Mobilizing private adaptation finance: lessons learned from the Green Climate Fund

Abstract

Abstract The mobilisation of 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 mobilising private finance for adaptation, and in addressing barriers that prevent investments from materialising. 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 mobilising 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 67 adaptation projects serve as a case study. We demonstrate that 79 per cent of the GCF projects engage the private sector in ways that go beyond co-finance or project development, thus indicating the important broader role of the private sector in adaptation. Furthermore, our ordinal regression demonstrates that addressing the market imperfections of positive externalities, imperfect capital 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 big potential for the GCF - and other climate finance providers - to increase private sector engagement in adaptation. However, the mobilisation of private sector engagement in adaptation is a means to this 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 people.

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