noI only
leverage new resources specIcally Ior adapIaIIon buI also redIrecI InvesImenIs Io counIrIes and secIors IhaI
currently miss out.
The goal of this report is to provide an overview of existing possibilities and proposals of the role of the private
sector in adaptation. It seeks further to do a critical analysis of when, where and how the private sector can con-
tribute to meet adaptation needs of developing countries.
The report concludes that there is a role for the private sector in climate adaptation, but it may not be best placed
Io meeI Ihe needs oI Ihe mosI vulnerable and pooresI communIIIes hence Ihere may be a Iew specIc areas and
sectors where it could focus.
Main ndings cf the anaIysis cf private sectcr adaptaticn
Many oI Ihe InsIrumenIs In use, or proposed, IhaI wIll Increase Ihe conIrIbuIIon oI Ihe prIvaIe secIor Io
adaptation are in the early stages of development (e.g. adaptation market mechanism). Others build on the
experIence oI Ihe prIvaIe secIor In developmenI. YeI lIIIle Is known abouI Ihe specIc conIrIbuIIon oI each
to meeting the adaptation needs of countries with varying levels of development, nor the needs of vulner-
able communities within developing countries.
AlIhough crucIal Io reducIng vulnerabIlIIy, some oI Ihe IndIrecI InsIrumenIs dIscussed In IhIs reporI (e.g. In-
ternalising adaptation costs or encouraging technology transfer and development) seem more appropriate,
at least in their current form, for countries with large public resources.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 2
More research Is requIred, based on a boIIom-up approach Irom specIc needs Io specIc Iools and InsIru-
menIs. I Is ImporIanI Io explore how dIherenI Iools relaIe Io and complemenI one anoIher In order Io make
intelligent policy decisions near term.
I Is essenIIal Io develop a common meIhodology Io record and Irack prIvaIe nance, IncludIng adapIaIIon
nance. WIIhouI such a sysIem, II wIll noI be possIble Io ensure an equIIable dIsIrIbuIIon oI Ihe scarce clI-
maIe nance avaIlable. Nor wIll II be possIble Io hold developed counIrIes Io accounI Ior IheIr commIImenIs
and historic responsibility in climate change.
SaIeguards oI publIc organIsaIIons IhaI supporI Ihe role oI Ihe prIvaIe secIor In adapIaIIon need Io be
sIrengIhened. PublIc organIsaIIons musI In addIIIon Improve ImplemenIaIIon oversIghI Io ensure projecIs
comply with such safeguards.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 3
Introduction
Dver Ihe pasI Iew years, Ihe global debaIe on clImaIe nance has IncreasIngly Iocussed on Ihe poIenIIal oI Ihe
prIvaIe secIor Io conIrIbuIe Io andlor leverage clImaIe nance. AI Ihe ouIseI, dIscussIon on Ihe role oI Ihe prIvaIe
secIor In clImaIe nance was Iocused on mIIIgaIIon Io reduce Ihe level oI greenhouse gases emIssIons. Today Ihe
role of the private sector is increasingly relevant as regards the global adaptation debate.
The prIvaIe secIor currenIly represenIs close Io 75% oI global clImaIe nance ows. PrIvaIe capIIal Is essenIIal
Io scale up clImaIe nance In lIghI oI resIrIcIed publIc resources.
1
However, the term private sector includes
a highly diverse group of actors and activities operating at international, national and local levels. This makes
analysis of the contribution of the private sector to adaptation especially challenging.
Adaptation to climate change comprises all actions aimed at reducing the vulnerability of human and natural
sysIems Io Ihe currenI and IuIure ehecIs oI clImaIe change, IncludIng clImaIe varIabIlIIy. MeeIIng Ihe adapIa-
tion needs of developing countries may come with a large price tag. Although estimates vary depending on the
meIhodology, baselIne scenarIos and projecIIons, Ihey all suggesI IhaI developIng counIrIes adapIaIIon needs
(see Iable 1} are comparable Io currenI aId ows (US$ 13/ bIllIon In 2U11, accordIng Io Ihe DECD}.
2
Table 1: Selected annual adaptation needs
AnnuaI nance needs (U5$] Year and scenario Source
3
27-66 billion Costs by 2030, model based on PCCs
SRES A1B and B1 scenarios
UNFCCC (2007)
54-198 billion, plus addi-
IIonal US$ 65-3UU bIllIon Ior
ecosystem protection
Costs by 2030, based on UNFCCC (2007)
but accounting for some methodological
concerns
Parry et al (2009)
75-100 billion Costs between 2010 and2050 of adapting
to a 2C warming
World Bank (2010)
Adaptation actions or measures are also very diverse, but they can be divided into two broad categories: techni-
cal and social measures.
4
The rsI caIegory Includes measures IhaI prImarIly IargeI Ihe physIcal InIrasIrucIure
of developing countries. Examples include reforestation of coastal areas, research to develop drought-resistant
crops, developIng early warnIng sysIems, and buIldIng ood barrIers and IrrIgaIIon sysIems.
Social measures include actions that focus on decreasing the vulnerability and building the resilience of com-
munities to climate change. Examples of social measures include increasing access to social protection systems
in developing countries, improving access to health services, introducing new agricultural and land management
IechnIques, and raIsIng awareness abouI Ihe ImporIance oI proIecIIng ecosysIems.
Adaptation and the private sector: a brief review of existing studies
The focus on the private sector in the adaptation debate should not be a surprise. The private sector accounts for
approxImaIely 86% oI all InvesImenIs worldwIde. Up Io 5U% oI Ihe populaIIon In developIng counIrIes depend
on the income generated by it.
5
And as already menIIoned, Ihe prIvaIe secIor represenIs close Io 75% oI global
clImaIe nance ows.
6
n addIIIon, mosI lIIeraIure on clImaIe nance and Ihe prIvaIe secIor Is also explIcIIly or ImplIcIIly underpInned
by the idea that a stronger private sector is linked to economic growth or, at the very least, economic and social
development.
7
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 4
Dne oI Ihe rsI adapIaIIon and prIvaIe secIor IopIcs Io be researched was Ihe role oI Insurance In proIecIIng
developing countries and vulnerable communities.
8
SubsequenIly, IollowIng Ihe debaIe generaIed around Ihe
Green Climate Fund and the private sector facility, a number of reports emerged that, modelled on the support
given by Development Finance Institutions (DFIs) to private sector development in developing countries, ex-
plored nancIal InsIrumenIs Ior use Io mobIlIse clImaIe nance, IncludIng adapIaIIon.
9
A number oI parallel lInes oI research have also aIIracIed sIgnIcanI aIIenIIon In Ihe pasI couple oI years. Dne oI
them looked at the possibility of creating an adaptation market mechanism, based on the idea and similar princi-
ples of the carbon market.
10
Another important body of literature focuses on the policies and measures that can
lead the private sector to internalise adaption costs in their business models and adopt measures to reduce their
vulnerability, and by extension, that of their workers and neighbouring communities.
11
At the same time, a number of challenges when using the private sector to channel and mobilise adaption funds
have also been explored. There are severe lImIIaIIons In respecI Io denIIIons, approaches and Iools Io accounI
Ior and Irack prIvaIe secIor ows.
12
The lack of data has serious implications for the coordination of support to
developing countries.
WIIhouI clear InIormaIIon, II Is dImculI Io ensure resources are equIIably dIsIrIbuIed among developIng coun-
IrIes and secIors. Research has also IdenIIed ImporIanI meIhodologIcal InconsIsIencIes IhaI could lead Io Ihe
overestimation of the potential of the private sector to mobilise and contribute to meet the adaptation needs of
developing countries.
13
There are also limitations for the private sector to cover the adaptation and mitigation needs of developing
counIrIes. A number oI reporIs have poInIed Io ImporIanI dIherences In prIvaIe secIor developmenI beIween
dIherenI counIrIes, whIch could lead Io uneven and InequIIable dIsIrIbuIIon oI adapIaIIon nance channelled or
mobilised through the private sector.
14

The private sector is especially weak in the poorest countries, when compared to many middle-income coun-
tries.
15
ThIs lImIIs Ihe opporIunIIIes Io mobIlIse nance Irom local companIes. AI Ihe same IIme, InvesImenI
opportunities for foreign companies also decrease with the level of income as a result of worsening business
conditions and the increased informality of the economy.
16
The concern Is IhaI, unless ehorIs are made Io sIeer prIvaIe nance In an equIIable manner, II would mosIly
beneI a handIul oI developIng counIrIes, buI bypass Ihe pooresI ones, where Ihe needs are greaIesI. ased on
the experience of multilateral development banks (MDBs) in development and the private sector, concerns have
also been raIsed abouI Ihe possIbIlIIy IhaI Ihe prIvaIe secIor would mosIly beneI mulIInaIIonal companIes Irom
major economIes, InsIead oI developIng counIrIes' local companIes.
17
Adaptation and the private sector: addressing just one part of the puzzle
ThIs reporI Is abouI adapIaIIon and Ihe prIvaIe secIor. I does noI aIm Io answer Ihe quesIIon oI wheIher or noI
the private sector can help developing countries to adapt to climate change. Given the diversity of the private
secIor and oI Ihe adapIaIIon challenges Iaced In developIng counIrIes a much more nuanced analysIs Is requIred.
This report aims to identify when and where the private sector can contribute to meet the adaptation needs of
developIng counIrIes. The reporI also sheds lIghI on Ihe dIrecIIon IhaI research Is IakIng and IdenIIes gaps In
currenI research ehorIs.
SecIIon 1 draws a comprehensIve pIcIure oI Ihe dIherenI ways In whIch Ihe prIvaIe secIor can conIrIbuIe Io ad-
apIaIIon ehorIs In developIng counIrIes. SecIIon 2 looks aI Ihe lImIIaIIons oI Ihe prIvaIe secIor, especIally when
addressing the needs of the most vulnerable. The two sections together clarify what we can expect the private
sector to achieve and what is beyond its potential.
SubsequenI secIIons look beyond Ihe role oI Ihe prIvaIe secIor In adapIaIIon and Iocus on Ihe overall Iramework
or conditions that need to be in place to make the private sector work for adaptation. Section 3 focuses on track-
Ing prIvaIe nance ows and SecIIon / on Ihe use and role oI sIandards In sIeerIng and ensurIng Ihe prIvaIe
sector contributes to meeting the adaption needs of developing countries.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 5
Adaptaticn nance and
the private sector
Given the increase in the number of publications on the topic under discussion, it is important to map current re-
search ehorIs In order Io IdenIIIy currenI research opporIunIIIes and gaps. From a donor or governmenI perspec-
tive (i.e. how public investors can increase the contribution of the private sector to meet the adaptation needs of
developIng counIrIes} mechanIsms and Iools can be dIvIded InIo Iwo dIherenI groups:
Direct instruments use publIc Iunds Io IncenIIvIse prIvaIe secIor InvesImenIs In adapIaIIon-relaIed projecIs
directly (see diagram 1 below). They entail the use of public funds to increase private sector participation
In adapIaIIon projecIs. An example oI a dIrecI InsIrumenI Is a loan provIded by a DF, Ior example Ihe FC, Io
an adapIaIIon projecI InvolvIng Ihe prIvaIe secIor In a developIng counIry. ProvIdIng guaranIees Io prIvaIe
secIor projecIs Is anoIher example.
Indirect tools use publIc Iunds Io creaIe mechanIsms desIgned Io eIIher raIse addIIIonal adapIaIIon nance
or increase private sector investments in adaptation (see diagram 2 below). No direct support to the private
companies implementing adaptation actions is provided. Some examples of indirect instruments include:
enacIIng legIslaIIon IhaI ahecIs Ihe behavIour oI prIvaIe companIes, or creaIIng a bond markeI Io raIse -
nance Ior projecIs or governmenIs In developIng counIrIes.
Diagram 1: Direct instruments
ADAPTATION PROJECTS IN
DEVELOPING COUNTRIES
Public funds (e.g. grants,
loans, equIIylq. equIIy,
guarantees
DIRECT: publc unds are used Lo supporL prvaLe secLor
parLcpaLon n adapLaLon projecLs
PUBLIC INVESTORS
(government/donor)
PRIVATE SECTOR
PRIVATE COMPANIES
PRIVATE INVESTORS
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 6
Diagram 2: Indirect instruments
PUBLIC INVESTORS
(government/donor)
MECHANISM
(e.g. adaptation
market, legal
framework, bonds
market)
Public funds
INDIRECT: publc unds are used Lo creaLe mechansms Lo 1) rase money or
adapLaLon, andior 2) ncenLvse prvaLe secLor nvesLmenLs n adapLaLon
RAISES MONEY
INDUCE
INVESTMENTS ON
ADAPTATION
PRIVATE SECTOR
PRIVATE COMPANIES
PRIVATE INVESTORS
nuencelehecI
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 7
Direct instruments
DIrecI InsIrumenIs seek Io IncenIIvIse or IacIlIIaIe prIvaIe secIor InvesImenIs In adapIaIIon projecIs. The dIs-
cussIon abouI dIrecI Iools has mosIly revolved around Ihe dIherenI nancIal InsIrumenIs IhaI can be used Io
IncenIIvIse IhIs behavIour. n Ihe experIence oI developmenI nance InsIIIuIIons (DFs}, IncludIng mulIIlaIeral
development banks (MDBs), working with the private sector has usually served as the starting point and model
Ior dIscussIon. MosI common nancIal InsIrumenIs are InIroduced In Table 2.
Table 2: Main types cf nanciaI instruments
Type Deniticn Examples
Grants A transfer made in cash, goods or services for
whIch no repaymenI Is requIred.
18
It constitutes a
direct subsidy to private companies.
TechnIcal assIsIance
CranIslsubsIdIes
CranIs elemenIs In loans
Debt "TransIers Ior whIch repaymenI Is requIred.
19
Loans
CredII lInes (loan Io an
intermediary for on-lending)
SyndIcaIed loans
Equity Investments that involve the ownership of shares in
a company. Can me made either directly or through
and investment fund.
PublIc equIIy
PrIvaIe equIIy
Quasi-equity nsIrumenIs wIIh equIIy or debI IeaIures IhaI have
a lower repaymenI prIorIIy In case oI lIquIdaIIon
IhaI debI, buI hIgher Ihan equIIy.
DebI-based:
- SubordInaIed or junIor loans
- MezzanIne loans
EquIIy-based:
- PreIerred sIocks
- ConverIIble bonds
De-risking nsIrumenIs InIended Io reduce Ihe rIsk prole
of the private sector investment with the idea of
IacIlIIaIIng nance.
Loan guaranIees
nvesImenI guaranIees (polIIIcal
and macroeconomic insurance)
Source: elaborated by the author based on Pereira, J (2013)
Although there is not enough space in this report to examine all these instruments in detail, it is worth exploring
some oI Ihe IeaIures and conclusIons oI recenI research. ExIsIIng research has mosIly Iocused on Ihese nancIal
InsIrumenIs Irom a nancIal perspecIIve, wIIhouI much consIderaIIon abouI makIng Ihe lInk Io specIc projecIs
or needs on the ground.
20
Some research has IrIed Io go one sIep IurIher and look aI wheIher Ihese nancIal InsIrumenIs are adequaIe Io
supporI all counIrIes and communIIIes ahecIed by clImaIe change.
21
It has been found that many of these instru-
menIs are InadequaIe Io supporI domesIIc companIes and are more lIkely Io beneI projecIs ImplemenIed by
foreign multinational companies.
ThIs has led Io concerns abouI Ihe conIrIbuIIon oI Ihe projecI Io developIng counIrIes' susIaInable developmenI
as well as their ability to reach poor and rural communities. For similar reasons and based on data from DFIs, it
has also been Iound IhaI supporI Io Ihe prIvaIe secIor Is much more lIkely Io ow Io upper-mIddle Income coun-
tries instead of low-income and lower-middle income countries, where the needs are greater.
22
However, these studies have also been conducted from a top-down approach, instead of building on the experi-
ence of developing countries and local communities. There is, therefore, an important knowledge gap when it
comes Io case sIudIes lookIng aI real examples oI how dIherenI nancIal InsIrumenIs can be used Io meeI spe-
cIc adapIaIIon needs. ThIs gap Is only slowly beIng lled by new research.
23
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 8
Dne noIable excepIIon Io Ihe lack oI examples and daIa Is Ihe eld oI parameIrIc Insurance (Insurance IrIg-
gered by an evenI oI a pre-dened InIensIIy, InsIead oI losses}, where a more consIsIenI and advanced research
agenda, including private insurance companies, has been in place for many years.
24
Moreover, a number of pilot
projecIs have been or are underway In several counIrIes, IncludIng MalawI, ndIa, MongolIa and Ihe PhIlIppInes.
25
Indirect instruments
ndIrecI InsIrumenIs are based on Ihe ImplemenIaIIon oI mechanIsms IhaI Inuence or ahecI Ihe behavIour oI
private companies. In general these mechanisms are created with one of the two following goals in mind: raising
addIIIonal adapIaIIon nance, or IncreasIng prIvaIe secIor InvesImenIs In adapIaIIon. ndIrecI Iools are summa-
rised in Table 3.
Table 3: Selected indirect instruments
Type Deniticn Examples
Market mechanisms Key feature of market mechanisms (or
market-based instruments) is that a price signal
is used to promote the production of a certain
service or good, or to reduce it (in this case
promote adaptation measures).
They also can also be used to raise money for
adaptation.
Adaptation credit mechanism
Carbon market (mitigation)
Bonds FIxed Income nancIal InsIrumenIs used Io raIse
money, in this case, for adaptation.
Catastrophe bonds (e.g. Mexico)
World Bank Green Bonds
Internalising
adaptations costs
Private investment on adaptation can be
increased by encouraging business likely to be
ahecIed by clImaIe change Io adopI measures
to reduce their vulnerability.
Awareness raising
Advice and information
Accurate climate modelling
Legislation
Technology
development and
transfer
SupporIIng research and pIloI projecIs can
help to lower the risk and deployment costs
oI adapIaIIon IechnIques. Also Includes
dissemination of the technology.
Research
PIloI projecIs
Source: elaborated by the author
A number of authors have proposed creating market mechanisms, modelled in a similar way as the carbon mar-
keI, In order Io IncenIIvIse prIvaIe secIor InvesImenIs In adapIaIIon and raIse addIIIonal nance. Research Is sIIll
In IIs early sIages and dIherenI models have been proposed Io Iurn adapIaIIon acIIons InIo a Iradable credII.
26

However, much more work Is requIred beIore a pIloI sysIem can be ImplemenIed.
In addition, creating an adaptation market mechanism faces a number of problems, compared to mitigation. For
example, Ihe ImpacI oI IuIure clImaIe change Is uncerIaIn, unlIke Ihe level oI emIssIons, and IhereIore quanIIIy-
Ing beneIs can be exIremely dImculI.
27
Moreover, valuIng Ihe whole range oI dIherenI adapIaIIon measures, In-
cluding environmental services (e.g. reforesting a coast), is extremely challenging from a technical point of view.
Dn Iop oI IhIs, Ihe ehecIIveness oI Ihe exIsIIng carbon markeI In reducIng emIssIons and generaIIng addIIIonal
nance has been conIesIed.
28
AlIernaIIvely, clImaIe bonds could be creaIed - lIke any Iype oI bond - In order Io raIse nance Irom prIvaIe
investors. Sovereign catastrophe bonds can be issued by developing country governments to raise funds. They
function as normal debt issued by countries with the particularity that repayment of the principal (the amount
used Io calculaIe Ihe InIeresI} Is IorgIven II an evenI oI a predened magnIIude hIIs Ihe counIry.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 9
The main obstacle in the deployment of sovereign catastrophe bonds is that they are debt issues with a higher
InIeresI raIe Ihan normal, Io compensaIe Ior Ihe exIra rIsk. As a consequence, Ihey mIghI noI be possIble or In-
teresting for countries with poor credit ratings or that are heavily indebted to issue bonds.
Similarly, the costs can also be very expensive for small countries, such as small island states, where the impact
oI such an evenI Is lIkely Io ahecI mosI oI Ihe counIry. Dne opIIon Io overcome IhIs problem Is Io creaIe IacIlI-
ties or institutions that pool together the risks of several countries and have good credit rating, thereby allowing
developing countries to issue bonds with a lower interest rate than in the open market.
I Is also possIble Io use bonds Io raIse nance Ior specIc adapIaIIon projecIs. For example, Ihe World ank Is-
sues Creen onds Io raIse money Ior mIIIgaIIon and adapIaIIon projecIs. SInce 2UU8, Ihe World ank has Issued
USD 3.5 billion in Green Bonds.
29
When IssuIng Creen onds, Ihe World ank beneIs Irom IIs AAA credII raIIng
(Ihe hIghesI granIed by credII raIIng agencIes} Io obIaIn nance aI a low InIeresI raIe.
In spite of this, one general criticism with the use of bonds is that they are mostly limited to activities that can
generaIe a sIream oI revenue so IhaI InIeresI can be repaId. Also, Ihe addIIIonalIIy oI many bonds Is quesIIon-
able. In the case of sovereign bonds, there is a reputational risk for the investors, as the revenues are not usually
earmarked Ior clImaIe projecIs, buI conIrIbuIe Io Ihe general budgeI.
30
Another concern is whether bonds can attract investors other than responsible investors and thus contribute to
a more general (additional) greening of the private sector.
There Is a dIherenI range oI Iools Io IncenIIvIse companIes Io InIernalIse Ihe cosIs oI adapIaIIon and IrIgger
investments to reduce their vulnerability. However, most of them have a common goal: to raise the awareness of
prIvaIe companIes abouI Ihe acIual rIsk posed by clImaIe change. ThIs requIres producIng relIable daIa IncludIng
robust uncertainty estimates, but also providing guidance and support to the private sector in understanding,
assessing and planning actions to reduce their vulnerability against climate change.
SpecIc Iools ImplemenIed by governmenIs Include supporIIng research, provIdIng guIdance and supporI, pro-
moting dialogues and linkages between research centres and government experts and building knowledge net-
works between the private sector and academia.
31
In spite of this, there are a number of inherent challenges that help to explain why studies show that most com-
panies are well aware of the risks posed by climate change adaptation, but only a few of them assess the risks and
implement actions to tackle them.
32
The challenges include the uncertainty about the impact of climate change,
Ihe exIsIence oI global busInesses and Ihe dImculIy or relucIance oI managers Io plan 2U-3U years ahead.
n general, InsIrumenIs Io IncenIIvIse Ihe InIernalIsaIIon oI adapIaIIon cosIs requIre sIgnIcanI governmenI sup-
port and investment. Without external support many developing countries would not be able to implement
these kind of measures. This could undermine the future competiveness of local companies both in the global
and domestic markets, for example, by making companies more vulnerable.
Tools related to the development and transfer of adaptation technologies seek to lower the risk and deployment
cosIs oI adapIaIIon IechnIques as well as Io dIssemInaIe Ihem. They are closely relaIed Io Ihe Iools Io InIernalIse
Ihe cosIs oI adapIaIIon In IhaI Ihey requIre a sIgnIcanI level oI InvolvemenI by publIc acIors. As a consequence,
they also face similar problems to those described above. Nonetheless, some international organisations have
sIarIed Io do some work - mosIly dIssemInaIIon - In developIng counIrIes.
33
The Climate Technology Centre and Network (CTCN) is an example of a more ambitious initiative, although its
formal operations are yet to start. The CTCN was established by the 16th session of the COP in 2010 with the
specIc objecIIve oI encouragIng Ihe developmenI and IransIer oI mIIIgaIIon and adapIaIIon IechnologIes by
establishing networks with academia, governments, and other stakeholders.
34
NoIwIIhsIandIng Ihese projecIs, Ihere Is much Io be In done In Ierms oI explorIng opporIunIIIes Ior Ihe research
and testing of new technologies in developing countries.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 10
Bankable projects: an insight into the private sector
UndersIandIng how Ihese InsIrumenIs work requIres explorIng In more depIh Ihe moIIvaIIons oI
Ihe prIvaIe secIor. The prIvaIe secIor Is InherenIly proI-seekIng and makes InvesImenIs when
Ihe expecIed cash ows generaIed by Ihe projecI can compensaIe Ihe rIsk Involved In Ihe under-
IakIng. Lenders would usually be wIllIng Io nance projecIs meeIIng Ihese condIIIons and hence
make projecIs 'bankable'.
Adaptation activities can thus be divided into two categories:
ankabIe prcjects: Ihose dened above.
Ncn-bankabIe prcjects: projecIs whIch do noI generaIe a cash reIurn or where II Is Ioo small
compared to the risks. When the social return is high enough, governments or donors might
be wIllIng Io sIep In In order Io make Ihem bankable. Non-bankable projecIs can be made
bankable through any of the instruments discussed above.
Some non-bankable can become bankable aIIer an InIIIal sIage requIrIng publIc supporI. For ex-
ample, projecIs InvolvIng a Iechnology developed wIIh publIc supporI mIghI no longer need pub-
lic support once it has been demonstrated. The same can also be applied to innovative products
requIrIng pIloI projecIs such as parameIrIc Insurance.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 11
Enabling environment as
a pre-condition
UnderpInnIng mosI oI Ihe measures dIscussed above Ihere Is a crucIal quesIIon. n order Io IhrIve and make
susIaInable InvesImenIs, Ihe prIvaIe secIor requIres Ihe exIsIence oI an approprIaIe polIcy Iramework and an
enabling environment. Without such pre-conditions, none of the measures discussed above are likely to yield
sIgnIcanI resulIs.
An approprIaIe and enablIng polIcy Iramework requIres boIh legIslaIIon (e.g. abouI company sIrucIure, owner-
shIp legal requIremenIs, exchange markeIs, eIc.} as well as InsIIIuIIons (e.g. regIsIrIes, oversIghI auIhorIIIes, eIc.},
the rule of law and economic planning by the government. To date, little research has been made on this topic in
relation to climate change in developing countries.
In general, there is little agreement about what would be an ideal policy framework beyond the need for clear
and enforceable regulations, the rule of law and a few other basic aspects. The debate becomes very political and
ideological as soon as it moves into issues such as the role of the government and the degree of liberalisation in
the economy.
This debate is beyond the scope of this report, but developed economies have traditionally promoted a liberal
economic model, often through the World Bank and the IMF.
35
However, many experts have argued that devel-
oped and emerging countries have often relied on industrial and protectionist policies in the past.
36
I Is ImporIanI noI Io underesIImaIe Ihe InIeresIs aI sIake In IhIs debaIe. AIIer all, major mulIInaIIonal compa-
nIes, Ihose more lIkely Io beneI Irom lIberalIsed economIc sysIems, have sIgnIcanI economIc and polIIIcal
clouI. UlIImaIely, II can be argued IhaI Ihere Is no Ideal polIcy Iramework, buI a range oI dIherenI opIIons IhaI
need to be tailored to each country and its particular circumstances. This reinforces the idea that using a country-
specIc approach Is essenIIal Io address Ihe challenges oI adapIaIIon.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 12
Prioritising the needs of the
most vulnerable
In most cases it is the poorest countries and the poorest communities that are the most vulnerable to the impacts
of climate change. It is therefore pertinent to assess whether the private sector can help these countries and
communities to adapt. A number of reports have looked into this issue and have found many limitations.
Uneven spread cf private investment acrcss the deveIcping wcrId
CurrenI overall InvesImenI ows Irom domesIIc and InIernaIIonal sources are mosIly concenIraIed In emerg-
ing and developed countries, followed by a limited number of middle-income countries. High-income countries
receIve approxImaIely 6U% oI all Inows oI IoreIgn dIrecI InvesImenI (FD}, Iollowed by upper-mIddle Income
counIrIes (32%}, whereas lower-mIddle Income and low-Income counIrIes receIve 7% and 1% respecIIvely.
37
Clobal clImaIe nance ows show a sImIlar Irend. RecenI esIImaIes IndIcaIe IhaI approxImaIely /7% oI global
clImaIe nance goes Io projecIs In developIng counIrIes, alIhough II seems IhaI mosI oI II goes Io ChIna, ndIa
and Brazil.
38
This suggests most developing countries face an important funding gap.
Despite their development mandate, DFIs support to the private sector is also concentrated in a small number
oI economIes. Very Iew projecIs ImplemenIed by Ihe nIernaIIonal FInance CorporaIIon (FC} beneI low-Income
counIrIes (8.3% oI IoIal InvesImenIs}.
39
n Ihe case oI Ihe E, Ihe gure Is only 3.8%, buI II Includes supporI Io
both public and private actors.
40
SImIlarly, only 25% oI all companIes supporIed by Ihe E and FC are based (scally} In low-Income counIrIes,
whIle /5% oI Ihem are based In DECD counIrIes or jurIsdIcIIons commonly consIdered as Iax havens.
41
This is
usually aIIrIbuIed Io Ihe weakness oI Ihe prIvaIe secIor In many developed counIrIes and Ihe IrequenI correla-
tion between poor governance, the lack of an investment-friendly policy environment and widespread poverty.
This evidence suggests that support to the private sector in the context of development shows an important bias
Iowards hIgher Income counIrIes. EnsurIng a more equIIable dIsIrIbuIIon oI supporI Ior prIvaIe secIor adapIaIIon
acIIvIIIes would requIre ImporIanI correcIIve measures.
Reaching SMEs in developing countries
In order to maximize the developmental impact of private sector adaptation activities and ensure they are sus-
tainable in the long term, it is essential to focus on domestic companies, as opposed to foreign companies.
42
In
particular, it is essential to support small and medium enterprises (SMEs), including those in the informal econ-
omy because Ihey "accounI Ior over 6U% oI CDP and over 7U% oI IoIal employmenI In low-Income counIrIes,
whIle Ihey conIrIbuIe over 55% oI IoIal employmenI and abouI 7U% oI CDP In mIddle-Income counIrIes.
43
Most of the economic output and employment is generated by businesses operating in the informal economy,
whIch represenI 8U% oI Ihe busInesses In developIng counIrIes.
44
However, research lookIng InIo projecIs Iunded dIrecIly by Ihe maIn DFs shows IhaI supporI Iends Io beneI
companIes Irom developed and emergIng economIes, IndependenIly oI Ihe counIry where Ihe projecI Is Imple-
mented.
45
CredII lInes provIded by DFs and ImplemenIed by local nancIal InIermedIarIes provIde an avenue Io
channel international funding to SMEs and private households.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 13
An evaluaIIon conducIed by Ihe World ank's ndependenI EvaluaIIon Croup Iound IhaI only 52% oI all Ihe op-
erations involving credit lines had a satisfactory performance.
46
The use oI nancIal InIermedIarIes by DFs and
MDBs has also been criticised for the weaknesses of monitoring mechanisms and the lack of transparency about
Ihe projecIs supporIed by Ihe InIermedIarIes.
47
Private sectcr mcney cws tc scme sectcrs but nct cthers
The private sector appears to be uninterested in sectors that are relevant from an adaptation perspective. For ex-
ample, private sector investments in developing countries have concentrated on energy and transport, whereas
little attention has been paid to water infrastructure.
48
Furthermore, private investments in some of these sec-
Iors, such as waIer InIrasIrucIure and energy dIsIrIbuIIon presenI some dImculIIes In Ierms oI prIcIng. AIIempIs
Io prIvaIIse Ihese servIces In developIng counIrIes have mIxed or even dIsasIrous consequences.
49
Similarly, investments in the agricultural sector usually focus on cash crops and large industrial production in-
stead of small-scale farming.
50
This suggests that they are unlikely to contribute to increase food security and
reduce the vulnerability of local communities to climate change.
Private sector money often fails to reach the poor and vulnerable
PrIvaIe secIor adapIIon acIIvIIIes are lIkely Io mIss Ihe pooresI and mosI vulnerable communIIIes. The rsI prob-
lem is about penetration. As discussed above, direct support to the private sector and international support to
the private sector is unlikely to reach domestic SMEs or important sectors that are important from an adaptation
perspective such as smallholder agriculture. The problem is that existing direct instruments as well as interna-
tional donors are more suited to supporting large companies (see section on direct instruments).
A second seI oI concerns sIems Irom Ihe Ior-proI naIure oI Ihe prIvaIe secIor. The prIvaIe secIor aIms Io IransIer
the costs of adaptation to their end consumers. While this can be a reasonable strategy in the case of products
InIended Ior exporIs (e.g. cohee or IexIIles}, II raIses some quesIIons when Ihe consumers are Ihe poor and vul-
nerable communities (e.g. irrigation).
The problem Is noI wheIher Ihe prIvaIe secIor should make a proI Irom provIdIng producIs and servIces Io Ihe
poor and vulnerable, but most importantly, whether poor people and vulnerable communities should pay for
their own adaptation.
51
Transferring the end-bill to poor and vulnerable communities contradicts the very prin-
cIple oI common buI dIherenIIaIed responsIbIlIIy, whIch should guIde clImaIe nance.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 14
Tracking the cw cf nance
KnowIng how much money Is owIng Io developIng counIrIes, Ihe naIure oI Ihe acIIvIIIes and who Is provIdIng
Ihe IundIng Is essenIIal Io ensure adapIaIIon ows are coordInaIed, provIde predIcIable IundIng, ensure donors
are IulllIng IheIr commIImenIs under Ihe prIncIple oI common buI dIherenIIaIed responsIbIlIIy and ensure all
vulnerable countries and communities receive their fair share of funding.
TrackIng nance ows Is one oI Ihe IoundaIIons oI accounIabIlIIy.
An ehecIIve IrackIng sysIem should Include Ihe IollowIng elemenIs:
Agreed meIhodology: common denIIIons Io ensure daIa Is comparable and relIable
nIormaIIon dIsaggregaIed by orIgIn
nIormaIIon dIsaggregaIed by desIInaIIon
SumcIenI InIormaIIon abouI IndIvIdual ows, IncludIng Ihe secIor, naIure and objecIIve, so IhaI Ihe Iunc-
IIons sIaIed above (coordInaIIon, predIcIabIlIIy, dIsIrIbuIIon, eIc.} can be ehecIIvely perIormed.
PublIc and easIly accessIble InIormaIIon
The international application of the OECD DAC criteria on the use of the adaptation marker has been discussed
as an opIIon, buI Ihe DECD DAC only records publIc ows, Ihe marker Is noI used consIsIenIly by donors. n addI-
IIon, II only provIdes an IndIcaIIon oI wheIher adapIaIIon Is Ihe prImary, secondary or non-IargeI oI Ihe projecI.
We are sIIll aI Ihe begInnIng oI Ihe paIh Iowards an ehecIIve IrackIng sysIem. The mosI ImmedIaIe challenge
Is Ihe dIversIIy oI prIvaIe ows, whIch Is compounded by a lack oI clear and comparable daIa, Ihe exIsIence oI
dIherenI meIrIcs (Ihe lack oI agreemenI abouI whaI should be counIed as adapIaIIon nance or noI} and Ihe
overlap beIween adapIaIIon and oIher Iypes oI nancelows.
52
Issues underpinning private sector involvement
Additionality
DespIIe beIng a IeaIure oI mosI clImaIe nance commIImenIs, Ihere Is currenIly no agreemenI abouI whaI ad-
dIIIonal nance means and how II can be measured. Arguably, addIIIonalIIy has Iwo maIn componenIs
53
:
FInancIal addIIIonalIIy: Would Ihe prIvaIe InvesImenI have happened anyway? FInancIal addIIIonalIIy Is Ihe
most common approach to measure additionality.
DperaIIonal and InsIIIuIIonal addIIIonalIIy: Have Ihere been ImprovemenIs In, Ior example, Ihe envIronmen-
Ial or socIal perIormance oI Ihe InvesImenI as a resulI oI Ihe publIc InsIIIuIIons InvolvemenI? MobIlIzIng
addIIIonal nancIal resources Is ImporIanI, buI maxImIsIng adapIaIIon ImpacIs Is aI leasI equally crucIal,
especIally when supporIed by publIc InsIIIuIIons. PrIvaIe nance mobIlIsed wIIh publIc supporI should be
more closely aligned with the adaptation aims or needs of the supporting donor or government.
AdapIaIIon nance should also be addIIIonal Io aId ows. MosI clImaIe nance projecIs can and should have
a development component, but the same funds should not be counted simultaneously as contributing to both
objecIIves. ThIs Is especIally ImporIanI, gIven Ihe IndependenI InIernaIIonal commIImenIs made by many coun-
IrIes Io provIde a gIven amounI oI aId (e.g. Ihe European IargeI oI provIdIng U.7% oI Ihe CN In aId by 2U15} as
well as addIIIonal clImaIe nance.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 15
Leverage
CalculaIIng how much prIvaIe adapIaIIon nance can be mobIlIsed wIIh a gIven InIervenIIon (e.g. a soII loan or
markeI mechanIsms} Is crucIal Ior Ihe predIcIabIlIIy oI IuIure ows. There Is no agreed meIhodology Io esIImaIe
leverage raIIos. DIherenI DFs and clImaIe Iunds use dIherenI approaches, whIch can lead Io sIgnIcanI conIu-
sion.
54
n addIIIon, hIgher leverage raIIos do noI necessarIly IndIcaIe IhaI projecIs are more ehecIIve In Ierms oI
achieving better results.
In fact, research has found evidence suggesting the opposite might be true.
55
Although the exact level depends
on Ihe InsIrumenI IhaI Is beIng used and Ihe projecI characIerIsIIcs, hIgh leverage raIIos oIIen mean IhaI Ihe
conIrIbuIIon oI Ihe publIc InsIIIuIIon Is heavIly dIluIed compared Io oIher sources oI nance. ThIs oIIen goes
hand In hand wIIh a lower Inuence over Ihe projecI.
High leverage ratios also mean that a large share of the cost is coming from other sources and could contradict
the idea of additionality,
56
especially when, as discussed below, funds provided by other public institutions are
often included in the calculations.
Dverall, IhIs suggesIs IhaI leverage raIIos oher lImIIed added value Io assess Ihe emcIency and ehecIIveness oI
clImaIe nance. SImIlarly, usIng leverage raIIos Io compare projecIs has ImporIanI lImIIaIIons In Ihe absence oI
proper context information.
Accounting for money coming from other public sources
I Is common In prIvaIe projecIs Ior DFs or clImaIe Iunds Io claIm Ihey have leveraged money provIded by oIher
publIc InvesIors. For example, leverage raIIos IrequenIly Include money provIded by oIher publIc InsIIIuIIons,
such as other multilateral banks or recipient governments.
57
While in some cases these funds might have actually
been leveraged, many DFIs and governments have earmarked budgets meaning funds would have been spent on
clImaIe projecIs anyway.
CovernmenIs usually have deIaIled budgeIs, whIle DFs oIIen earmark or commII mId-Ierm nance Io some sec-
tors, regions or countries.
58
It is thus not clear that funds provided by public investors can be counted as lever-
aged nance. n addIIIon, publIc acIors Involved In a projecI oIIen claIm Io have leveraged one anoIher's money,
whIch could lead Io double counIIng and InaIIng overall leveragIng esIImaIes.
Attribution
Many projecIs InvolvIng Ihe prIvaIe secIor Include dIherenI publIc acIors and, quIIe oIIen, mulIInaIIonal com-
panIes. ThIs leads Io ImporIanI problems when II comes Io aIIrIbuIIng Ihe projecI Io a specIc counIry oI orIgIn.
PublIc acIors can Involve noI only bIlaIeral or mulIIlaIeral donors and developmenI nance InsIIIuIIons, buI also
recipient governments.
MulIInaIIonal companIes usually have complex InIernaIIonal sIrucIures IncludIng subsIdIarIes In several dIher-
enI counIrIes. AIIrIbuIIon can be even more challengIng when Iunds are channelled Ihrough a nancIal InIerme-
diary (for example, a local bank or an investment fund based on a third country).
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 16
Ehective safeguards and private
sector standards
ThIs secIIon deals wIIh dIherenI guIdelInes IhaI ahecI and regulaIe Ihe envIronmenIal, socIal or eIhIcal perIor-
mance of the private sector.
Ehective safeguards
In this report, the term safeguards refers to the guidelines adopted by public organisations providing pub-
lic support or encouraging private sector adaptation activities (e.g. DFIs, MDBs or climate funds). Safeguards
perform a number of essential functions. In addition to being the foundations of monitoring, evaluation and
accounIabIlIIy sysIems, Ihey also help Io prevenI harm, make IundIng decIsIons by allowIng comparIng Ihe per-
Iormance oI dIherenI projecIs, and sIeer IundIng In a gIven dIrecIIon (ensurIng projecIs meeI specIc IargeIs}.
In this section we pay particular attention to whether existing safeguards address adaptation concerns.
Existing safeguards are insumcient
ExIsIIng saIeguards do noI seem Io be sumcIenI Io ensure Ihe prIvaIe secIor projecIs maxImIse IheIr adapIaIIon
and climate performance in general.
59
To date, no DFI, MDB or climate fund has developed a comprehensive set
of climate safeguards. Existing MDBs or other DFIs have a number of safeguards in place, but they do not com-
prehensively address climate concerns, though this can be explained by the broader development mandate of
these institutions.
As a result, MDBs and other DFIs, such as the EIB and the IFC, continue to support fossil fuel-based energy pro-
jecIs, IncludIng large coal power planIs.
60
Existing safeguards sometimes also fail to ensure private sector busi-
nesses are conducted in line with best ethical and social practices, for example, by preventing the use of tax
havens, which could undermine developing countries revenues.
61
Climate funds have not usually developed their own safeguards and rely on those of the implementing agencies
(oIIen MDs}. ThIs can be problemaIIc because, In addIIIon Io beIng InsumcIenI as menIIoned above, clImaIe
Iunds receIve daIa and evaluaIIons perIormed IollowIng dIherenI meIhodologIes and saIeguards. ThIs can make
II dImculI Io ensure Ihe comparabIlIIy and consIsIency oI dIherenI projecIs.
Implementation of safeguards
eyond Ihe adequacy oI exIsIIng saIeguards, a number oI lessons can also be drawn Irom IheIr ImplemenIaIIon.
Evaluations looking at the implementation of safeguards by the World Bank, the IFC and the EBRD found that
Ihey are noI always adequaIely upheld Ihrough monIIorIng and evaluaIIon sysIems.
62
These evaluations also show that the implementation of standards is especially challenging when support to the
prIvaIe secIor Is channelled Ihrough nancIal InIermedIarIes. When II comes Io sub-projecI monIIorIng, DFs, Ior
example, rely on the information provided by the intermediary itself. This information is not usually disclosed to
the public and in the limited case when information is made available, it is with the consent of the intermediary.
63
MDs and oIher DFs oIIen argue IhaI revealIng InIormaIIon abouI sub-projecIs (e.g. Ihe companIes parIIcIpaIed
by an investment fund) could undermine the competitiveness of the intermediary. However, non-disclosure can
lead Io InsumcIenI Iransparency regardIng Ihe operaIIon oI Ihe prIvaIe secIor and can obsIrucI Ihe publIc scru-
IIny oI adapIaIIon projecIs supporIed wIIh publIc Iunds.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 17
Private sector standards
The term private sector standards refers to the guidelines adopted by private companies to reduce the vulner-
ability (adaptation) of their business models to the impacts of climate change.
The promotion and adoption of adaptation standards by private companies is closely linked with the discussion
about how to encourage businesses to internalise adaptation costs (see section 1). When companies identify, as-
sess and adopt measures to reduce their vulnerability to climate change they usually develop internal guidelines
(sIandards} Io ensure adequaIe measures are ImplemenIed IhroughouI IheIr value chaIn. As menIIoned above,
Ihe measures proposed Io achIeve IhIs objecIIve requIre sIgnIcanI governmenI supporI and InvesImenI. ThIs
could be a problem for under-resourced developing countries.
An additional avenue to encourage businesses to adopt ambitious adaptation standards is through corporate
socIal responsIbIlIIy sIraIegIes (CSR}. I has been argued IhaI II can be dImculI Io Include some aspecIs oI prIvaIe
secIor adapIIon In CSR sIraIegIes because, unlIke emIssIons reducIIon, Ihe ehecIs oI adapIaIIon measures are
mostly local or restricted to the company itself and might not interest the same number of investors or consum-
ers.
64
However, there are many measures related to workers, facilities and local communities that could very
easIly I wIIhIn many companIes' CSR sIraIegIes.
65
In addition, another way in which the costs of adaptation could be internalised is by including climate vulner-
ability criteria in the risk evaluations performed by rating agencies. This would provide a very strong incentive
for private companies to adopt and adaptation strategies. However, this idea presents a number of challenges,
prImarIly Ihe dImculIy In makIng accuraIe predIcIIons and cosI esIImaIes.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 18
Conclusions and recommendations
There Is a role Ior Ihe prIvaIe secIor In clImaIe adapIaIIon, buI we sIIll have Io undersIand and nd ouI how Io
develop IIs Iull poIenIIal. As IhIs reporI has dIscussed, dIherenI Iypes oI Iools and InsIrumenIs, wIIh dIherIng
strengths and weakness are being proposed. In many cases a strong body of evidence is still missing for an ob-
jecIIve evaluaIIon oI IheIr poIenIIal In meeIIng Ihe adapIaIIon needs oI developed and developIng counIrIes.
Many of the instruments used or proposed to increase the contribution of the private sector to adaptation are in
the early stages of development (e.g. adaptation market mechanisms) while others build on the experience of
Ihe prIvaIe secIor In developmenI, buI lIIIle Is known abouI IheIr specIc conIrIbuIIon Io meeIIng Ihe adapIaIIon
needs oI counIrIes wIIh dIherenI levels oI developmenI, as well as Ihe specIc needs oI vulnerable communIIIes
within developing countries.
The dIherenI sIages oI developmenI oI a number oI InIIIaIIves also call Ior beIIer polIcy plannIng and Ihe elabo-
ration of a more ambitious international research and deployment agenda.
Although crucial to reduce vulnerability, some of the indirect instruments discussed in this report (e.g. internalis-
ing adaptation costs of encouraging technology transfer and development) seem more appropriate, at least in
their current form, for countries with large public resources. This is not the case of most developing countries,
whIch would requIre sIgnIcanI exIernal supporI In order In order Io keep pace wIIh developed counIrIes and
prevent widening of the adaptation gap.
n general, more research based on a boIIom-up approach - sIarIIng Irom Ihe specIc needs and movIng up Io
specIc Iools and InsIrumenIs - Is requIred. I Is also ImporIanI Io sIarI explorIng how dIherenI Iools relaIe Io
and complement one another in order to make the right policy decision in the near future.
A number of broader or framework issues also need to be addressed as soon as possible. It is crucial to develop a
common meIhodology Io record and Irack prIvaIe nance, IncludIng adapIaIIon nance. WIIhouI such a sysIem,
II Is noI possIble Io guaranIee an equIIable dIsIrIbuIIon oI Ihe scarce clImaIe nance avaIlable, nor hold devel-
oped countries to account for their commitments and historic responsibility in climate change.
The safeguards of public organisations supporting the role of the private sector in adaptation need to be
sIrengIhened. n addIIIon, publIc organIsaIIons need Io Improve ImplemenIaIIon In order Io ensure projecIs
comply wIIh saIeguards. ThIs Is parIIcularly ImporIanI In Ihe case oI clImaIe Iunds. WIIhouI ehecIIve saIeguards
In place II Is dImculI Io sIeer prIvaIe nance, maxImIse IIs conIrIbuIIon Io Ihe ghI agaInsI clImaIe change and
ensure accountability.
Core recommendations
CIven Ihe urgenI need Io supporI developIng counIrIes' adapIaIIon ehorIs, II Is essenIIal Io begIn Io ll Ihe
knowledge, evidence and policy gaps as soon as possible. In order to kick-start progress, CAN Europe recom-
mends that the international community take on-board four core recommendations:
1. Increase and fccus internaticnaI research ehcrts cn the private sectcr and adaptaticn.
a. Fund research using a bottom-up approach. Current research relies to a great extent on existing tools and ex-
amples. Given the problems of existing tools when reaching poor and vulnerable communities and SMEs, it
is important to explore the interface between vulnerable communities and the private sector on the ground
in order to develop new approaches.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 19
b. ExamIne how Ihe prIvaIe secIor can Iake on projecIs Ior Ihe publIc good (usually non-bankable}, IncludIng
through PPP, other risk-sharing facilities or by creating new classes of assets that can be monetised and help
make publIc-good projecIs bankable,
c. Explore how dIherenI Iools relaIe Io and complemenI one anoIher In order Io develop comprehensIve sIraI-
egies to address global adaptation needs and, in particular, those of developing countries. This is especially
important in the case of instruments usually implemented with government support (technology develop-
menI and IransIer} so IhaI developIng counIrIes can also beneI Irom Ihose ehorIs. PoIenIIally, Ihese ehorIs
could be coordinated through the recently created Climate Technology Centre and Network (CTCN).
d. Set up a working group to examine current proposals to create adaptation market mechanisms and develop
a vulnerability credit, as well as other innovative options such as potential adaptation levies to raise funds
for adaptation following the same principles of the development levy currently implemented in Ireland,
buI Ior adapIaIIon servIces InsIead oI publIc IacIlIIIes, or Ihe InIernaIIonal aIr passenger levy Ior adapIaIIon
proposed by the group of the least developed countries.
2. Ensure deveIcping ccuntries can benet frcm gIcbaI adaptaticn ehcrts mcbiIised cr impIemented by the
private sector in an equitable manner and in line with obligations under the principle of common but dif-
ferentiated responsibility.
a. Support the development of an enabling environment that is tailored to the best interests of developing
countries. The enabling environment should be developed through a country-owned process, follow demo-
cratic principles and work in consultation with stakeholders, including private sector, trade unions and civil
society.
b. Create in-country and international mechanisms to explore the needs of developing countries and coordi-
nate support.
c. Ensure IhaI prIvaIe secIor InvolvemenI In adapIaIIon projecIs In developIng counIrIes does noI resulI In a
transfer of the adaptation costs to poor and vulnerable communities. In order to prevent this, government or
donor subsidies should be envisaged.
3. DeveIcp a singIe cIimate nance tracking system with ccmmcn methcdcIcgy and database.
a. Ensure IhaI daIa Is comparable and InIormaIIon Is dIsaggregaIed by orIgIn and desIInaIIon, provIdes suI-
cIenI InIormaIIon abouI IndIvIdual ows so IhaI Ihey can be coordInaIed and predIcIed, and InIormaIIon Is
public and easily accessible. In this regard, the tracking system could build on the experience and standards
developed by the OECD DAC database and the International Aid Transparency Initiative (IATI).
b. Address Ihe dIvergences In esIImaIIng leverage raIIos, Io prevenI Iwo dIherenI donors Irom counIIng Ihe
same amounI (double-counIIng} and ensure a clear and separaIe accounIIng oI DDA ows.
4. Prcmcting best practice tc make the ccntributicns ehective.
a. Review and strengthen the safeguards currently in use by donors, MDBs, DFIs and other relevant public
organisations so that they exclude support for climate-polluting activities, such as fossil fuel-based tech-
nologies and uphold internationally best corporate practices, including preventing the erosion of develop-
Ing counIrIes Iax-base Ihrough Iax havens. FInancIal InIermedIarIes should be requIred Io uphold Ihe same
envIronmenIal, socIal, IaxaIIon and Iransparency sIandards In IheIr sub-projecIs, and
b. Develop a common international private sector agenda including a set of measures, guidelines, best prac-
tices and support material to help businesses internalize and adapt to climate change. The possibility of
ndIng ways In whIch raIIng agencIes could compuIe clImaIe vulnerabIlIIy should also be explored as a
potential incentive for private companies to adopt adaptation strategies.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 20
Endnotes
1 uchner, ., Falconer, A., Herv-MIgnuccI, M. B TrabacchI, C. (2U12} The Landscape oI ClImaIe FInance 2U12.
Climate Policy Initiative, Venice
2 NeI dIsbursemenIs oI omcIal developmenI assIsIance ows as recorded In Ihe DECD onlIne daIabase: hIIp:ll
stats.oecd.org
3 UNFCCC (2007) Climate change: impacts, vulnerabilities and adaptation in developing countries. UNFCCC,
Bonn
Parry et al (2009) Assessing the costs of adaptation to climate change. A review of the UNFCCC and other
recent estimates. Imperial College, London
World Bank (2010) The Costs to Developing Countries of Adapting to Climate Change. New Methods and
Estimates. World Bank, Washington DC
4 See: McGray, H., Hammill, A. and Bradley, R. (2007) Weathering the Storm: Options for Framing Adaptation
and DevelopmenI. WR, WashIngIon, DC,
Jones, L., Jaspars, S., Pavanello, S., Ludi, E., Slater, R., Arnall, A., Grist, N. and Mtisi, S. (2010) Responding to
a Changing Climate: Exploring How Disaster Risk Reduction, Social Protection and Livelihoods Approaches
PromoIe FeaIures oI AdapIIve CapacIIy. WorkIng Paper 315, DD, London, and
Arnall, A., Oswald, K., Davies, M., Mitchell, T. and Coirolo, C. (2010) Adaptive Social Protection: Mapping the
Evidence and Policy Context in the Agriculture Sector in South Asia. IDS Working paper 345, Institute of De-
velopment Studies, Brighton
5 Pauw, P. B Scholz, . (2U12} PrIvaIe nancIng oI adapIaIIon Io clImaIe change In poor counIrIes?The CurrenI- The Current-
Column, German Development Institute / Deutsches Institut fr Entwicklungspolitik (DIE)
6 uchner, ., Falconer, A., Herv-MIgnuccI, M. B TrabacchI, C. (2U12} The Landscape oI ClImaIe FInance 2U12.
Climate Policy Initiative, Venice
7 For example, see PWC (2010) Business leadership on climate change adaptation. Encouraging engagement
and acIIon. PrIcewaIerhouseCoopers LLP (UK}, and
Pauw, P. B Scholz, . (2U12} PrIvaIe nancIng oI adapIaIIon Io clImaIe change In poor counIrIes?The CurrenI- The Current-
Column, German Development Institute / Deutsches Institut fr Entwicklungspolitik (DIE)
8 See, for instance, annex 1 in Ibarra, H. (2010) Parametric insurance: general market trends and Perspectives
Ior Ihe aIrIcan Insurance secIor Ihe research. ParInerRe New SoluIIons nc, and Ihe research supporIed by
Munich Re:
http://www.cccep.ac.uk/Research/Programmes/Munich-Re/home.aspx#technical-papers
5 For example, see: Venugopal, S., SrIvasIava, A., Polycarp, C. B Taylor, E. (2U12} PublIc FInancIng nsIrumenIs
to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies. World Resourc-
es Institute, Washington DC
10 Schultz, K. H. (2011): Financing climate adaptation with a credit mechanism: initial considerations, Climate
PolIcy, and
uIzengeIger-Ceyer, S., Khler, M. B MIchaelowa, A. (2U11} DrIvIng MeanIngIul AdapIaIIon AcIIon Ihrough an
AdapIaIIon MarkeI MechanIsm.FrIdIjoI Nansen nsIIIuIe and perspecIIves
11 PREP (2012) PREP Value Chain Climate Resilience. A guide to managing climate impacts in companies and
communIIIes. ParInershIp Ior ResIlIence and EnvIronmenIal Preparedness (PREP}, and
PWC (2010) Business leadership on climate change adaptation. Encouraging engagement and action. Price-
waterhouseCoopers LLP (UK)
12 Clapp, C. eI al. (2U12} TrackIng ClImaIe FInance: WhaI and How? ParIs: DrganIsaIIon Ior EconomIc Co-opera-
tion and Development and International Energy Agency
uchner, ., Falconer, A., Herv-MIgnuccI, M. B TrabacchI, C. (2U12} The Landscape oI ClImaIe FInance 2U12.
Climate Policy Initiative, Venice
13 SIadelmann, M., CasIro, P. B MIchaelowa, A. (2U11} MobIlIsIng prIvaIe nance Ior low-carbon developmenI.
TacklIng barrIers Io InvesImenIs In developIng counIrIes and accounIIng oI prIvaIe ows. ClImaIe sIraIegIes.
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 21
1/ AIIerIdge, A. (2U11} WIll PrIvaIe FInance SupporI ClImaIe Change AdapIaIIon In DevelopIng CounIrIes? HIs-
torical Investment Patterns as a Window on Future Private Climate Finance. Stockholm Environment Insti-
IuIe, WorkIng Paper 2U11,
PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
Ihe EarIh, WashIngIon DC, and
PereIra, I. (2U12} CashIng In on clImaIe change? AssessIng wheIher prIvaIe Iunds can be leveraged Io help
the poorest countries respond to climate challenges. Eurodad, Brussels
15 AIIerIdge, A. (2U11} WIll PrIvaIe FInance SupporI ClImaIe Change AdapIaIIon In DevelopIng CounIrIes? HIs-
torical Investment Patterns as a Window on Future Private Climate Finance. Stockholm Environment Insti-
IuIe, WorkIng Paper 2U11, and
PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
16 PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
17 PereIra, I. (2U12} CashIng In on clImaIe change? AssessIng wheIher prIvaIe Iunds can be leveraged Io help
the poorest countries respond to climate challenges. Eurodad, Brussels
18 OECD DAC glossary, available at: http://www.oecd.org/dac/dacglossaryofkeytermsandconcepts.htm
19 OECD DAC glossary, available at: http://www.oecd.org/dac/dacglossaryofkeytermsandconcepts.htm
2U See, Ior example: Venugopal, S. B SrIvasIava, A. (2U12} MovIng Ihe Fulcrum: A prImer on publIc clImaIe -
nancing instruments used to leverage private capital. World Resources Institute
Venugopal, S.,SrIvasIava, A., Polycarp, C. B Taylor, E. (2U12} PublIc FInancIng nsIrumenIs Io Leverage PrIvaIe
Capital for Climate-Relevant Investment: Focus on Multilateral Agencies. World Resources Institute, Wash-
ington DC
AIIerIdge, A. (2U11} WIll PrIvaIe FInance SupporI ClImaIe Change AdapIaIIon In DevelopIng CounIrIes? HIs-
torical Investment Patterns as a Window on Future Private Climate Finance. Stockholm Environment Insti-
tute, Working Paper 2011
21 PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
PereIra, I. (2U12} CashIng In on clImaIe change? AssessIng wheIher prIvaIe Iunds can be leveraged Io help
the poorest countries respond to climate challenges. Eurodad, Brussels
IearFund(2U13} PrIvaIe gaIn, publIc InIeresI: Can prIvaIe nance help communIIIes adapI Io clImaIe change?
tearFund, London
22 Kwakkenbos, I. (2U12} PrIvaIe proI Ior PublIc Cood? Can InvesIIng In prIvaIe companIes delIver Ior Ihe
poor? Eurodad, russels
23 For example, see: GIZ (2012) Climate Adaptation and the Private Sector. Deutsche Gesellschaftfr
Internationale Zusammenarbeit (GIZ) GmbH, Climate Protection Programme
24 See for instance the research being supported by Munich Re: http://www.cccep.ac.uk/Research/Pro-
grammes/Munich-Re/home.aspx#technical-papers
25 IFC. Global Index Insurance Facility (GIIF). Factsheet
CCRIF (2011) CCRIF a Natural Catastrophe Risk Insurance Mechanism for the Caribbean. A collection of pa-
pers, articles and expert notes. Volume 2. CCRIF, Cayman Islands
Oxfam (2012) Braving the Uncertainties of Weather: Weather Index-Based Insurance as Agriculture Risk
Transfer Mechanism for Climate Change Adaptation and Risk Reduction in the Philippines. Climate Change
Commission, Institute for climate and Sustainable Cities and Oxfam, Philippines
26 Schultz, K. H. (2011): Financing climate adaptation with a credit mechanism: initial considerations, Climate
Policy
uIzengeIger-Ceyer, S., Khler, M. B MIchaelowa, A. (2U11} DrIvIng MeanIngIul AdapIaIIon AcIIon Ihrough an
AdapIaIIon MarkeI MechanIsm.FrIdIjoI Nansen nsIIIuIe and perspecIIves
27 uIzengeIger-Ceyer, S., Khler, M. B MIchaelowa, A. (2U11} DrIvIng MeanIngIul AdapIaIIon AcIIon Ihrough an
AdapIaIIon MarkeI MechanIsm.FrIdIjoI Nansen nsIIIuIe and perspecIIves
28 For example, see: FoE (2009) A dangerous obsession. The evidence against carbon trading and for real solu-
tions to avoid a climate crunch. Friends of the Earth UK
25 See Ihe IollowIng webpage: hIIp:llIreasury.worldbank.orglcmdlhImlCreenProjecIs.hIml
3U MorIel, R. B ordIer, C. (2U12} FInancIng Ihe IransIIIon Io a green economy: IheIr word Is IheIr (Creen} bond?
Climate Brief N. 14
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 22
31 Agrawala, S. et al. (2011) Private Sector Engagement in Adaptation to Climate Change: Approaches to Man-
aging Climate Risks. OECD Environment Working Papers, No. 39, OECD Publishing.
CBI (2010) Whatever the weather: managing the risks from a changing climate. CBI
32 Agrawala, S. et al. (2011) Private Sector Engagement in Adaptation to Climate Change: Approaches to Man-
agIng ClImaIe RIsk. DECD EnvIronmenI WorkIng Papers, No. 35, DECD PublIshIng, and
AcclImaIIse (2UU5a}, uIldIng usIness ResIlIence Io InevIIable ClImaIe Change. Carbon DIsclosure ProjecI
Report 2008. FTSE 350. Acclimatise, Oxford.
33 GIZ (2012) Climate Adaptation and the Private Sector. Deutsche Gesellschaft fr Internationale Zusammen- Deutsche Gesellschaft fr Internationale Zusammen-
arbeit (GIZ) GmbH, Climate Protection Programme
3/ For more InIormaIIon, see Ihe IollowIng webpage: hIIp:llunIccc.InIlIIclearljsplCTCN.jsp
35 Spanu, V. (2003). Liberalization of the international trade and economic growth: Implications for both devel-
oped and developing countries. Harvards Kennedy School of Government, Cambridge, unpublished.
36 Rodrik, D. (2001) The Global Governance of Trade As If Development Really Mattered. United Nations Devel-
opmenI Programme, New York, DcIober 2UU1, and
RodrIk, D. (2UU/}. ndusIrIal polIcIes Ior Ihe IwenIy-rsI cenIury. Harvard UnIversIIy
37 Calculations by the author based on the World Bank, World Development Indicators database: http://data-
bank.worldbank.org
38 uchner, ., Falconer, A., Herv-MIgnuccI, M. B TrabacchI, C. (2U12} The Landscape oI ClImaIe FInance 2U12.
Climate Policy Initiative, Venice
35 PereIra, I. (2U12} CashIng In on clImaIe change? AssessIng wheIher prIvaIe Iunds can be leveraged Io help
the poorest countries respond to climate challenges. Eurodad, Brussels
/U PereIra, I. (2U12} CashIng In on clImaIe change? AssessIng wheIher prIvaIe Iunds can be leveraged Io help
the poorest countries respond to climate challenges. Eurodad, Brussels
/1 Kwakkenbos, I. (2U12} PrIvaIe proI Ior PublIc Cood? Can InvesIIng In prIvaIe companIes delIver Ior Ihe
poor? Eurodad, russels
/2 PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
43 OECD (2004) Promoting SMEs for development. 2
nd
OECD Conference of Ministers responsible for small and
medium sized enterprises (SMEs)
// PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
/5 Kwakkenbos, I. (2U12} PrIvaIe proI Ior PublIc Cood? Can InvesIIng In prIvaIe companIes delIver Ior Ihe
poor? Eurodad, russels
46 IEG (2006) World Bank Lending for Lines of Credit: An IEG Evaluation. World Bank, Washington, DC.
/7 CAD (2U12} CAD AudII oI a Sample oI FC nvesImenIs In ThIrd-ParIy FInancIal nIermedIarIes. Dmce oI Ihe
Compliance Advisor-Ombudsman, World Bank Group.
EBRD (2006) Achievement of the EBRDs Environmental Mandate Through Financial Intermediaries. EBRD
Evaluation Department.
/8 AIIerIdge, A. (2U11} WIll PrIvaIe FInance SupporI ClImaIe Change AdapIaIIon In DevelopIng CounIrIes? HIs-
torical Investment Patterns as a Window on Future Private Climate Finance. Stockholm Environment Insti-
tute, Working Paper 2011
/5 For example, see: hIIp:llwww.socIalIsInIgerIa.orglpage.php?arIIcle=1873 and hIIp:llwww.cIIIzen.orgldocu-
menIslolIvIa%28PDF%25.PDF
5U AIIerIdge, A. (2U11} WIll PrIvaIe FInance SupporI ClImaIe Change AdapIaIIon In DevelopIng CounIrIes? HIs-
torical Investment Patterns as a Window on Future Private Climate Finance. Stockholm Environment Insti-
tute, Working Paper 2011
51 Wamsler, I. B Sderberg, M. (2U12} WIll Ihe prIvaIe secIor pay Ihe clImaIe bIll? An analysIs oI Ihe poIenIIal
oI prIvaIe nance as parI oI Ihe agreemenI Io mobIlIze 1UU bIllIon USD per year Irom 2U2U Ior clImaIe
change.DanChurchAid, Denmark
52 Clapp, C. eI al. (2U12} TrackIng ClImaIe FInance: WhaI and How? ParIs: DrganIsaIIon Ior EconomIc Co-opera-
IIon and DevelopmenI and nIernaIIonal Energy Agency, and
Caruso, R. B EllIs, I. (2U13} ComparIng DIherenI DenIIIons and MeIhods Io EsIImaIe MobIlIsed ClImaIe
Finance. Draft discussion document
53 CrImIh, I. (2U12} 'LeveragIng' prIvaIe secIor nance: How does II work and whaI are Ihe rIsks? reIIon Woods
ProjecI, AprIl 2U12. URL: hIIp:llwww.breIIonwoodsprojecI.orglarI-57U165
CLIMATE CHANGE ADAPTATION AND THE ROLE OF THE PRIVATE SECTOR 23
The denIIIons also buIld on: PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role
Ior PrIvaIe FInance? FrIends oI Ihe EarIh, WashIngIon DC
5/ rown, I., uchner, ., SIerra, K. and Wagner, C., 2U11a. LeveragIng clImaIe nance: a survey oI meIhodolo- rown, I., uchner, ., SIerra, K. and Wagner, C., 2U11a. LeveragIng clImaIe nance: a survey oI meIhodolo- LeveragIng clImaIe nance: a survey oI meIhodolo-
gIes ClImaIe FInance EhecIIveness ackground Paper #1 EnvIronmenIal DeIense Fund, ClImaIe PolIcy nIIIa-
tive, Brookings Institute, Overseas Development Institute, New York, Venice, Washington DC, London.
55 SIadelmann, M., CasIro, P. B MIchaelowa, A. (2U11} MobIlIsIng prIvaIe nance Ior low-carbon developmenI.
TacklIng barrIers Io InvesImenIs In developIng counIrIes and accounIIng oI prIvaIe ows. ClImaIe sIraIegIes.
56 PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
57 PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
58 For example, Ihe proceeds Irom Ihe World ank's Creen bonds are earmarked Ior 'clImaIe-IrIendly' projecIs.
It is also common for MDBs and DFIs to announce medium-term commitments. See for example to following
pIeces oI news: hIIp:llwww.google.comlhosIednewslaIplarIIclelALeqM5gK/FFbvmAA71CURM35HjoRPx-
h7gA , or hIIp:llwww.mInIngweekly.comlarIIclelIIc-earmarks-3UUm-Ior-aIrIcan-mInIng-InvesImenIs-over-
3-yrs-2011-02-09
55 PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
60 See: BIC (2009) World Bank Energy Sector Lending: Encouraging the Worlds Addiction to Fossil Fuels. Bank
Information center, Washington DC
CEE bankwatch network (2011) Carbon rising European Investment Bank energy lending 2007-2010. CEE
bankwatch network
MehIa, S. BUmashankar, S. (2U12} FC's green claIms rIng hollow. AnalysIs oI medIa reporIs on ndIan pro-
jecIs nanced by Ihe World ank arm. AvaIlable aI: hIIp:llwww.bIcusa.orglwp-conIenIluploadsl2U12l12l
Lapses+Iound+In+FC++2.pdI, and Ihe IollowIng pIece oI news
Badgley, C. (2012) West Africa oil boom overlooks tattered environmental safety net. Oil-industry regulation
lags behind as Ghana ramps up production. The Center for Public Integrity
61 PereIra, I. (2U13} ClImaIe Fund and Pro-poor ClImaIe FInance: s There a Role Ior PrIvaIe FInance? FrIends oI
the Earth, Washington DC
62 IEG (2011) IEG Annual Report 2011: Results and Performance of the World Bank Group. Independent Evalu-
ation Group, the World Bank Group, Washington, DC
CAD (2U12} CAD AudII oI a Sample oI FC nvesImenIs In ThIrd-ParIy FInancIal nIermedIarIes. Dmce oI Ihe
ComplIance AdvIsor-Dmbudsman, World ank Croup, and
ERD (2UU6} AchIevemenI oI Ihe ERD's envIronmenIal mandaIe Ihrough nancIal InIermedIarIes. ERD
Evaluation Department
63 Dalberg (2011) Report on Support to SMEs in Developing Countries Through Financial Intermediaries. Dal-
berg, November 2011
64 Agrawala, S. et al. (2011) Private Sector Engagement in Adaptation to Climate Change: Approaches to Man-
aging Climate Risk. OECD Environment Working Papers, No. 39, OECD Publishing
65 SIDA (2011) Climate change adaptation: Engaging Business in Asia. SIDA, CSR Asia
Climate Action Network Europe asbl
Rue dEdimbourg 26
1U5U russels - elgIum
www.caneurope.org
CLI MATE ACTI ON NETWORK
Europe
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CAN Eurcpe reccmmends that
the international community take on-board
the following four recommendations:
More international research on the private sector and adaptation
Explore Ihe InIerIace beIween vulnerable communIIIes and Ihe prIvaIe secIor and develop
new private sector approaches that embrace SMEs
ExamIne how Ihe prIvaIe secIor can Iake on projecIs Ior Ihe publIc good
EvaluaIe how Ihe dIherenI Iools In place relaIe Io and complemenI one anoIher and develop
comprehensive strategies to address global adaptation needs that involve technology devel-
opment and transfer to developing countries
Assess currenI proposals on adapIaIIon markeI mechanIsms and explore Ihe vIabIlIIy oI vul-
nerability credit and adaptation levies to raise funds for adaptation.
DeveIcping ccuntries tc benet frcm private sectcr adaptaticn ehcrts in an equitabIe manner
in Iine with cbIigaticns cf ccmmcn but diherentiated respcnsibiIity
PromoIe an enablIng envIronmenI IaIlored Io developIng counIry InIeresIs - owned by Ihe
countries themselves, respectful of democratic principles and functioning in collaboration
with stakeholders such as private sector, trade unions and civil society
CreaIe In-counIry and InIernaIIonal mechanIsms Io meeI developIng counIry needs
Ensure IhaI prIvaIe secIor supporIed adapIaIIon projecIs In developIng counIrIes do noI pass
adaptation costs onto poor and vulnerable communities.
Ccmmcn system, methcdcIcgy and database fcr cIimate nance tracking
ReporIIng publIc nance and prIvaIe nance separaIely
CuaranIee daIa comparabIlIIy by oblIgIng InIormaIIon Io be dIsaggregaIed by orIgIn and des-
IInaIIon, show IndIvIdual ows and be easIly accessIble
PrevenI double counIIng by donors and ensure separaIe accounIIng oI DDA ows.
Promoting best practice
RevIew and sIrengIhen currenI saIeguards so IhaI Ihey exclude supporI Ior clImaIe-polluI-
ing activities, such as fossil fuel-based technologies, and instead promote best practice, in-
cludIng among nancIal InIermedIarIes, on envIronmenIal, socIal, scal and Iransparency
standards
Develop prIvaIe secIor guIdelInes on measures, besI pracIIce and Iools Io help companIes
internalise and adapt to climate change. Explore climate vulnerability ratings as an incen-
tive mechanism.