Financing adaptation and resilience was a key topic at this year’s Pre-COP and in Washington, DC at the IMF/World Bank Annual Meetings. Governments and institutions increasingly recognise the necessity of elevating efforts to address climate impacts alongside mitigation but also the existential nature of adaptation for vulnerable countries – and for our collective future prosperity. But as well as being a critical development challenge, investment in resilience is a major growth opportunity – a flagship report last week highlighted the potential for such investment to generate 280 million jobs in emerging markets and developing economies by 2035.
For many countries and partners, the growing impacts of extreme weather on lives and livelihoods makes meaningful progress and a timebound path forward on financing adaptation both an existential challenge and a crucial foundation to a successful COP. But that path forward is far from clear with the COP26 decision to double adaptation finance expiring this year, a need for clarity on how adaptation finance needs will land in the Baku to Belém Roadmap, and difficult economic and political headwinds.
These were some of the significant takeaways for negotiators and leaders. But what is needed to meet this demand?
1. Strengthen the quality and quantity of adaptation finance
At Pre-COP in Brasilia last week, it was clear adaptation finance is seen as a political litmus test for success in Belém, with vulnerable countries signalling urgency and demanding greater clarity that finance will flow. Their message was clear; the current system of provision is too fragmented, too slow and too detached from the realities of those facing climate impacts.
A credible pathway forward will need to address these challenges, including as part of the overall package coming out of COP. The finalised Global Goal on Adaptation will be a key test of that and should include clear, manageable, and balanced indicators, especially on means of implementation. Across discussions, vulnerable countries called for a shift to implementation, with three key asks articulated in particular at the Climate & Development Ministerial:
- Simplify access and improve harmonisation to reduce burdensome processes and accelerate delivery.
- Promote country ownership of solutions and delivery channels to ensure funds are responsive to domestic needs.
- Dedicate finance for those with special circumstances to acknowledge the extreme vulnerability of Small Island Developing States (SIDS) and least developed countries (LDCs).
2. Action on MDB reform and goals to leverage more and better adaptation finance
Multilateral development banks (MDBs) are key actors who can advance financing needs at COP with tangible commitments for adaptation finance, including to implement the access enhancements agreed in the New Collective Quantified Goal (NCQG) last year, particularly for SIDS and LDCs. The pending updates of MDB climate strategies offers an opportunity for greater scale. This could include a refresh in how adaptation finance targets are structured, nuancing previous targets that have been expressed as a percentage of overall climate finance and allowing for a more tangible and impact-focussed suite of strategies and reforms.
Working together, the MDBs are the part of the climate and development finance system that has the greatest ability to scale up financing to the levels needed to generate adaptation solutions at scale. Therefore, in addition to ambitious internal goals, MDBs need to make real progress on the G20 Bigger and Better Bank agenda, and show they are working as a system to tackle shared challenges like sustainable cooling, food price volatility and developing better insurance models that can quickly supply finance when disaster hits.
MDBs can also demonstrate at COP how they will improve delivery of adaptation finance, including by facilitating adaptive and resilient country platforms, taking action on long-standing access and disbursement issues, driving mobilisation of private finance, and laying out pathways to address the frustrations of LDCs and SIDS regarding vulnerable country allocations.
3. Leaders must build a credible process around a new adaptation finance goal and make new public finance pledges
There is widespread recognition that, while fiscal and political contexts in contributor countries are leading to shrinking international aid budgets, there is a need to protect concessional finance for the most vulnerable, including by mobilising finance from a wide range of sources. This recognition motivates calls to turbocharge approaches to establishing a dedicated adaptation finance goal to replace the COP26 decision to double adaptation finance from 2019 levels by 2025, which expires this year. History suggests that a new goal, backed by political will and means of delivery, can play an important role encouraging shared ambition, driving action and supporting better accountability. International public adaptation finance mobilised by developed countries increased from approximately $20 billion in 2019 to $32.4 billion in 2022, reflecting the success of the current goal.
There is rightly much debate about what a new goal should be, in terms of scale, contributor base, timeframe, and how to ensure predictable and quality finance. Developing countries and contributors must now urgently come together to explore answers to these deeply political and technical questions to create real forward momentum and offer reassurance that multilateralism can deliver and that contributors remain firmly committed to enhancing the provision of public finance in reaching the NCQG.
Additionally, given the majority of bilateral climate finance commitments expire this year or next, and in the context of aid budget cuts in many contributor countries, there is a need for wealthy countries to come forward with new or renewed climate finance pledges at COP, including dedicated adaptation finance pledges.
4. Progress on adaptation finance must include action on fiscal space and private sector mobilisation
The Annual Meetings made clear that the private sector is an increasingly important actor around adaptation finance. The links between adaptation investment and the macroeconomic picture for developing countries are also crucial: in many cases debt service is preventing domestic investment in resilience while climate impacts are reducing the ability to service debt (the “climate–debt nexus”).
Notably, the G20 Sustainable Finance Working Group Chair’s report had an adaptation finance theme and made welcome progress in this area across multiple finance reform areas, putting the topic squarely within the remit of finance ministers. It is clear that financial reforms and policy frameworks must respond in a manner that incentivises investment in risk management rather than deterring investment in vulnerable regions.
Where to from here?
A COP package on adaptation including around adaptation finance is beginning to come into focus. But much more work, negotiation and compromise will be needed to land success on adaptation this year. There are many elements to that success, from enhancing access to concessional finance to reaching consensus on the Global Goal on Adaptation. Key components will be concrete progress on leveraging the private sector, successful replenishments of concessional funds, and a realistic pathway to a new goal.
But beyond and behind these priorities lies a deeper call for credibility: COP30 will be a crucial moment for the world to step up on adaptation finance. Success will not just be measured through pledges and announcements, but also in the tangible delivery of finance to those most vulnerable. Countries and institutions must grasp the opportunity to translate ambition into implementation to create a resilient global future and support global and national economic stability and security.
