The importance of adaptation projects rises with climate risks – report

The recent surge in damage from extreme climate events has focused the attention of public authorities on the need for investment in climate change adaptation projects – but with governments struggling to afford what is needed, private investors have an important prole to play, according to a new report from rating agency S&P, released today.

The report, titled Sink Or Swim: The Importance Of Adaptation Projects Rises With Climate Risks, examines the growing importance of adaptation projects, which aim to strengthen the resilience of buildings, flood defences, critical infrastructure, and communities against the risk climate change presents.

During 2018, only about 6 percent of the $546 billion invested in climate change projects globally focused on adaptation projects, according to the Climate Policy Initiative. In today's report, S&P Global Ratings credit analyst David Masters commented: "Although the imbalance is shifting, adaptation costs in developing countries alone are set to rise to $140 billion-$300 billion by 2030. That's 4 to 9 times more than the total amount of international finance available today.

"Over the past three years, the world has seen a spike in extreme weather, most recently the Australia and California wildfires, and Cyclone Bulbul in India and Bangladesh. These events highlight that many countries are vulnerable to these events. Climate change is likely to make matters worse, whether or not we manage to keep global warming to 2 degrees Celsius above preindustrial levels. Therefore, more people are looking at how to adapt to climate change, and how to finance it."

The Global Commission on Adaptation forecasts that without adaptation, climate change could reduce growth in global agricultural yields by as much as 30 percent by 2050, as well as pushing more than 100 million people below the poverty line in developing countries by 2030.

“Despite this, governments are not spending nearly as much money as one might expect,” said S&P. “Part of it is political - it can be hard to justify the cost for something that might not happen. Part of it is that governments are already stretched financially.”

One way to bridge the gap is with private investors. S&P said demand from the private sector reflects both the perceived social benefits from adaptation investment projects and tangible economic benefits such as improving the resilience of their supply chain.

“Investment in adaptation can offer cost-effective protection against extreme weather damage, which is referred to as a resilience benefit,” said S&P. “A strong resilience benefit and an attractive risk-return profile can attract private investors and bring much-needed money to this sector. Introducing financial instruments that demonstrate a strong link between investment returns and resilience benefits could boost the uptake of private sector adaptation investments.”

S&P says it expects that private sector financing for adaptation will increase, ultimately lessening the burden on constrained public sector entities and reducing the size of the adaptation gap.