Innovative Ways to Mobilise Private Sector Capital in Climate Change Adaptation Investments in Developing Countries—Mechanisms and Forward-Looking Vision from Practitioners’ Standpoint

Abstract

Developing countries are faced with a unique challenge. In addition to adapting to the extreme climate change events that are affecting their economies and citizens, they are also striving for the economic, industrial, and social development needed to lift their growing populations out of poverty. For this development to be aligned to the new climate reality, private sector investment needs to contribute to both goals. While many governments are prioritising climate investments and sustainable growth, their efforts to increase private investment are often constrained by investor perceptions of high-risk and the insufficiency of local technical and financial structuring capacity and know-how. Though investors are interested in the opportunities offered by climate investment in developing countries, the underdeveloped investment environment often hinders the mobilisation of private capital, especially in relation to climate change adaptation. Such challenges have become even more pronounced in the aftermath of COVID-19. International and multilateral agencies such as Green Climate Fund can play a pivotal role in alleviating the risk perceptions of the private sector. Their role can include supporting governments to develop adaptation plans, developing mitigation projects with co-adaptation benefits to enhance resilience, developing public–private partnerships in climate, demonstrating commercially viable investments through risk-sharing with a partner from the region, supporting a creation of a viable business model in climate adaptation projects. Another critical element during these critical times is preventing continued climate impacts. In this regard, supporting climate adaptation technologies through innovative blended finance structure and creating a conducive environment by familiarizing local financial institutions with lending to MSMEs will be crucial. Using relevant case-studies from the Green Climate Fund’s portfolio, this chapter explores how such mechanisms can be put into place and provides a forward-looking vision of what more can be done to promote private sector climate change adaptation investments on a sustained basis.