So, another COP has come and gone, kicking the ‘Climate Can’ further down the line. There are no surprises there. Adaptation finance has always been the biggest conundrum in the UN-led annual climate negotiations and will continue to be so.
What is adaptation finance, and what can we do about it in the absence of a global consensus on financing adaptation programmes in the world’s most vulnerable countries? Countries that are most likely to be impacted by extreme weather events and other climate change impacts.
For the uninitiated, adaptation finance is simply the amount of money needed annually to carry out measures to counter the impact of climate change. Current estimates stand at around $1 trillion by 2030 and $1.3 trillion a year by 2035 in external finance from all sources for investments necessary by emerging markets and developing countries (EMDCs) other than China to deliver the Paris Agreement (1).
Clearly, there is a need to ramp up climate finance and focus on solutions that provide maximum climate impact on investments. Energy conservation, decentralised energy generation, and investing in increasing access to public transportation are some such examples. Other low-hanging fruits include measures to revive urban environments, including forests and water bodies, and zero waste to landfill, etc. Forestry, land use and agriculture too call for significant investments.
Climate adaptation hindered by funding
India needs to attract international capital to the tune of $10-20 billion annually (2). A majority of this capital needs to go into climate adaptation efforts to sustain socio-economic transformation programmes. A Climate Policy Initiative (CPI) analysis finds that the collective annual investment needs of six states alone amount to US$ 5.5 billion for 2021–30. Finding this money is going to be difficult, as the states, responsible for carrying out adaptation measures, are yet to recover from the COVID-19 slowdown and are also facing stiffer fiscal controls imposed by the RBI. According to the CPI study, the current financing levels are at just 25% of what is required just to meet the country’s NDCs, while climate-related FDI stands at a mere 3% of the total FDI that came into the country at $1.2 billion in FY2020.
Establishing a common framework for climate risk and a systematic methodology for evaluating the extent to which development programmes address climate risk and vulnerability is a key step towards ensuring that the required finance flows into the sector. The government’s announcement of climate taxonomy in this year’s budget should get us closer to this goal by classifying economic activities aligned with climate commitments along with broader socio-economic goals. According to the United Nations Environment Programme, a taxonomy provides clear definitions, helps identify eligible assets, activities or projects that are low-carbon, compatible with low-carbon economic development, or environmentally sustainable, while avoiding greenwashing.
Given the diversity of climate impact scenarios across the country, meaningful interventions would need to take into account the climate vulnerability of individual states, their financial conditions while tailoring incentives/conditions for loans by the RBI and the central government to ensure maximum climate impact and the best bang for the buck. This would require developing a robust green finance data infrastructure to inform investment decisions and enhanced transparency, as well as promoting public-private partnerships and blended financing opportunities to catalyze private-sector investment.
The author is an ESG consultant and faculty at the Global Risk Management Institute, Gurugram
Ref:
1. https://www.lse.ac.uk/granthaminstitute/news/new-report-recommends-cop29-negotiations-on-climate-finance-should-focus-on-mobilising-1-trillion-per-year-for-developing-countries-by-2030/
2.Gireesh Pradhan & Gaurav Bhatiani in ForbesIndia.com, Aug 2023 https://www.forbesindia.com/blog/environment-and-sustainability/investing-in-our-future-the-need-to-get-climate-finance-right-for-india-329319.html
