💰 How to finance climate adaptation measures

• Cities are struggling to raise finance for climate adaptation projects.
• We discuss some of the challenges that come with financing these projects and some innovative ways to get around these issues.

Everyone is spending more on climate change action. According to the Climate Policy Initiatives' latest report, Global Landscape of Climate Finance 2019, “climate finance in 2017 crossed the USD half-trillion mark for the first time”. This is great news for our planet. 🙌 However, the majority (93%) of this climate financing is going towards climate mitigation measures such as new renewables, energy efficiency, and low carbon transport. Only 5% of the total is going towards climate adaptation measures. So why so little interest in adaptation? And how can it reach the heights of ‘mitigation’ financing?

What are the challenges of financing climate adaptation in cities?

The low level of financing going towards adaptation isn’t due to a lack of potential projects. Climate adaptation is needed everywhere in our cities – from a need for more green spaces to better water management and everything in between. There is an infinite number of projects we could do to improve our cities, make them cleaner and more livable. The challenges are more nuanced and specific to the ‘nature’ of adaptation projects.

• 📉 Low Financial Returns – ‘Money talks’ and unfortunately it can be difficult to put a number on the benefits of an adaptation project. For example, planting trees in a city will benefit the environment but it won’t directly save money or generate quantifiable returns for an investor. This makes it difficult to find investors and large amounts of capital to finance adaptation projects.
• 🛣 Long-term vision – Adaptation measures require long-term vision and commitment from many stakeholders. This can be difficult to achieve when politicians and city officials have short terms in office. Cities need larger strategic frameworks for climate adaptation measures that don’t hit the bin when there’s a change of office.
• ⏱ Limited Resources – Raising finance isn’t for the fainthearted and needs a strong team to negotiate low rates, convince investors of returns and follow all local rules and regulations. Cities with limited staff resources and expertise to raise climate finance for adaptation projects will struggle to get the changes their city needs.
• 👤 Siloed City Departments – Most cities won’t have a specific ‘climate adaptation’ department. Adaptation measures will usually fall under the responsibility of departments such as water management, transport, nature conservation, and health. When these departments aren’t aligned on climate adaptation measures, it can be very difficult to finance transformative adaptation measures.

Innovative ways to finance climate adaptation in your city

There are genuine challenges when raising finance for climate adaptation – but every challenge is an opportunity. To tackle this issue, cities across the world have been taking innovative approaches to traditional financing and coming up with entirely new ways to finance climate adaptation in their cities. We have put together some of the best ways to finance adaptation measures and share some examples of cities that are leading the way.

Private funds – Most city dwellers will be living in housing estates or apartment blocks that were designed by some unknown developer. The buildings will rarely have been designed with climate adaptation in mind. Private funds are a way for city residents to take more control of the climate adaptation projects in their city.

• Action Example - Vrijburcht multipurpose living-and-working complex in Amsterdam. In this project, future residents jointly developed the project, including carrying the risks involved in the pre-financing. This gave the future residents greater power to develop the attractive and sustainable building that they wanted to live in.

Green Bonds – Environment, Social and Governance (ESG) investing is growing and green bonds are becoming more popular with pension funds and asset managers. Cities need to take advantage of this trend and promote investment from their citizens. Citizens with pensions could direct their fund manager to invest in bonds issued by their local city – generating a return whilst benefiting from living in a greener, cleaner city.

• Action Example – The city of Paris issued a €300m Climate Bond in 2015. 20% of the funds are dedicated to adaptation – through planting trees and creating green spaces. These adaptation measures probably won’t save money but they’re complemented by other projects in the investment. ~50% of the funds have gone to energy efficiency measures including renovations to social housing and upgrading public lighting. Bundling measures in this way makes sense and for further insight, check out this article.

Financial Incentives – There is growing awareness for climate change action and more and more people want to get involved and play their part. Offering incentives such as grants and tax rebates for climate action projects is one way of getting the public to share the costs associated with climate change.

• Action Example – Hamburg is leading the development of green roofs in Europe. As part of their “Green Roof Strategy”, they made subsidies available for the construction of green roofs on residential and commercial buildings. Grants of up to 60% of installation costs were made available encouraging the public to turn the city green. 🌳

Crowdfunding – The “power of the crowd” should not be underestimated! Crowdfunding is growing rapidly with many startups being financed by the collective investment of thousands of individuals. The same approach can be applied to climate adaptation financing. Citizens can put small amounts of money together to improve their city for themselves and others.

• Action Example – Citizens in the city of Ghent have used crowdfunding to make their city more sustainable. Citizens crowdfunded to support climate adaptation projects such as urban farming and edible streets.

Public-Private Partnerships – Climate change action will need huge levels of investments on adaptation projects. To achieve this level of capital, more public-private partnerships will be needed. This type of financing has allowed us to build huge motorway projects and other large infrastructures such as hospitals and schools.

• Action Example – A public-private partnership was created to develop the “Zorrotzaurre” district of Bilbao. The project would likely not be developed without this type of arrangement and the partnership allows the new development to be ‘climate-proof’.

More investment, more action

Climate change is a battle on two fronts. We need to curb our emissions so that we don’t make a bad situation, worse. And we need to adapt to the climate change effects that are already locked-in. Both areas need huge increases in investment if we’re to stand a chance of beating climate change. A great way to tackle investment challenges is to try a multisolving approach. For example, your city can find a budget allotment easier by pairing already city infrastructure projects with climate-approved actions. Read about multisolving in this article.

Climate adaptation projects need particular attention. These projects will not only help people in cities cope with the future effects of climate change, but they also offer an opportunity to make our cities more enjoyable and livable at the same time. Think ‘green roofs’ creating new social spaces in cities.🍻 These projects shouldn’t be viewed as purely low-revenue environment projects – but rather city transformation projects.

Antonio is the Climate Action Specialist at Futureproofed. His specialties include mitigation and adaptation measures research, urban climate adaptation, local climate data, and more. When he's not hard at work helping cities become more sustainable, he can be found cycling across Flemish fields.

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