Category: Climate Finance

Extreme weather events blow hole in Lloyd’s of London’s balance sheet

Extreme weather events blow hole in Lloyd’s of London’s balance sheet

By Will Bugler

Lloyd’s insurance market has posted losses for a second consecutive year as a series extreme weather events drove claims to £19.7bn in 2018. California’s devastating wildfires, that also forced a major utility company to file for bankruptcy, were especially costly for the insurer.

Major extreme weather events, many of which are likely to become more severe under climate change, led to major claims totally £2.9bn. This included hurricanes Florence and Michael in the US, and Typhoon Jebi that hit Japan in late August.

In response to the announcement John Neal, Lloyd’s chief executive said, “We have implemented stronger performance management measures… to address the performance gap.”

The insurance industry as a whole is working hard to factor climate change into its risk models. However, should extreme weather events continue to undermine profitability, then premiums will undoubtedly have to rise. Insurers are also likely to demand more action on climate change adaptation from governments and business to reduce potential liabilities.

Cover photo from Wikimedia Commons.
PRI makes TCFD-style climate disclosures mandatory in 2020 reporting cycle

PRI makes TCFD-style climate disclosures mandatory in 2020 reporting cycle

By Robin Hamaker-Taylor

In February 2019, the Principles for Responsible Investing (PRI) initiative, announced it will make several of its climate risk indicators mandatory for PRI signatories. PRI requires signatories to annually report various environmental, social, and governance (ESG) metrics via the PRI reporting tool. In 2018, the PRI introduced TCFD-aligned indicators to its Reporting Framework, including reporting on four indicators of climate risks: governance, strategy, risk management, and metrics and targets. Until now, this reporting has been voluntary and disclose.  

Which indicators will be mandatory?

Starting in 2020, the PRI’s strategy and governance (SG) indicators will be mandatory to report, though it will remain voluntary to disclose responses publicly. These indicators include:

  • SG 01 CC: outline overall approach to climate-related risks;
  • SG 07 CC: provide overview of those in the organisation that have oversight, accountability and/or management responsibilities for climate-related issues; and
  • SG 13 CC: outline how strategic risks and opportunities are analysed.

PRI may require further climate risk reporting in the future

PRI currently has over 2,300 signatories, includingasset owners, investment managers, and service providers that collectively manage over $83 trillion in assets. This change in their reporting framework will greatly increase the amount of climate-related reporting within in its framework by signatories. This move also indicates the direction of travel regarding reporting on climate risks: the PRI has indicated that the remaining PRI climate risk indicators will stay voluntary with a view to becoming mandatory as good practice develops.

The climate change indicators of the overall Reporting Framework can be found here [pdf].

What is the PRI?

The PRI is a non-profit independent organisation that works to understand the investment implications of environmental, social and governance (ESG) factors. The PRI supports its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The organisation acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole.

What are the Principles for Responsible Investment?

The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles. Principle 6: We will each report on our activities and progress towards implementing the Principles

Photo by Sean Pollock on Unsplash

Interactive: How climate finance ‘flows’ around the world

Interactive: How climate finance ‘flows’ around the world

By Jocelyn Timperley, Carbon Brief

Climate finance is one of the bedrocks of negotiations at the United Nations Framework Convention on Climate Change (UNFCCC), including the “COP24” talks taking place this month in Katowice, Poland.

“Climate finance” refers to money – both from public and private sources – which is used to help reduce emissions and increase resilience against the negative impacts of climate change.

Rich countries have promised they will provide $100bn a year in climate finance to poorer nations by 2020. The UNFCCC’s recent biennial assessment found this sum had reached $75bn in 2016, a step forward compared to the $65bn given in 2015.

But what does this climate finance actually look like? How does it “flow” from country to country? Here, Carbon Brief takes a deep dive into a climate finance database collated by the Organisation for Economic Co-operation and Development (OECD).

The project-level data gives key insights not only into country-to-country flows of finance, but also the type of finance different donor countries tend to offer. For example, it shows which countries offer the biggest proportion to adaptation rather than mitigation projects, and whether grants or loans tend to dominate the money given.

Carbon Brief has produced a series of interactive flow diagrams using the data, available together here as a graphical “story” and further explained below.

Key takeaways

  • Donor governments gave climate finance totalling $34bn in 2015 and $37bn in 2016, according to OECD estimates (note that this is not a full estimate of money counting towards the $100bn pledge – see below for more).
  • Japan was the largest donor, giving $10.3bn per year (bn/yr) on average over the two years. It was followed, in order, by Germany, France, the UK and the US.
  • India was the largest recipient on average, receiving $2.6bn/yr. It was followed, in order, by Bangladesh, Vietnam, the Philippines and Thailand
  • The single largest “country-to-country” flow was an average yearly $1.6bn from Japan to India.
  • The US was the top contributor to the multilateral Green Climate Fund (GCF) in 2016. (However, the US has now ended its support for the GCF).
  • Around $16bn/yr went to mitigation-only projects, compared to $9bn for adaptation-only projects.
  • Around 42% of the finance consisted of “debt instruments”, such as loans.

Climate finance database

Countries have already agreed that developed countries should be jointly “mobilising” $100bn a year by 2020 to help poorer nations tackle climate change.

However, discussions continue on some of the finer details. For example, how the provision of climate finance should be divided between rich nations, what should be counted as climate finance and how flows of finance should be reported.

Several organisations report on the progress towards this climate finance goal, including the UNFCCC’s recent biennial assessment. This major report found that climate finance either directly given by governments to poorer countries, or raised by them from the private sector, stood at $75bn in 2016, which some analysts said put the world on track to achieving the $100bn goal in 2020. Of this, $57bn was public finance (directly from governments) and the rest private finance.

Others, such as Oxfam, argue that, in reality, far less progress has been made towards the $100bn goal. Its recent report estimates that “climate-specific assistance” was as low as $16-21bn per year in 2015 and 2016.

Here, Carbon Brief presents a comprehensive, project-level view on how countries are giving and receiving climate finance – rather than focusing on the headline total

The OECD, a Paris-based intergovernmental economic organisation, asks its 36 member countries to report on their foreign aid, including climate finance. The data captures climate finance that is both bilateral (country to country) and multilateral (via international institutions) It also gives detailed information about funded projects. (The OECD calls this database “climate-related development finance” rather than strictly climate finance).

The table below allows browsing of the data to select donor and recipient countries. It also allows other filtering, such as whether the money was for adaptation, mitigation or both, and whether it was delivered as a grant or a loan. See below for more details on these different aspects of the finance.

The values represent money committed by governments or agencies on the basis of a firm written obligation and backed by available funds. Therefore, it does not represent pledges.

Browsing the database gives detailed information about many of the projects funded. For example, the “Sector” filter shows that six projects in 2016 labelled by countries as climate finance dealt with coal-fired power plants.

It is important to note that the OECD database does not claim to capture all climate finance counting towards the $100bn. The totals of the data given here add up to $37bn, well below the $47bn the OECD recently estimated in a separate, top-down overview of public climate finance from developed to developing countries in 2016. The OECD also put public climate finance at $55bn in 2017. However, no project-level database for 2017 has been released yet.

The advantage of the bottom-up data is the ability to break it down, in some cases to detailed project level, according to Joe Thwaites, associate in the Sustainable Finance Center at the World Resources Institute (WRI).

This project-level data helps international actors to be transparent about the climate finance they provide, he adds. For example, it can help to ensure there is no “double counting” of climate finance as countries scale it up, he says.

Flow diagrams

Carbon Brief has also created several interactive flow charts – known as Sankeys – which give key insights into how climate finance is being transferred from developing countries to poorer nations. The numbers shown in these charts are an average for 2015 and 2016.

1: Country-country finance

This diagram shows the average yearly amount of climate finance given by each OECD country on average in 2015 and 2016, and where that money went.

Donor countries are listed down the left-hand side of the diagram. The right-hand side shows the amounts which flowed to recipient countries or regions.

It also shows how much went to international bodies, such as multilateral climate funds (“multilateral climate contributions”, see second diagram and below for more), and transfers where the recipient was not specified, often due to projects being split across several countries.

Where the recipient is “anonymised”, the flows represent transactions that do not meet official development assistance criteria or private flows, Guillaume Simon, a climate-related development finance expert at the OECD, tells Carbon Brief. These are considered confidential at the level of individual activities, he says.

The table below shows the top ten donors and recipients, averaged over 2015 and 2016.

Largest climate finance donors Largest climate finance recipients
Country $m/yr Country $m/yr
Japan $10,322 India $2,603
Germany $6,493 Bangladesh $1,357
France $3,671 Vietnam $1,344
United Kingdom $2,618 Philippines $1,296
United States $2,370 Thailand $963
Netherlands $940 Indonesia $952
Sweden $918 Kenya $766
Norway $755 Turkey $665
Canada $682 Ethiopia $647
Australia $480 Myanmar $646

As the table shows, Japan was by far the largest provider of climate finance, according to this data, followed by Germany, France the UK and the US. Together these five countries provided 70% of all donor finance recorded in the OECD’s detailed figures.

India, meanwhile, was the largest recipient, followed by Bangladesh, Vietnam, the Philippines and Thailand. Together they received for 21% of finance given by donor countries.

The amounts above are reported by countries themselves. However, Simon says that the OECD secretariat conducts regular quality reviews. He adds:

“It has been highlighted in past reviews that marking practices can vary among donors. A Rio markers handbook has been developed to guide…marking and to increase convergence.”

2: Multilateral contributions

As the first chart above shows, not all climate finance goes straight from one country to another. Instead, a sizeable wedge goes via international institutions, such as multilateral climate funds and multilateral development banks (MDBs). The breakdown of the $5.1bn climate share of contributions to these bodies is shown in the second diagram above.

It shows, for example, that the Green Climate Fund (GCF), which was established with a mandate specifically to leverage climate finance towards the $100bn pledge, received an average $1.7bn per year in 2015 and 2016. Japan, the UK and the US contributed the most.

A second set of OECD data, not analysed here, shows climate finance flows from a “recipient” perspective. This focuses on where flows are going rather than where they are coming from. It shows $53bn per year on average being transferred in 2015 and 2016, well above the $36bn average for the “donor” perspective shown here.

The reasons for this difference are complex, Simon tells Carbon Brief. However, it is in part due to the inclusion of extra money leveraged by multilateral development banks (MDBs) from initial donor sums, he says. In addition, inflows and outflows vary for any given year, since funding is not necessarily handed out the same year it is provided.

3: Adaptation vs mitigation

Climate finance reported to the OECD can be tagged as being for mitigation or adaptation purposes, as shown in the third diagram. In cases where it is tagged as both, the OECD does not give details of a split between the two.

Mitigation-only projects received an average 44% of funding in 2015 and 2016, while adaptation-only projects received 24%. Projects with both mitigation and adaptation components sat at 17%, while no information was given for the remaining 14% of projects.

The Paris Agreement says that scaled-up financial resources “should aim to achieve a balance between adaptation and mitigation”. As is shown in the OECD data (and elsewhere) this is not close to being the case, with almost double the amount going to mitigation-only projects compared to adaptation-only ones.

According to Thwaites, however, there are inherently a lot of judgement calls involved in how projects are coded as mitigation or adaptation. He tells Carbon Brief:

“A lot of the time it is judgement based, and especially one of the challenges is that it depends where the coding happens.

“If it happens in a [contributor] country office [in a recipient country], they know the projects better. But they may not be as well aware of what the guidelines are in the Paris Agreement and UNFCCC, and all the rules around that. Whereas, if it happens in the capital [of a contributor country], you’d hope that they will be a bit more aware of the international context and the commitments and the negotiations, but they might not have any clue about the project.”

4: Grants vs loans

This fourth diagram shows the type of climate finance flows, separated into categories (pdf) defined by the OECD: grants, debt instruments (such as loans and reimbursable grants), equity (such as buying of shares) and debt relief.

The total amount given as grants – $19.4bn – is only slightly higher than for projects financed by debt instruments, at $15.5bn. This is despite grants making up the vast majority (98%) of the projects detailed in the database, because debt-funded schemes tend to be much larger.

As the chart shows, some countries, such as Japan and France, deliver the vast majority of their finance as debt instruments. The UK, in contrast, delivered 98% of its finance as grants on average over the two years, while grants also made up 93% of US contributions.

Thwaites tells Carbon Brief:

“One of the things that is interesting is when a country makes an announcement of a number that sounds really big and exciting, then you always have to look below the surface.

“So the effort involved for the UK, which does mostly grant finance, to do every incremental amount of climate finance is more effort politically, for sure, than to be able to approve more loans. So there is a question of how do you credit that.”

One reason the grants-versus-loans balance is important is because accessing private funding for adapting to climate change is expected to be far more difficult than for mitigation projects, Bertram Zagema, policy advisor on food and climate change at Oxfam, tells Carbon Brief. He adds:

“Grant money can go to basic things that communities need to adapt to climate change, for example, and private money will only be invested if there’s a business model.”

The UNFCCC biennial report also notes that grants continue to provide most of the money for adaptation finance.

5: Principal vs significant climate component

This final diagram shows the breakdown of projects labelled in the data as having either a “principal” or “significant” climate component.

This climate element of aid spending is collected using “Rio markers”: tags which donor countries add to reported development finance to give more information about what it will be used for.

The project is scored as having a “principal” objective if it is directly targeting climate mitigation or adaptation, and a “significant” objective where climate change is not the fundamental driver for the project. As the diagram shows, projects with only a “significant” climate-related objective dominate.

While it is justifiable that climate finance is spent on projects where climate is one of many priorities in a broader development project, the way this is accounted for depends exclusively on developed countries’ self-reporting, says Oxfam’s climate finance report. This has “led to the use of disparate and in many instances questionable methods”, Oxfam adds.

In this OECD data, no downwards adjustment is made to “significant” marked activities, Simon tell Carbon Brief. But in some cases, countries themselves adjust down the amount they report to the UNFCCC when a project has only a significant climate component, Thwaites explains:

“Basically, when it’s principal, the idea is that you could probably reasonably count 100% of the value. When it’s significant, it’s only a component of a project. And the OECD members take different approaches to that.

“The UK, literally for every project, they go in and make a judgement on a project-by-project basis, which is a huge amount of effort. I think they deserve quite a lot of credit for doing that.”

In its assessment of climate finance, Oxfam at minimum halved the amount it considered as counting as climate finance for projects where climate was not the primary objective. This is one of the main reasons its climate finance total is lower than other estimates.

Adding up estimates

As noted above, the OECD data is one of several assessments of climate finance, which can vary substantially due to different methods and assumptions. Helena Wright, senior policy advisor at E3G, tells Carbon Brief:

“The OECD data is bottom-up project data, but doesn’t include private finance mobilised by projects, and also may not include all types of projects depending on how these are reported.

“It is important for international actors to be transparent about the climate finance they provide, which is why the project-level data collected by the OECD is useful. More transparent data can help build trust that the $100bn goal is met and that climate finance is being provided and received.”

As noted above, the UNFCCC’s biennial assessment of climate finance flows gives a more comprehensive overview. The latest iteration, which covers 2015 and 2016, was released earlier this month and showed public climate finance from developed to developing countries averaged $58bn in 2015 and 2016.

It draws on several different data sources, including the OECD data, and its topline numbers are signed off by a committee with equal number of developed and developing countries, Thwaites tells Carbon Brief:

“It’s kind of like the IPCC [Intergovernmental Panel on Climate Change] for climate finance. It’s obviously not as high stakes as the IPCC, but everything in the summary and recommendations has been debated very thoroughly by governments, and they’ve gone through every sentence and reviewed it.”

Oxfam’s recent “shadow finance” report, meanwhile, offers a more stringent assessment of progress towards the $100bn climate finance goal, based on both country submissions to the UNFCCC and the OECD data.

It does not include private finance and tries to account for what it regards as an “overstatement” of public support by developed countries.

For example, its assessment includes only the grant element of loans, not their full face value. It also assumes that at most 50% of funds are for climate in projects where climate is only a significant, not principal, objective. It sums up the resulting value as “climate-specific assistance” – which includes only finance which it says makes a “net financial transfer to developing countries in support of climate action”.

Oxfam estimates this “climate-specific assistance” was as low as $16-21bn per year in 2015 and 2016, with just $5-7bn of this going to adaptation. It adds:

“Even if one assumes a large margin of error, [these figures] point to a significant difference between what donors report and net climate-specific assistance.

“A closer look reveals that overall increases in climate finance appear to be largely the result of an upsurge in loans, in particular to middle-income countries. Whilst loans have an important role to play in the right circumstances, it is concerning that loans constitute an estimated two-thirds of public climate finance in 2015-16. Public grant-based support is too low to meet needs, and is rising too slowly.”

Thwaites agrees that there are many questions to ask, but argues there is no one right climate finance solution for everyone. He tells Carbon Brief:

“This all sort of comes back to this philosophical question of whether climate finance is purely a wealth transfer and compensation – and, for sure, some people think it is – or is it a means to enhance the capital stock of developing countries in a way that will help them fight climate change and also improve their economies. And, if it’s in that sense then, a grant for certain activities which may not be the most economically productive form of transfer.”

Discussions on climate finance are currently ongoing at this year’s climate conference in Katowice, Poland, as part of the Paris “rulebook”. Sticking points include accounting rules and the extent to which developed countries should promise concrete sums of climate finance years ahead of time. Some countries are also pushing for talks to start on a new climate finance goal, due to begin in 2025.

Speaking at the COP24 talks, Zagema tells Carbon Brief that the climate finance debates are “vital outcomes” of this year’s COP:

“Whether the $100bn per year promised to developing countries will be any good for the world’s poor, particularly those living in climate vulnerable situations, depends largely on the accounting rules due to be agreed here in Katowice…

“Robust accounting rules are necessary to show the true net value of developed countries’ contributions to helping vulnerable communities respond to the perils of climate change. They will be essential to ensure that this money actually reaches the people hardest hit by climate change.”

Global climate flows

One further complication is that all of the above numbers assess only public finance from developed to developing countries. This does not account for all of the money going towards tackling climate change, such as private finance, in-country spending or flows from one developing nation to another, such as support being offered by China. This is often referred to as “South-South” finance.

The UNFCCC biennial report gives an estimate that includes all of these flows and puts overall global climate finance at $680bn in 2015 and $681bn in 2016, a 17% increase on 2013-2014 levels. The growth was largely driven by high levels of new private investment in renewable energy, the report says.

A report released in late November by the Climate Policy Initiative (CPI) found global public and private climate finance flows reached a lower level of $472bn in 2015 and and $455bn in 2016. It also estimates that flows reached $510bn-530bn in 2017, based on preliminary data.

For comparison, the World Bank recently said a total of $25-30tn alone is needed to help cities shift towards a low-carbon economy.

Charts produced by Tom Prater for Carbon Brief using Flourish and Tableau with OECD data.

This article was originally published on Carbon Brief and is shared under a Creative Commons license.

World Bank announces that its adaptation spending will match mitigation for first time

World Bank announces that its adaptation spending will match mitigation for first time

Will Bugler

During the first week of the UN climate change conference in Poland, the World Bank announced that it will significantly boost its spending on climate change adaptation for the period 2021-2050. The Bank will double its current level of climate spending, committing US$ 200 billion to support countries to take ambitious action on climate change. The new plan significantly boosts support for adaptation and resilience, putting adaptation spending on a par with mitigation for the first time.

The extra finance for adaptation comes in recognition of mounting climate change impacts on lives and livelihoods, especially in the world’s poorest countries. “Climate change is an existential threat to the world’s poorest and most vulnerable.” Said World Bank Group President, Jim Yong Kim. “These new targets demonstrate how seriously we are taking this issue, investing and mobilizing $200 billion over five years to combat climate change. We are pushing ourselves to do more and to go faster on climate and we call on the global community to do the same.”

Importantly the bank will ramp up direct adaptation finance to reach US$ 50 billion over the 5-year period, the first time that adaptation finance will be equal to investments that reduce emissions. World Bank Chief Executive Officer, Kristalina Georgieva, said that the move is important to protect people from the worst impacts of climate change. “People are losing their lives and livelihoods because of the disastrous effects of climate change,” she said, “we must fight the causes, but also adapt to the consequences that are often most dramatic for the world’s poorest people”.

The new financing will ensure that adaptation is undertaken in a systematic fashion, and the World Bank will develop a new rating system to track and incentivize global progress. Actions will include supporting higher-quality forecasts, early warning systems and climate information services to better prepare 250 million people in 30 developing countries for climate risks. In addition, the expected investments will build more climate-responsive social protection systems in 40 countries, and finance climate smart agriculture investments in 20 countries.

“There are literally trillions of dollars of opportunities for the private sector to invest in projects that will help save the planet,” said IFC CEO Philippe Le Houérou. “Our job is to go out and proactively find those opportunities, use our de-risking tools, and crowd in private sector investment. We will do much more in helping finance renewable energy, green buildings, climate-smart agribusiness, urban transportation, water, and urban waste management.”

The new finance will be supported by increased efforts by the World Bank to provide technical support to integrate climate considerations into policy planning, investment design, implementation and evaluation.

Cover photo AgnosticPreachersKid/Wikimedia (CC BY-SA 3.0): The World Bank Group headquarters buildings in Washington, D.C.
Who benefits and who’s willing to pay? Key questions for adaptation finance

Who benefits and who’s willing to pay? Key questions for adaptation finance

By Mairi Dupar, Technical Advisor to CDKN

Last week in London, Climate Policy Initiative, adelphi and GIZ convened a roundtable to examine developing countries’ financing challenges, needs and opportunities in response to climate risk. The discussion ranged from government preparedness to the insurance industry’s role in encouraging resilient behaviours by adjusting premiums. Mairi Dupar of CDKN shares her view.*

The adaptation finance roundtable focused on how developing countries can mobilise investment for climate adaptation more effectively. The discussions explored a key question: ‘Who benefits from investments to reduce climate risk and, as a result, who is willing to pay?

Indeed, ‘who benefits’ is a question that gets to the heart of individual and organisational incentives to invest in climate change adaptation.

Consider a mangrove forest

Convincing businesses to pay for climate adaptation depends on aligning identified risks (and mitigating measures) with their business plans.

The group considered the hypothetical case of a 5 star hotel on a stretch of coastline, where mangroves protect against coastal erosion. Imagine how important the mangroves’ ‘green infrastructure’ could be in breaking up wave energy and retaining soils as storm surges increasingly pound the coast in a changing climate. The hotel’s very existence depends on the shoreline’s integrity and the presence of mangroves.

The hotel company would benefit directly and materially from preserving the mangroves. There is a clear business case for why the company should invest in mangrove conservation to protect its own continuity. Here, investing in mangrove protection, a form of climate risk reduction, becomes an integral part of the business plan.

In this scenario, it is likely that conserving the mangroves would benefit the local community and wider society, by providing many ecosystem services (some with direct monetary value, others not), such as hatching grounds for fish, carbon storage and sequestration, and so on. These would be ‘positive externalities’ of the company’s investment, that would bolster broader social resilience.

Consider another case: the 5 star hotel is positioned several kilometres inland. Removing the mangroves has no immediate impact on the hotel’s physical integrity and its profitability over five, ten, even twenty years. Imagine in this scenario that thousands of low income residents are situated close to the mangrove forest and highly exposed to coastal storm surges if the mangroves are cut. Some community members gain from cutting the mangroves today for their firewood and income needs, but overall, these gains are small and short-lived; whereas a mangrove conservation scheme promises steadier long term employment for some workers and indirect benefit from healthy fisheries and a resilient, more protective coastal environment, for thousands more people.

In this scenario, the hotel company doesn’t have a business case for investing in the mangrove’s protection; it has less stake in the game.

By contrast, thousands of community members have a material, long-term stake in the mangroves’ health. Here, the needed investment in mangrove conservation (and hence climate risk reduction) is a public good. Who invests? Who is willing to pay?

The hotel company may be willing to pay, but as a matter of corporate social responsibility or ‘charitable work’ rather than as an integral part of its business operation.

The community members may band together to self-organise and pay in cash or in kind for mangrove conservation. Or, this could be a role for financing by local or national government (or benevolent, external actors) of this public good.

Business basics are what drive private sector adaptation investments

“We need to be careful about over-emphasising the call for ‘innovative’ financial mechanisms to attract private investment to climate adaptation,” said John Firth, Director of Acclimatise. “What we need to do to mobilise private sector investment is in fact quite simple. We need to answer two questions: ‘Is there a business case, for investment in climate change adaptation and for more resilient investments,’ and ‘is there a return on investment?’”

Sometimes the investments that companies need to make to reduce their climate exposure and vulnerability are clear-cut.

Other times, it takes big picture thinking and good data and analysis to pinpoint the investments that will reduce climate risks to a manageable level. The Oasis Platform for Catastrophe and Climate Change Risk Assessment and Adaptation – which is funded by the CPI’s Global Innovation Lab for Climate Finance, offers ‘a set of tools that together aim to offer a more transparent, robust and comprehensive approach for analysing and pricing risk from extreme events’ including modelling of climate-related disaster losses.

Dickie Whitaker, its Chief Executive, said: “We are looking at mangrove swamp removal and coral reefs and the connection is embedded in the model-as well as factors such as the type of soil, the saturation of soil, and the runoff. We don’t say ‘I wonder what will happen to the mangrove swamps because it’s included in the model already – if someone takes the mangroves away, then the insurability will go down”.

Financing adaptation when it’s a public good

Craig Davies of the EBRD pointed out that recent developments such as the Task Force on Climate-related Financial Disclosures (TCFD) are beginning to create incentives for a more rational allocation of capital in a way that reflects the realities of climate change impacts. Multilateral finance institutions and climate finance mechanisms should urgently consider how the public funds that they manage can help ensure that developing countries are not left behind. ‘International climate finance has an important counter-cyclical role in supporting vulnerable locations and communities that commercial finance would otherwise not reach’ said Dr Davies.

Forms of blended finance, where the public sector takes the ‘first loss’ for an adaptation investment and reduces financial risk for private investors, are growing in popularity – a recent article by Charlotte Ellis and Kamleshan Pillay documents promising blended finance initiatives in Southern Africa.

Ultimately – according to John Ward, Director of Pengwern Associates, the public sector may have a role to play in monetising and paying for the benefits of resilience activities that are not currently monetised and paid for.

These interventions to build climate resilient societies – beyond the company level – could be as fundamental and diverse as: data and information sharing, creating education and alert systems, creating, preserving or restoring public infrastructure and many other activities.

Once these public goods activities are identified, then either they can be funded by public monies or, said Mr Ward, “you identify who the people are who are willing to pay to access those benefits and match them to the investors who are willing to bear the costs.”

Roundtable participants agreed that non-governmental organisations have often led the field in identifying the multiple benefits of adaptation projects and either financing them directly from their own private sources, or setting up reciprocal financing mechanisms to make programmes self-sustaining. Many successful NGO initiatives involve nature-based solutions that mediate the impacts of climate change—such as tree-planting and sustainable water management in watersheds to benefit both upstream and downstream water users and compensate natural resource managers for their efforts. One such combined initiative on climate adaptation and mitigation, by the NGO Natura Bolivia in Santa Cruz Department of Bolivia, has now grown exponentially in size and is being adopted across many other parts of Bolivia and South America.

Inaction is not an option

One thing is for certain: experts at the roundtable agreed that identifying climate risks, who has a stake in managing the risks and who’s willing to pay – plus the job of unlocking that finance – is a process that generally takes too long. Climate risks are here today and action is needed now. Without action to reduce climate-related risks, losses for firms and for societies will mount – with UNEP predicting an annual cost of climate adaptation in developing countries of up to US$500 billion per annum by 2050.

The roundtable was part of an ongoing study and consultative process by CPI and adelphi, on the challenges and opportunities for adaptation finance. The results are due to be presented in late 2018. Top of the study team’s initial conclusions – according to CPI analyst Valerio Micale – are the need tocreate demand among governments and private companies for services and products to analyse climate risks.’

*The policy roundtable took place under Chatham House rules and all interviewees agreed to be quoted for this article.

Further results of the study will be published on This article was originally by published on CDKN’s website and is shared with the author’s permission.

Cover photo by Anton Bielousov/Wikimedia Commons (CC BY-SA 3.0): Mangroves in Los Haitises National Park (Dominican Republic).
Can the Green Climate Fund help Guyana respond to climate change?

Can the Green Climate Fund help Guyana respond to climate change?

By Will Bugler

The Government of Guyana is urging local organisations, like businesses, NGOs, and others, to join the fight against climate change. Climate change will have serious consequences for the people of Guyana, but cutting carbon emissions and protecting the country from extreme weather events is costly. Finance made available through the Green Climate Fund can help Guyana to prepare for climate change. A new programme[1] being implemented by the Caribbean Community Climate Change Centre is raising awareness among Guyanese organisations about how to apply to the fund and respond to climate-related threats.

In Guyana, preparing for the impacts of climate change is paramount. The low-lying coastal zone is home to 90% of the country’s population and particularly at risk. Climate change is causing sea levels to rise, and increasing the frequency of powerful storms and extreme rainfall. These can lead to destructive flooding; in 2005 alone, catastrophic floods cost the country 60% of its GDP or US$494.9 million.[2] It has been estimated that in order to implement climate change adaptation measures, including infrastructural development works, Guyana will require an additional US$ 1.6 billion in the period to 2025.

While the costs of taking action on climate change are high, the costs of doing nothing will be far higher.[3] For example, with large coastal areas sitting between 0.5 and 1 meters below sea level, including Georgetown, sea level rise poses a serious threat to coastal populations, increasing the likelihood of coastal flooding. Substantial financial and human resources are necessary to build the resilience needed in Guyana. However, it is also imperative that an enabling environment is created to encourage adaptation and a reduction in greenhouse gas emissions.

It is an established fact that every dollar spent on building resilience saves four dollars on avoided losses[4]. Resilience building measures might include improved sea defences, reinforced mangrove forests, and improved agricultural practices. Emission reductions and resilience building provide returns on investments that any entrepreneur would want to pursue.

Funding from the Green Climate Fund will support initiatives aimed at preparing Guyana for an uncertain climatic future. The Government of Guyana has already started to engage with the Green Climate Fund. Minister of State, Joseph Harmon has been appointed as the National Designated Authority (NDA) and the Office of Climate Change, Ministry of the Presidency serves as the Secretariat.

Currently, Guyana is benefitting from a grant from the Fund to strengthen institutional capacity and prepare a country programme to guide future engagement with the Green Climate Fund according to clearly defined development goals. The Caribbean Community Climate Change Centre is implementing this new programme – ‘Capacity Building of the National Designated Authority (NDA) and Preparation of the Country Strategic Framework of the Cooperative Republic of Guyana (CRG)’ – which will help businesses, NGOs and government agencies access funding from the Fund.

In addition, more funding proposals are being prepared for the agriculture, forestry and energy sectors to help strengthen these sectors’ response to climate change. Access to the funding requires organisations to go through a challenging accreditation process. This new programme provides guidance to help organisations decide if accreditation is right for them.

In 2018, the Government plans to work closely with the private sector to enhance their capacity to access resources from the Fund. These resources will be instrumental in preparing the country’s long-term response to climate change, helping Guyana to prosper socially and economically.

For more information about Guyana’s engagement with the Green Climate Fund please contact the Office of Climate Change, Ministry of the Presidency:

[1] The programme is known as “Capacity Building of National Designated Authority (NDA) and Preparation of the Country Strategic Framework of the Cooperative Republic of Guyana (CRG)”

[2] Government of Guyana (2009) Via


[4] (CDB, 2017)

Cover photo by amanderson2/Flickr (CC BY 2.0).
New investor toolkit launched for managing climate risk and investing in resilience

New investor toolkit launched for managing climate risk and investing in resilience

By Will Bugler

The Investor Group on Climate Change (IGCC) is today launching a new guide for investors on climate risk tools and resources and managing for resilience.

The guide – Investing in Resilience: Tools and Frameworks for Managing Physical Risk – provides a snapshot of emerging tools and resources to help investors assess and manage physical climate risk, at both the portfolio and the asset level. It lays out some of the key concepts, issues and challenges associated with adaptation and provides a snapshot of emerging resources to help manage for resilience.

Climate change is increasingly recognised as a financial risk for investors, requiring the same levels of governance, oversight and active management as any other dimension of material financial performance.  These risks include both the financial costs and opportunities presented by transitioning to a net zero carbon economy, and the physical effects of climate change itself.

“The impacts of climate change are already being felt. This is translating into increased costs for investors at the asset and the portfolio level. These costs are set to escalate as climate change accelerates”, said Emma Herd Chief Executive Officer, IGCC.

“Financial regulators now expect financial institutions and regulated entities to have processes in place for managing climate change risks to their portfolio, this includes physical risk”.

“Investors need new sophisticated tools and resources to actively identify, measure and manage physical risk. The good news is that these tools are emerging”.

Investing in Resilience is an important and practical addition to the wave of new tools emerging to help investors tackle physical risks for assets and increase the resilience of their portfolio”, said Herd.

This guide is the latest in a series of resources that the Investor Group on Climate Change has developed in recent years to assess key climate risks across major industry sectors and identify means of investing in adaptation.

It was initially developed in a workshop, co-hosted with NAB in June 2018, mapping the landscape of emerging tools and resources for managing climate resilience.  It has been shaped and framed by investors and the finance community to accelerate the management of resilience across the Australian economy.

Download the report by clicking here.

Podcast: The Green Climate Fund in Guyana – Janelle Christian, Head of the Office of Climate Change, Guyana

Podcast: The Green Climate Fund in Guyana – Janelle Christian, Head of the Office of Climate Change, Guyana

By Will Bugler

Climate change is already having serious impacts for Guyana, 90% of the population live on the coastal plain, less than 1 meter above sea level. 75% of the country’s economic activity also takes place in this region. In 2005 Guyana suffered a catastrophic flood, which affected over a third of its population and cost over 60% of the country’s GDP. Tackling climate change is, therefore, an urgent necessity for Guyana, but cutting greenhouse gas emissions and adapting to climate impacts requires investment.

To help with the cost of responding to climate change the Green Climate Fund (GCF) has been established under the UNFCCC. But what exactly is the GCF? who can access it? and how will it work in Guyana? To learn more we spoke with Janelle Christian, Head of Guyana’s Office of Climate Change.

Cover photo by Guayana’s Department of Public Information.

Climate finance from multilateral development banks hit record high of $35.2 billion in 2017

Climate finance from multilateral development banks hit record high of $35.2 billion in 2017

By Elisa Jiménez Alonso

Climate financing by the world’s six largest multilateral development banks (MDBs) rose to a seven-year high of $35.2 billion in 2017. That equals an increase of nearly 30 per cent on the previous year, boosting projects that help developing countries cut emissions and address climate risks.

The MDBs’ latest joint report on climate financing said $27.9 billion, or 79 per cent of the 2017 total, was devoted to climate mitigation projects that aim to reduce harmful emissions and slow down global warming.

The remaining 21 per cent, or $7.4 billion, of financing for emerging and developing nations was invested in climate adaptation projects that help economies deal with the effects of climate change such as unusual rainfall patterns, worsening droughts and extreme weather events.

While the boost in climate finance is a welcome development, climate change adaptation is still severely underfunded. Adaptation and mitigation should not to be seen as competing interests, rather they are complementary strategies to a problem that needs addressing from several different angles. As such, the need to scale up finance is urgent for both, however, adaptation has a lot of catching up to do.

According to UNEP, global estimates on the costs of adaptation suggest that between $280 billion and $500 billion need to be spent each year by 2050 in order to build climate resilience under higher emission scenarios. This massive finance gap is already noticeable in developing countries, many of which are on the frontlines of climate change.

The mobilisation of financial resources for climate adaptation (and mitigation) is a very important signal of political will and commitment to respond to climate change and its associated impacts.

Read the full press release about the joint report here and download the full document by clicking here.

Cover photo by UN Women/Flickr (CC BY-NC-ND 2.0).
Can blockchain unblock climate finance?

Can blockchain unblock climate finance?

Funders’ perceptions that there is too much risk in investing at the local level prevents climate finance from making a real difference. Sam Greene discusses whether new technologies can benefit local communities while delivering the confidence donors and investors need to put their money where it matters.

By Sam Greene, IIED

Climate finance is not getting to the people who need it most – vulnerable communities on the front line, hardest hit by the impacts of climate change but least able to respond. IIED estimates only 1 in 10 dollars of the $60bn in public and private climate finance from dedicated climate funds is directly committed to local level activities.

Local communities know what works and have ingenious and sustainable solutions for adapting to climate change. But cut out of the funding picture, they have almost no say in how or where the bulk of the money is spent.

IIED is exploring the barriers stopping climate finance reaching local people. Part of this is examining emerging innovations in technology that can break those barriers. We are considering the role that blockchains, artificial intelligence, GPS satellites and advanced data platforms might play enabling finance to flow.

A risky business?

One major blockade is perceived risk: donors and investors do not have confidence in local level institutions’ (e.g. small business, local government authorities) financial systems, in their ability to spend money effectively and are wary of having no means of holding them to account. The distance between international and local actors makes it harder for funders to know what is happening ‘on the ground’.

Emerging technologies may help to circumvent this barrier. It’s been hard to miss the blockchain hype – decentralised ledgers that make the transfers of funds or assets between people or organisations fully transparent. Blockchains can record transactions of anything of value such as money, land, or identities, as well as assurances of impact or change delivered by an investment.

And being a decentralised system, costly intermediaries become redundant as investors, governments or communities can transfer funds or other assets directly between each other faster and at less expense.

The video below was made by the World Economic Forum to explain some of the benefits of blockchain technology.

With the potential for such a radical shake up in the transparency of transactions, could blockchains be the key to increasing funders’ appetite for climate finance investments?

Blockchains in practice

Digital “smart” contracts are programmed to automatically trigger payments when certain conditions are met.

Gainforest is using smart contracts to incentivise small-scale Amazonian farmers to preserve the rainforest. Farmer ’caretakers’ receive rewards for preserving patches of rainforest over a 3-6 month period. The reward is crowdfunded by private individuals or institutional donors and the size is determined by the difficulty in preserving the particular area of land.

When remote sensing satellites verify a particular patch of forest is still standing, the smart contracts enable payments to be sent automatically to the farmers. Since satellites independently verify the status of different patches, these transactions are significantly more transparent and can be trusted by donors. And with no ’middle-men’ transferring funds, administrative costs are cut dramatically.

Bitland in Ghana is using blockchain technology to create an immutable, transparent record of land ownership using drones, remote sensing and field-level research to enhance the data. Clear, public records of who owns what can help tackle corruption, illegal land grabbing and costly local border disputes that thrive on poor data and incomplete or unavailable written records. Clear records of ownership can transform local peoples’ access to finance – as they can prove ownership of their land and secure credit by borrowing against it.

Risks and challenges

However, there are challenges – such as the significant energy needed to maintain blockchains. Accessibility is also an issue: all users must have reliable internet access and enough technological literacy to access and review blockchain data.

There are also risks. Since the distributed ledger is transparent and immutable, its value rests on the quality of data that populates it. And the choices of information put onto ledgers, or the conditions set for smart contracts are highly political. Blockchains may entrench uneven power dynamics between donors and recipients. If smart contract conditions are set by donors, the needs of the recipient risk being overlooked. Can this power dynamic be shifted to a model where both donor and recipient ‘own’ the conditions, enabling both groups to hold each other to account? How can we ensure that these kinds of contracts preserve trust within and between communities?

Exploring the barriers to local-level climate finance

Blockchain technology is still an unknown quantity and a wave of local-level investment is unlikely until the various obstacles are addressed. These include:

  • high energy demands to power blockchains
  • the potential for blockchains to become cumbersome as more users and data is added
  • issues of fairness, recognising that the most vulnerable will only benefit if they have internet access and user-friendly, local language platforms to review ledger data
  • a skewed power dynamic where investors and donors set smart contract conditions that may not reflect local priorities.

At a workshop in early July, we’ll be bringing together donors, investors, innovators and community funds to explore the potential of Blockchain and other new technologies, and whether these new platforms can help tackle perceived risk in local level climate finance investments.

This blog was originally published on IIED’s website and is shared under a Creative Commons license. Read the original blog here.

Cover photo by Joel Filipe on Unsplash.