Abstract
The mobilization of effective private sector engagement is considered to be critical to address the adaptation challenge, but literature demonstrates that it has proven difficult. In the context of international climate finance, the focus has been on mobilizing private finance for adaptation and in addressing barriers that prevent investments from materializing. In contrast, this article identifies options to engage the private sector in adaptation beyond finance and focuses on market imperfections instead of barriers. This moves the focus away from simply mobilizing more private adaptation finance towards identifying market forces that innovate, engage, and direct investments towards adaptation. The Green Climate Fund (GCF) and its portfolio of 74 adaptation projects serve as a case study. Two of these projects are categorized as private sector projects and an additional nine mobilize private co-finance or non-financial private contributions. Beyond these two indicators, we demonstrate that an additional 60 projects engage the private sector in other ways, thus indicating the important broader role of the private sector in adaptation. Furthermore, our ordinal regression demonstrates that by addressing the market imperfections of positive externalities, imperfect financial markets, and incomplete and/or asymmetric information, all have a significant positive effect on private sector engagement in the GCF’s adaptation portfolio. Both findings indicate that there is a large potential for the GCF—and other climate finance providers—to increase private sector engagement in adaptation. It must be noted, however, that the mobilization of private sector engagement in adaptation is a means to an end, not an end in itself. The main aim should be to adapt society as a whole in an efficient manner, including the most vulnerable groups and people.
Highlights
The adaptation challenge grows in the face of the deepening climate crisis
In order to address the gap between ambition and reality, we argue that private sector engagement can be increased by looking beyond the binary Green Climate Fund (GCF) classification of private versus public sector projects and privatesector co-financing
The results show a mixed distribution of GCF adaptation projects across all five levels of our private sector engagement spectrum
Summary
The adaptation challenge grows in the face of the deepening climate crisis. Adaptation costs in developing countries alone are estimated to increase to US$140–300 billion per year by 2030 (UNEP 2021). The public sector has long considered adaptation to be a public response to climate change, but in the context of the UN climate negotiations, it is increasingly stimulating the private sector to invest in adaptation. In Africa, for example, the private sector provides almost 67% of the continent’s investment, 75% of its economic output, and 90% of its formal and informal employment (AfDB 2011). It is in the self-interest of private actors to adapt its own operations and assets to climate change and to invest in new business opportunities to achieve business sustainability (Druce et al 2016; Averchenkova et al 2016)
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