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Businesses could be allocating more resources towards climate adaptation than commonly believed

Unveiling the Hidden Potential of Private Sector Climate Adaptation Investments

Private sector investment in climate change adaptation is often overlooked and underfunded compared to efforts to reduce emissions. According to Climate Policy Initiative (CPI), private sector contributions to global adaptation finance only accounted for 2% of the $63 billion annual average tracked in 2021 and 2022. This is significantly lower than the estimated $215 billion needed annually by developing countries to enhance their climate resilience.

However, experts believe that private investments in adaptation are underestimated due to challenges in tracking them. Morgan Richmond, lead analyst for CPI’s Adaptation and Resilience workstream, suggests that many private investments in adaptation are not self-identified as such, leading to a lack of data on these finance flows.

To address this issue, CPI has developed a more sophisticated tracking mechanism and found that private adaptation investments were more than four times higher than previously estimated from 2019 to 2022. This indicates a growing interest in adaptation finance from the private sector.

Some multinational companies, such as Nestlé, Danone, and Unilever, have taken steps to enhance the resilience of their supply chains to climate shocks. However, outside of the food industry, business action on adaptation remains limited.

Efforts to attract more private funding into adaptation face barriers, especially in developing countries. Blended finance mechanisms, which combine public and private sector funding, have shown promise in mobilizing private finance for adaptation projects. For example, Kenya-based ag-tech startup Apollo Agriculture has provided loans to smallholder farmers to adopt climate-resilient farming methods with support from development finance institutions and venture capital funds.

Apollo Agriculture’s success demonstrates that supporting smallholder farmers in adapting to climate change can be profitable. By providing farmers with access to new technologies and personalized support, the company has helped them increase their productivity and resilience to climate shocks.

Overall, the narrative that there are limited viable business models for adaptation may be misleading, as private sector interest in adaptation finance is growing. With the right incentives and tracking mechanisms in place, more businesses and investors may be encouraged to invest in climate change adaptation efforts.

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