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The UN Development Programme recognizes that bridging the massive gap in adaptation financing will require significant private sector investment and engagement, and is committed to working with the private sector to address the deficit in adaptation finance.

Recent cost estimates associated with adapting to climate change risks are two to three times higher than available international public finance for adaptation. According to the Adaptation Finance Gap Report, the international public finance available for climate change adaptation in 2014 was US$23 billion. Looking ahead, by 2030 it is estimated that adaptation costs will range between US$140-300 billion per year. Even with a large increase in public sector contributions, the volume of finance required to support adaptation in developing countries is far beyond what most expect public finance will be able to contribute.

Greater engagement with the private sector is at the forefront of UNDP’s recent adaptation initiatives, with a range of financial and non-financial instruments being used to facilitate enhanced private investment to manage the risks associated with climate change.

UNDP’s climate change adaptation work with the private sector is organized around the “3 Cs” framework that also informs overall UNDP engagement with the private sector – Convening, Catalyzing & Capitalizing.

WHAT IS THE PRIVATE SECTOR?


In the context of UNDP’s climate change adaptation work, the private sector is broadly defined as consisting of three groups: Micro, Small and Medium Enterprises (MSMEs); Large Enterprises and Multi-National Companies (MNCs); and Capital Providers & Market Facilitators.

Micro, Small & Medium Enterprises (MSMEs) – The local private sector in developing countries consists primarily of MSMEs, which include sole proprietors, smallholder and family farms, and enterprises.

Large Enterprises & Multinational Corporations (MNCs) – Large enterprises employ 50 or more employees and are more prevalent in advanced developing countries. MNCs are increasingly active in developing countries as registered companies with in-country operations, and also through indirect investments through their supply chains.

Capital Providers (Investors) & Market Facilitators – Actors that make direct investments and provide financial services, respectively. They include banks, venture capitalists and angel investors.

INTERVENTIONS TO CATALYZE PRIVATE SECTOR ENGAGEMENT

Business-Relevant Climate Information & Risk Analysis

Business-Relevant Climate Information & Risk Analysis

Private sector entities could benefit from targeted information on climate science ...

Private sector entities could benefit from targeted information on climate science and the potential risks, impact and opportunities for their business area. Tools to determine appropriate climate-resilient interventions and cost-benefit analyses of different adaptation options would also help encourage greater engagement.

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Technical Assistance & Training

Technical Assistance & Training

Capacity building on the use of climate-related information and tools ...

Capacity building on the use of climate-related information and tools to incorporate risks in planning, budgeting, and implementation of measures is critical to engaging the private sector in adaptation. Technical assistance and training can be implemented through regular, in-depth consultations, awareness raising, and event involving the business community in vulnerable regions.

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Government Policies that Enable Investments in Adaptation

Government Policies that Enable Investments

Many possibilities exist in the realm of enabling policies

Many possibilities exist in the realm of enabling policies (incentives and compliance measures) to motivate the private sector to undertake investment in climate resilience and business development. Regulatory and fiscal incentives (eg. taxes, subsidies, public utility pricing) can stimulate risk reduction among private sector actors, especially when combined with climate information and capacity building.

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Market & Business Development

Market & Business Development

To promote adaptation, businesses need market demand to support the production of goods and services ...

To promote adaptation, businesses need market demand to support the production of goods and services and physical infrastructure to access markets. Support can encompass funding for research and development, pilots to demonstrate business value and stimulate market demand, development of market linkages across the value chain, and scale-up through larger investments. In addition, the public sector could invest in resilient transport, electricity, communication, sanitation, and water systems, among other infrastructure.

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Partnerships & Cooperatives

Partnerships & Cooperatives

A cost-effective way for MSEs to overcome their limited resources is to collaborate ...

A cost-effective way for MSEs to overcome their limited resources is to collaborate with other businesses or public entities to form partnerships and cooperatives in a similar sector or region, pool resources and funding, and self-insure against economic and weather-related shocks..

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Financial Instruments

Financial Instruments

Governments can improve the risk-reward profile of an investment ...

Governments can improve the risk-reward profile of an investment in order to catalyze finance from investors, whether from the public or private sector. Depending on the type of risk, there are a number of instruments that can be used including de-risking (addressing barriers that create risk), risk transfer (transferring risk from private to public sector) and risk compensation (offering higher returns through grants, seed capital etc.) instruments.

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Ecosystem-Based Adaptation (EBA)

Successful Examples

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Strengthening Climate Information & Early Warning Systems (SCIEWS)

Successful Examples

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Coastal Management

Successful Examples

Integrated Water Management

Successful Examples

Livelihood & Enterprise Development: Market-based Approach

Successful Examples

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Finance & Insurance

Successful Examples