The current climate adaptation finance gap is now estimated at up to $366 billion each year. The gap measures the difference between the projected cost of meeting climate adaptation goals compared to the amount of finance available and committed. It’s clear that the methods being used to finance climate adaptation are not effective. The world is falling short of its climate goals, and to meet them, it’s going to take radical changes to the global financial architecture. The current regulations and fees in the financial system put pressure on those already living with the heaviest burdens of climate change.
The international community must lift this regulatory burden with greater support for private sector climate financing. Banks, insurers, and investors can be a north star for climate resilience. They have the resources and expertise to inform more impactful approaches to climate finance.
Indeed, the United Nations (UN) Climate Conference, also known as COP, has acknowledged that finance is “a great enabler of action.” Last week, the COP presidency announced a new action agenda ahead of COP29 in Azerbaijan in November. It called for a new Climate Finance Action Fund, which will be funded by voluntary contributions from both governments and private sector energy companies. It also outlines grants, pledges, and declarations that governments can voluntarily adopt. Notably, climate finance is woven throughout the text.
It is now clear to businesses and companies that the climate crisis comes with clear costs.
As Climate Week NYC gets under way, policymakers and business leaders have a clear call to action. But it is also clear that they cannot achieve impact at scale alone.
In the lead up to COP29 and the 2024 UN Biodiversity Conference, the world has a unique opportunity to collaborate with the private sector on climate adaptation and resilience. This week in New York, more than one hundred companies will be on the ground to drive these conversations forward. It is on governments to understand how to work more effectively with them.
The private sector is starting to open its eyes to the fact that the only way to survive is to internalize climate risks and costs. Industries have contributed disproportionately to the consequences of climate change without accounting for them. In 2021, the private sector accounted for 84 percent of global emissions. It is now clear to businesses and companies that the climate crisis comes with clear costs—from consequences with the supply chain to reduced labor productivity. Investing in resilience protects private sector interests. So, rather than being a barrier to participation, governments around the world must ensure that their policy environment enables private sector action and ambition when it comes to climate adaptation and resilience.
The question is: What can the public and private sector do to make these changes? First, we need to drive dialogue. Through the Atlantic Council’s Climate Resilience Center, we created the space for these conversations to happen. We have worked with the UN Climate Change High-Level Champions to connect banks, insurers, and private finance actors to understand how the public and private sector can more effectively work toward a systemic solution. These conversations have made clear that the appetite for partnership is there, but better efforts are needed to develop the instruments and public sector bodies that can mobilize private sector investments. For instance, the public sector must create taxonomies for climate adaptation. We need these new taxonomies to understand what types of investment count toward adaptation, so there can be effective incentives for private sector funding and more investor confidence to make the returns clearer.
The moment is ripe. Last year, when we launched the Call for Collaboration at COP28, governments and companies signed on immediately. Climate Week NYC is multiplying these opportunities. Many of the events are hosted by the private sector, showing companies’ increasing motivation to be a part of these conversations. The world is changing, and we need to capitalize on this momentum. What remains is to ensure that these conversations can turn into real action.
Jorge Gastelumendi is the senior director of the Atlantic Council’s Climate Resilience Center. He previously served as chief advisor and negotiator for the government of Peru during negotiations that led to the Paris Climate Accords.
Further reading
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Image: Solar panels are seen along with a view of the neighborhood and lower Manhattan from the rooftop of Timber House in the Park Slope neighborhood of Brooklyn, New York, August 16, 2022. REUTERS/Brendan McDermid.