Editing IPCC:AR6/WGII/Chapter-8 (section)

=== 8.6.3. Future Adaptation Finance and Social and Economic Changes within the Context of Poverty, Livelihoods, Equity, Equality and Justice ===

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==== 8.6.3.1 Coverage of Adaptation Finance ====

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There is still some debate on what qualifies as adaptation finance and how such finance should be measured ( [[#UNFCCC--2016|UNFCCC, 2016]] ). According to the Climate Policy Initiative, adaptation finance is ‘finance with the aim of improving preparation and reducing climate-related risk and damage, for both human and natural systems, as short-term climate impacts will continue to exact economic, social, and environmental costs even if appropriate mitigation actions are taken’ ( [[#CPI--2019|CPI, 2019]] ). According to UNEP, the annual costs of adaptation in developing countries could range from USD 140 billion to USD 300 billion by 2030. Globally, adaptation costs are estimated to be even greater, with up to USD 500 billion yr −1 by 2050 under a Business-As-Usual scenario ( [[#UNEP--2021|UNEP, 2021]] ). While global climate finance flows reached USD 579 billion on average over the 2017/18 period, there has been a continued heavy imbalance in favour of mitigation finance, with adaptation finance totalling around USD 30 billion (compared to USD 532 billion for mitigation), or 5% of tracked climate finance. The World Bank has, however, committed to increase direct adaptation finance to USD 50 billion over the 2020–25 period, putting the Bank’s adaptation finance in developing countries on par with its mitigation investments ( [[#World%20Bank--2019a|World Bank, 2019a]] ). Adaptation finance is also growing alongside finance for actions with both mitigation and adaptation benefits, for example in forestry or agriculture, which rose to just over USD 12 billion ( [[#CPI--2019|CPI, 2019]] ), as well as increasing focus on adaptation and cross-sectoral projects. Looking only at climate finance flows from developed to developing countries, the OECD estimates a total of USD 78.9 billion mobilised in 2018, with mitigation accounting for 70% (USD 55 billion) of the total, adaptation 21% (USD 16.8 billion) and cross-cutting finance making up the remainder ( [[#OECD--2020a|OECD, 2020a]] ).

Adaptation finance funds actions to adapt to the impacts of climate change, yet such actions are heavily context, scale and time specific. Many mitigation actions in the energy sector can be easily quantified and employed across different jurisdictions. For example, solar photovoltaic (PV) presents an established way across a multitude of countries to produce low-carbon energy at a profit and reduce global GHG emissions. Adaptation needs, however, vary greatly from location to location and short-term solutions, for example investments in irrigation technologies to improve water availability for specific crops in a growing season, may differ from longer-term solutions, for example, switching to different crops altogether. Benefits are not always easily quantified and often accrue to local communities over time rather than to investors looking for the kind of returns realised in mitigation actions.

Development finance institutions mainly draw on market-rate loans and, to a lesser extent, concessional lending and grants to finance adaptation actions. There are regional differences in the choice of instruments, too, owing to the degree of economic development: while most of the adaptation finance flowing to the Asia-Pacific is market-rate debt, the vast majority of adaptation finance flowing to sub-Saharan Africa is in the form of concessional debt or grants ( [[#Richmond--2020|Richmond et al., 2020]] ).

Globally, the main sectors benefiting from adaptation finance to date include water and waste water management; agriculture, forestry, land use and natural resource management; disaster risk management; and infrastructure, energy, and other built environment ( [[#Oliver--2018|Oliver et al., 2018]] ). In recent years, this finance has moved away from concentrating on water and wastewater management to spread out more evenly across the sectors. Between 2015/16 and 2017/18, investment in water and wastewater management dropped from USD 11 billion to USD 9 billion, while investment in agriculture, forestry, land use and natural resource management grew from USD 5 billion to USD 7 billion, and investment in disaster risk management more than doubled from USD 3 billion to USD 7 billion ( [[#CPI--2019|CPI, 2019]] ). In addition, while mitigation actions are more easily delineated, for example wind farms in the energy sector, adaptation measures often need to be mainstreamed across a number of sectors and investment decisions.

There are strong interconnections between NBS, climate adaptation and mitigation actions. Ecosystem-based adaptation is a nature-based solution that uses ecosystem services to help communities adapt to climate change. Examples of such approaches were covered in [[#8.5.2.2|Section 8.5.2.2]] . For example, mangrove restoration provides both climate mitigation (as carbon sinks) and adaptation to climate change (increasing the resilience of coastal communities), while also supporting the implementation of a range of other SDGs (e.g., through increased food security). Research has found that without mangroves, global flood damage costs would increase by more than USD 65 billion a year ( [[#Menéndez--2020|Menéndez et al., 2020]] ). There is, therefore, an urgent need to invest in a range of NBS.

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'''Box 8.9 | Adaptation financing for the poor and the need for systems transition: Eastern Indonesian Islands'''
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'''Summary'''
A 4-year project in Nusa Tenggara Barat Province, Indonesia, aimed to stimulate an adaptation pathways process. The goal was to support CRD in a context with low stakeholder capacity, high poverty, and rapid environmental and social change. On these archipelagic islands, livelihoods are predominantly rural, far from political and urban centres. The project focused on integrated top-down and bottom-up development planning that could enable CRD at the local level, linked to provincial and national plans.

'''Lessons learnt'''
* Substantial gradients in both climate and livelihoods in the island geographies necessitate fine-scale planning and make it difficult to scale up.
* Infrastructural investments, including roads, ports and irrigation, are crucial to CRD. If not well designed, such investments are prone to maladaptation, such as exposure to sea level rise.
* Although some development interventions are delivering climate resilience, such outcomes are often haphazard, rather than strategically conceived, coordinated and delivered ( [[#Butler--2016|Butler et al., 2016]] ).

New financial instruments can help to support investment in, for example, ecosystem-based adaptation. For example, green bonds can raise significant amounts of capital in support of projects with environmental/climate benefits. The green bond market has quickly developed since the European Investment Bank launched the first green bond in 2007, with issuance growing to USD 257.7 billion in 2019, up more than 50% on the previous year ( [[#CPI--2019|CPI, 2019]] ). Most green bonds focus on energy, buildings and transport infrastructure but green bond issuance to support sustainable agriculture and forestry has grown from USD 208 million in 2013 to USD 7.4 billion in 2018 (Wilkins, 2019). The Seychelles issued the world’s first ‘blue’ bond in 2018 with the support of the World Bank. Similar to green bonds, blue bonds earmark the use of bond proceeds for specific purposes, here the sustainable use of marine resources (World Bank, 2018). In 2019, the European Bank for Reconstruction and Development issued the world’s first ever dedicated climate resilience bond, raising USD 700 million. The 5-year bond will be used to finance the Bank’s projects in climate-resilient infrastructure (e.g., water, energy and transport), climate-resilient business, commercial operations, climate-resilient agriculture and ecological systems (Bennett, 2019). While these issuances are still small compared to the overall green bond market, their rapid growth points to enormous opportunities for ecosystem-based adaptation.

Despite the growth of official adaptation funding at international and national levels, for the world’s poorest, adaptation to the impacts and opportunities of climate change frequently occurs in response to L&amp;Ds at the individual or household scale, without coordination at larger institutional scales ( [[#8.3|Section 8.3]] , 8.4; [[#Barrett--2014|Barrett, 2014]] ). Discussions of adaptation finance often occur in the context of dwindling resources and trade-offs: triage decisions about other investments that societies can tolerate suspending ( [[#Warner--2013|Warner and Van der Geest, 2013]] ; [[#Tanner--2015|Tanner et al., 2015]] ). In many poor, vulnerable countries, complex governance challenges, such as budget austerity or corruption, hamper the provision of such support. In the absence of adaptation funding for the poor, coordinated at higher scales, the costs of adaptation are borne by the poor at community, kin-group and household scales. Bearing the cost of adaptation, thus, can become, in the short term, an erosive process of coping that ultimately increases the likelihood that communities and households will remain trapped in poverty ( [[#Antwi-Agyei--2018b|Antwi-Agyei et al., 2018b]] ). In the long term, measures financing adaptation may be maladaptive, meaning they ultimately leave the poor at greater risk of experiencing climate change impacts ( [[#8.4.5|Section 8.4.5]] ; [[#Rahman--2019|Rahman and Hickey, 2019]] ). Such circumstances highlight the governance gap that drives the poorest to rely on extreme measures to finance adaptation.

Since the AR5, there is greater documentation of the extreme measures and high-risk income alternatives that the world’s poorest commonly take to finance adaptation ( [[#Dawson--2017|Dawson, 2017]] ; [[#Ahmed--2019|Ahmed et al., 2019]] ). While still a controversial topic, clear examples of extreme adaptation finance measures include:

* Unauthorised international migration ( [[#McLeman--2018|McLeman, 2018]] )
* Informal small-scale mining of precious metals and minerals ( [[#Hilson--2012|Hilson and Van Bockstael, 2012]] ; [[#Osumanu--2020|Osumanu, 2020]] )
* Illegal poaching of flora and fauna, including participation in illegal timber harvesting ( [[#Bolognesi--2015|Bolognesi et al., 2015]] )
* Illegal, unregulated or unreported fishing, including within marine protected areas, or the coastal zones of neighbouring countries ( [[#Tanner--2014|Tanner et al., 2014]] )
* Utilisation of livelihood resources, such as boats, in smuggling activities, including drug and arms trafficking ( [[#Belhabib--2020|Belhabib et al., 2020]] )
* Participation in piracy, extortion or kidnapping economies ( [[#Staff--2017|Staff, 2017]] ).

Enabling conditions for formal adaptation finance for the poorest are needed to reduce reliance on high-risk, extra-legal sources of income (see [[#8.5.2|Section 8.5.2]] ). In general, the antidote to this emerging problem is access to living wages that the poor can rely on to finance adaptation. There are few examples of pro-poor mechanisms, programmes or institutions that prioritise coordinated, access to credit for proactively adapting livelihoods of the poor ( [[#Agrawal--2009|Agrawal and Perrin, 2009]] ). Institutions can reduce incentives for vulnerable people to engage in high-risk activities by including them in the process of adaptation governance, which aims not only to support sustainable livelihood practices (such as farming, fishing and forestry), but also to guarantee land tenure ( [[#Wrathall--2019|Wrathall et al., 2019]] ). Also critical for risk reduction to the poor is the ability of authorities across multiple spatial and temporal scales to maintain social protection to reduce the dependency of illegal sources of income and facilitate adaptation ( [[#Tenzing--2020|Tenzing, 2020]] ). A range of tools exists for opening access to credit to poor and marginalised people whose livelihoods are most vulnerable ( [[#Ribot--2013|Ribot, 2013]] ): climate insurance tools that are designed and targeted at the poorest and which have been properly assessed to ensure that they do not undermine other coping strategies such as risk spreading, programmes that ease access or subsidise loans for adaptation, mobile banking and mobile-based financial and risk management tools, impact pay-outs in the form of direct transfers and institutional support for hometown associations. International governance arrangements, such as the Warsaw International Mechanism on Loss and Damage, might aim primarily to clear the financing gap between global financial and risk management institutions and the pocketbooks of the poorest ( [[#Wrathall--2015|Wrathall et al., 2015]] ).

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