The adaption finance gap: Urgent, underserved & unavoidable

Adapting to the effects of climate change has become increasingly important for communities worldwide. However, despite the growing urgency, there is a widening gap in adaption financing. This blog explores the adaption finance gap and ways it can be addressed.

The Government of Canada recently announced $530 million of funding to help cities adapt to the effects of climate change. However, this amount falls short of the $10 billion originally requested by the Federation of Canadian Municipalities and in turn widens the adaptation finance gap [1].

What is the adaptation finance gap?

Adapting to the effects of climate change is as urgent as mitigating global GHG emissions. Since the signing of the Paris Agreement in 2016, the global community has been laser-focused on reducing GHG emissions across all sectors and aspects of human life. However, there is a significant, and widening gap in the amount of capital invested in adaptation planning and resilient infrastructure development that limit damage to property, property loss, insurance claims, and in worst case scenarios, loss of life. Without capital investments in new and resilient infrastructure, governments and the private sector often rebuild impacted infrastructure to the same specifications instead of anticipating the effects of future events. Therefore, understanding the challenges and opportunities in climate adaptation financing is paramount.

The 2023 UN Adaptation Gap Report offers insights into the current state of affairs and sheds light on the urgency of bridging the adaptation finance gap. In this report, the calculated worldwide adaptation finance gap now stands between approximately $194 billion USD and $366 billion per year USD [2]. The UN Report states that Adaptation finance needs are 10–18 times as great as current international public adaptation finance flows – at least 50% higher than previously estimated [2].

State of progress in Canada

In Canada, investment is also lagging. The 2024 Corporate Knights Climate Dollars report sheds light on the scale and scope of previous federal commitments to address climate change. Corporate Knights calculated a 30% finance shortfall between commitments and actual spending of the Canadian Government [3]. Canada’s 2024 Budget includes several adaptation-related pledges/achievements including:[4]

• More than $1.6 billion to support Canada's National Adaptation Strategy.
• Providing more than $3.6 billion to protect nature and species at risk, and more than $1 billion to protect marine and coastal areas.
• $33.5 billion through the Investing in Canada Infrastructure Program, to support infrastructure projects in every province and territory across four streams: public transit; green infrastructure; community, culture, and recreation infrastructure; and rural and northern communities infrastructure.
• $6.9 million over five years, starting in 2024-25, with $1.4 million ongoing for the Meteorological Service of Canada’s early warning system for extreme weather events, with a focus on floods and storm surges.

With new investments planned into 2024-2025 should Canadians expect the financing shortfalls to continue?

What’s driving the gap?

The adaptation finance gap has grown as a result of various factors, including limited capital investment and planning, competing priorities, and inadequate mechanisms for the allocation and reallocation of funds between communities in need, governmental organizations, and the private sector [2]. As the absence of investment continues, the gap between have and have-not communities widens.

Many communities lack the amount of capital required to implement adaptation programs through infrastructure development and upgrades [2]. What’s more, is that governments and organizations lack the capacity to pursue the finance streams that are available. The current finance package supplied to FCM by the Government of Canada closes in August 2024, only two and a half months after opening. Therefore, the timeline to prepare a response is narrow, if not out of reach for communities with limited capacity. Furthermore, funding that is obtained by organizations in Canada typically focuses on climate mitigation-related finance and fails to address adaptation-related issues [2].

What is the solution?

With ever-increasing climate-related impacts closing the adaptation gap is essential. The long-term financial and social benefits that investments in adaptation can offer in terms of reducing risks from climate-related impacts as well as improving equity and climate justice should greatly offset the costs [2]. Failing to address the gap will lead to more climate-related impacts, losses, and damages. Closing the adaptation finance gap requires a firm commitment from governments, governmental organizations, and the private sector to deliver on their committed spending [2,3].

To reduce the gap, governments, non-governmental organizations, and the private sector need to prioritize mutually beneficial adaptation measures and ensure the implementation of planning instruments (e.g., governance, laws, and tracking) [2]. Currently, there are barriers specific to adaptation, such as limited grant-to-loan ratios, and lack of knowledge about adaptation policies. This is indicated by a low disbursement ratio of 66% [2]. Governments and organizations need to work towards removing barriers and making acquiring financing more streamlined. Consultants can also play a role by providing knowledge, guidance, and capacity support to organizations seeking adaptation finance.

Innovative solutions, such as climate-smart technologies and nature-based approaches support the adaptation finance gap [2]. From nature-based solutions to decentralized power and water management systems, these innovations offer cost-effective and sustainable ways to enhance resilience to climate change. Investing in research and development, as well as fostering collaboration between academia, industry, and government, is key to unlocking the full potential of innovation in adaptation.

Investments in adaptation initiatives can yield substantial returns by reducing the costs associated with climate-related disasters and protecting people, critical infrastructure, and ecosystems [2]. Standard Chartered estimates that on average every dollar spent on adaptation would generate 12 dollars (12x) of economic benefit in emerging markets [5]. Moreover, prioritizing adaptation can contribute to sustainable development goals, such as poverty alleviation, food security, and public health [2]. Integrating climate risk assessments into development projects, incorporating adaptation measures into national planning frameworks, and promoting knowledge sharing and capacity building at all levels.

Conclusion

As we confront the urgent, underserved, and unavoidable challenges of a changing climate, collective action and solidarity are more important than ever in ensuring that no communities and groups are left behind. Addressing the adaptation finance gap is a critical imperative to respond to the effects of climate change. Going forward, governments, NGOs and the private sector need to collaborate and prioritize resilience and adaptation initiatives and see the cost benefits of these investments in the same light as climate change mitigation programs.

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References

[1] David Thurton. 2024. $530M fund helps cities adapt to climate change, but Guilbeault suggests more money is needed. CBC News. Posted on June 3, 2024. https://www.cbc.ca/news/politics/guilbeault-municipalities-climate-change-fund-1.7223217

[2] United Nations. 2023. Adaptation Gap Report 2023: Underfinanced. Underprepared. Inadequate investment and planning on climate adaptation leaves the world exposed. Nairobi. https://doi.org/10.59117/20.500.11822/43796

[3] Corporate Knights. 2024. Committed and actual federal government climate spending – A climate dollars report. https://www.corporateknights.com/wp-content/uploads/2024/04/CK_Climate-Dollars-Report_2024.pdf

[4] Government of Canada. 2024. Federal Budget 2024. https://www.budget.canada.ca/2024/report-rapport/toc-tdm-en.html

[5] Standard Chartered. 2023. The Adaptation Economy, the case for early action on climate adaptation in emerging markets. https://standardcharteredbank.turtl.co/story/the-adaptation-economy/page/1