Barriers to and Enabling Factors for Private Sector Engagement in the NAP Process

 

There are a number of factors that governments can put in place or strengthen to enable and incentivize the necessary level of private sector engagement in the NAP process and in the pursuit of adaptation goals listed in a country’s NDC (Figure 4). These factors can help to address the barriers that commonly inhibit private sector engagement in adaptation processes, barriers that can be informational, financial, technical and institutional. Information, both on current and future climate conditions and on corresponding adaptation options, can be generated and shared broadly with private sector actors. Capital markets and the allocation of financing can be made more efficient, while the risks associated with adaptation investments can be reduced. The institutional arrangements required to ensure active collaboration on adaptation planning and design among government, private enterprises and financiers can be established, with a strong foundation of policies and regulations that support private engagement in climate adaptation in place. In addition, technical capacities can be built among those expected to design, deliver and monitor adaptation actions.

Figure 4. Enabling factors for private sector engagement in the NAP process

This section will explore the barriers and enabling factors needed to promote private sector engagement in adaptation and the NAP process. It will focus on what governments, as owners of the NAP process, can do to ensure that the private sector is involved in the planning, financing and implementation of adaptation actions. It will also examine what private sector actors themselves can do to crowd-in investment in adaptation and promote the broader engagement of the sector in strengthening climate resilience.

Development partners, including bilateral and multilateral agencies and development banks, also have an important role to play in supporting developing country governments in each of these areas (see Box 4). The same is true of civil society organizations. They can act as a bridge between local and national-level actors, provide technical support, convene public and private sector groups, and generate and communicate climate data and information to those that need it. In addition, civil society can help provide an enabling environment for private sector engagement, engaging businesses in areas where there is no clear profit margin (e.g., biodiversity conservation, air pollution). They also carry out valuable monitoring and evaluation of private sector actions (Crishna Morgado & Lasfargues, 2017).

The enabling factors covered below are likely to be most effective in those countries that already have a relatively strong private sector alongside formal banking systems and well functioning capital markets. As such, more work will need to be done in LDCs to build up these enabling factors and incentives for private sector engagement in the NAP (Crishna Morgado & Lasfargues, 2017). Nevertheless, governments designing their NAP processes should work to address barriers to private sector engagement and to strengthen the enabling factors. This will require that they understand how the private sector is already contributing to adaptation in their countries. Such an understanding, gained through research and consultation, will form the basis of a constructive dialogue with the private sector in each of these areas, and can be used as a starting point for the development of unique engagement strategies for each of the country’s main private sector groups. Governments must also understand the diversity of the private sector, to ensure that they can tailor their messages to them appropriately.

It should be noted once again that many of the barriers listed below are particularly acute for MSMEs in developing countries (Dougherty-Choux et al., 2015). These businesses, operating both formally and informally, are responsible for 60 per cent of employment in developing countries globally, and many of these jobs are found in climate-dependent sectors like agriculture (Dougherty-Choux et al., 2015). These enterprises tend to have less capacity to adapt, including access to fewer internal resources from which to draw to make more resilient, longer-term investments. Should they be unable to adapt to climate change, the impacts on vulnerable populations will be far-reaching; in sub-Saharan Africa, for example, over 75 per cent of total employment lies within MSMEs (Dougherty-Choux et al., 2015). For these reasons, MSMEs in developing countries will need particular support to engage with the NAP process.

Box 4. Development partners and private sector engagement

Bilateral and multilateral development partners play a vital role in enabling private sector engagement in the NAP process, particularly in those countries without strong private sectors, capital markets and banking services. In 2013, an estimated 22 per cent of climate-related development finance—amounting to USD 9.5 billion—supported activities aimed at private sector engagement (the majority of which, however, was directed at mitigation-related projects) (Crishna Morgado & Lasfargues, 2017). Most of this funding was channeled through bilateral and multilateral development finance institutions.

Development partners can engage the private sector in adaptation actions in a number of ways. They can provide direct support for financing adaptation initiatives through instruments such as grants, blended financing, green credit lines or challenge funds (e.g., the Africa Enterprise Challenge Fund). They can support the generation and dissemination of climate information to private sector actors, and invest in building their capacities to act upon this information. They can encourage the development of green, climate-resilient value chains and markets for green products and services. They can also facilitate and encourage partnerships on strengthening climate resilience between private sector actors in their own countries with private sector actors in partner countries (Crishna Morgado & Lasfargues, 2017).

Development partners, and the support that they can offer, include:

Bilateral development cooperation providers: These providers largely grant financing to the public sector and civil society organizations. Activities include facilitating dialogues with the private sector, supporting enabling conditions, capacity building and matching grant schemes. Some of the providers active in this space are USAID, SIDA, GIZ and DfID.

Public sector operations of development banks and climate funds: These actors may provide loans, grants, or guarantees to the public sector, and activities financed include enabling conditions support, capacity building and financial support through credit lines. The Green Climate Fund, for example, is mandated to support the NAP process and requires private sector components to be included in funding proposals. Other examples include the World Bank, KfW, AFD, GEF and Climate Investment Funds.

Bilateral development finance institutions (DFIs) and private sector operators of multilateral and national development banks: These actors may provide equity, loans, guarantees or risk insurance to the private sector. Activities can include directly financing companies, providing funds aimed at mitigating risks in order to attract private investment, demonstrating viability in high-risk areas, and capacity building. Examples include the IFC, IIC, DEG, OPIC and Proparco.

For further information on how development partners can support private sector engagement in adaptation processes, please see Crishna Morgado & Lasfargues, (2017).

3.1 Information Sharing

There are three main informational barriers to private sector engagement in adaptation: understanding climate change; understanding how climate change will impact businesses; and understanding how best to adapt.

Companies and investors—whether small or large—often lack a detailed understanding of what climate change is and how it is impacting their business operations or investment portfolios. In response, governments should understand and communicate the business case for adaptation actions. They can make it clear to private sector actors that climate change could fundamentally alter the economy and that there could be significant risks to inaction. For instance, if physical climate risk is mispriced or underestimated, it can have a material impact on a company’s income statement or balance sheet, from increased input prices to lost or damaged assets (Koh, Mazzacurati, & Trabacchi, 2017). Impacts extend from large listed companies to MSMEs; altered precipitation rates can impact the planting decisions of small farmers or increasingly intense storms can threaten the assets of a fisher. Opportunities may also emerge as a result of climate change: a company could offer new products or services that support adaptation. Raising private sector awareness of the potential impacts of climate change and the business case for climate adaptation will help companies measure the real returns to be had from investing in resilience.

Once companies and investors become aware of the threat that climate change poses to their operations and portfolios—and of their need to adapt—they must better understand what they are adapting to. Unfortunately, in many contexts a lack of climate information, combined with an inability to interpret available information into action, represents a key challenge to private sector stakeholders adopting or financing adaptation actions. Unavailable, inaccessible, poor-quality or unevenly distributed information can hinder both decision making and investments in business operations, supply chain management, and a host of other core functions of a company. It could also result in investments that, in the face of a changing climate, undermine financial and livelihood security; a company may, for example, invest in the development of seeds vulnerable to drought in order to sell them in an area where rainfall is becoming less predictable and the risk of drought is increasing. The application of pesticides without knowledge of upcoming heavy rainfall events could result in wasted resources and cause negative environmental impacts associated with pesticide run-off, as was the case in Ghana (WBCSD, 2017 – see Case Study 2).

Governments play an important role in both the generation of climate information and facilitating its sharing; strong climate information will, after all, be foundational to adaptation planning. As a first step, governments should ensure that high-quality climate information is generated for their NAP planning purposes and for national stakeholders. They should also present it in a format that diverse actors will understand and find useful. This can include governments supporting improved climate research at public universities; establishing and maintaining a network of hydro-meteorological stations and services; setting up climate information networks and services; drawing on global climate information resources; and establishing help desks to answer stakeholder questions on climate information.

The climate information generated should also meet the needs of the private sector, to help them understand the implications of a changing climate for their businesses. This could include information on changes in the timing and duration of the rainy season; the anticipated amount of sea level rise and its implications on low-lying coastal areas; and expected changes in growing degree days and the implications for crops and pest control. Data and information on current and potential future climate conditions should be generated at an appropriate scale. For smaller countries such as small island developing states, national-level data may be enough. For larger countries, the government will likely need to provide downscaled climate information for specific ecosystems and geographic locations. The climate information that is provided needs to be useful for the audience and should be linked to real-world implications. It should also be disseminated through appropriate channels to ensure it reaches those who need it, particularly in the case of MSMEs operating with limited connectivity. This may require a government exploring the potential for digitization and mobile technologies to innovatively deliver targeted climate data to those that need it most.

Considerable financial and human resources are required to establish an adequate baseline of climate information baseline, and—should this be beyond the capabilities and budgets of a national government—could require innovative partnerships with development partners and civil society (see Case Study 2). In the absence of national climate data (or should that data be limited) governments can use and point stakeholders toward climate databases produced by regional climate centres and global producing centres. This historical and forecasted climate data, while perhaps not available at the level of detail required for local-level decision making, is nonetheless a good start, and often available online for free. When communicating climate information, governments should also ensure that they use clear terminology and familiar concepts; they should avoid the complex terminologies used by climate change practitioners, scientists and academics and try to use language that is clear, concise and relevant—for the sake of their own policy-makers, but also for other stakeholders, including the private sector.

Finally, private sector actors, whether large or small, may lack knowledge of their adaptation options, and, should these options be clear, they are frequently unable to quantify the benefits versus the costs that can arise from investing in these actions. This extends to their ability to identify the trade-offs inherent in decision making around adaptation actions, as well as any co-benefits that may arise from these activities. For entities concerned with the bottom line, this lack of information can hinder investments and hamper the ability of larger companies to sell adaptation investments to their shareholders and investors. Including adaptation options in NAP design—through such things as bankable project pipelines developed for key vulnerable sectors—can help promote the types of activities that can strengthen climate resilience.

Governments, working with development partners and civil society, can start to address this knowledge gap by publicizing and promoting best practices in adaptation while highlighting lessons learned from past adaptation actions and programs, whether good or bad. As they develop their NAP, they can also promote and facilitate peer learning among private sector actors facing similar challenges, integrating lessons learned into the design of adaptation solutions (see Case Study 3). While drawing attention to the risks associated with climate change, governments can also focus on the potential benefits to MSMEs, enterprises and financiers of engaging in climate change risk assessment and mainstreaming, including increased competitiveness, reduced costs, and decreased exposure to risks (Crishna Morgado & Lasfargues, 2017). To reach MSMEs in particular, this may require that the NAP team work closely with local governments and civil society organizations, or expanding extensive service programs, to ensure that information about adaptation options gets to those operating outside of the capital. Governments can also ensure that climate information matches relevant decision-making horizons; seasonal forecasts matched to decisions on crop-planting times, for example, and decadal projections available to decisions on major infrastructure investments. This will help ensure that private sector actors can translate climate information into concrete decisions and actions.

The government should also communicate the NAP process itself. This will help ensure that the private sector understands the adaptation planning process, how this process relates to the country’s development goals, which sectors have been prioritized for adaptation action, which adaptation actions have been prioritized for investment, and how they as private sector actors can be involved in all phases of the NAP, from planning through implementation and M&E.

Case Study 2. Establishing a weather and climate data platform
in Ghana to increase resiliency in the cocoa value chain

Reliable, accessible and accurate weather information is required to inform climate change planning. In Ghana, weather station coverage is relatively poor, presenting a barrier for smallholder farmers to adapt their practices with short-term weather patterns and variability, and subsequently impacting their long-term planning (WBCSD, 2017). For cocoa farmers, applying agricultural inputs without knowledge of upcoming heavy rainfall could waste resources and cause negative environmental effects from the run-off (WBCSD, 2017). Many smallholder cocoa farmers grow other annual crops that may also be sensitive to variations in weather patterns, and farmers increasingly rely on these secondary crops for their livelihoods as the cocoa growing season shortens due to climate change. Localized weather information in growing regions is essential to adapting agricultural practices, maintaining livelihoods and securing the resilience and stability of the cocoa sector in Ghana.

In 2015, the World Business Council for Sustainable Development (WBCSD)—an organization representing more than 200 leading global businesses—initiated a project to install weather stations and systems in Ghana in order to provide 7,500 smallholder farmers and local community members with valuable localized weather information (WBCSD, 2019). Private sector partners in the project—including Kellogg, Olam International and Opus Insights—recognized that climate change impacts were a major threat to product quality, security of supply and the overall sustainability of the cocoa value chain. From 2015 to 2018, several stakeholder dialogues were organized by WBCSD, in order to ensure that multiple relevant stakeholders—including those in the public, private, research and civil society sectors—were included in defining the strategy for the initiative. Further, the initiative took steps to investigate which communication channels (e.g., phone, traditional extension service advice) would be appropriate for delivering the weather information to farmers (WBCSD, 2017).

While the primary intention was to secure the livelihoods of cocoa smallholder in the West African cocoa belt and increase resilience in relevant value chains, the initiative also contributed to the NAP process. Specifically, the weather stations generate a powerful data set for the government, which can inform future priorities and decisions regarding crop suitability and adaptation in the agricultural sector (WBCSD, 2017). This data will be useful as Ghana embarks on formulating its NAP, and the government can draw on the experience of collaborating with the private sector as it develops strategies for engaging the private sector and using newly emerging technologies in its NAP.

Case Study 3. Crowding-in through information sharing in Rwanda

The Albertine Rift Conservation Society (ARCOS Network) is a regional conservation organization in Rwanda with the goal of sustaining biodiversity, building resilience to climate change, and promoting sustainable agriculture and food security. One of its key functions is to work with the private sector to promote climate change adaptation and mainstream sustainability into private sector business models. Several key barriers have been identified in pursuit of these goals: a lack of awareness of climate change risks; minimal information on existing affordable financial products; and limited opportunities for cross-learning and exchange on successful interventions.

To address these barriers, in 2017 and 2018 the ARCOS Network organized together with GIZ two private sector dialogues, bringing together approximately 35 companies, 20 civil society organizations and development partners, and 15 government entities including those responsible for Rwanda’s NAP process. The Rwanda Private Sector Federation was among the attendees. The subjects of these dialogues included how to involve the private sector in NAP and NDC implementation and understand the practical experiences of private sector engagement in climate change adaptation in Rwanda.

Representatives from Sowarthé, a tea company operating in northern Rwanda, presented on the company’s efforts to mainstream adaptation into its operations, focusing on the business case for action and the importance of assessing climate change risks and opportunities. Sowarthé has been active in adaptation since 2009, when they introduced organic tea cultivation. They presented the impacts of climate change on their operations alongside what they have learned from the past decade. As a major participant in the Rwandan tea market, Sowarthé’s participation and leadership in the dialogues encouraged other companies to attend and actively engage in the meetings. Most notably, Sowarthé’s presentation made the case that adaptation is possible with minimal resources, and that adaptation and conservation are necessary for ensuring the stability and security of their supply chains. As a result, many companies and MSMEs decided to incorporate adaptation activities into their business strategies. These dialogues also influenced the NAP process and progress, as representatives from the Rwandan government were active participants and kept apprised on insights and outcomes of the meetings.

How can the private sector help, and promote crowding-in?

Communicating information and data on climate change and adaptation is not solely the responsibility of governments. Private sector actors themselves can play an active role in the generation, dissemination and understanding of such information, and of making the business case for investments in adaptation (acknowledging that, in certain cases, private sector actors may be reluctant to share information should a competitive advantage be gained from investments in adaptation). They can do so in a number of ways, including:

  • Becoming private sector champions for adaptation by taking part in communications outreach.
  • Raising awareness of the business case for adaptation by sharing case studies and best practices with the media and other members of the private sector. Investments made by competitors in adaptation are often more important signals than net-present value calculations or other economic tools used to measure the costs and benefits of investments (Dougherty-Choux et al., 2015).
  • Reporting on the results of adaptation to support M&E within the company or business, subsequently contributing to ongoing data collection efforts on climate change adaptation.
  • Sharing or selling climate and related information.
  • Participating in and building up information sharing platforms for other members of the private sector.

3.2 Financing

The financial barriers to engaging in the NAP process include those related to accessing financing to pay for adaptation actions, and ensuring that appropriate financial instruments are available to those who need them.

For many private enterprises, particularly MSMEs operating in developing countries, there can be limited access to the financial resources required to pursue adaptation actions. This relates to financing to pay for both investments in climate-proofing a company’s operations and supply chain, and investments in developing and bringing to market new goods and services that support broader climate resilience. Farmers, for example, may not be able to obtain small loans at acceptable interest rates to invest in improve irrigation or seed technologies. Private financiers, conversely, may be unfamiliar with green investments, or unfamiliar with the potential financial benefits of these investments. This informational barrier for financiers could then translate into a financial barrier for enterprises seeking financing.

Accessing appropriate financing is another key challenge. Financiers and enterprises may be operating in imperfect capital markets that are unable to efficiently allocate capital or transfer risk. It is important that a variety of financial instruments suited to different types of adaptation investments are available; financing, for example, that can cover short-term and long-term investments, or internal and external investments in adaptation. For example, there is often a shortage of longer-term credit in many financial markets, inhibiting the ability of companies to finance the investments required to cope with longer-term or distant climate impacts (UNEP FI, et al., 2016).

Markets may not function in a way that encourages or allows the private sector to invest in increasing resiliency or developed new climate-resilient products or services. In these instances, public intervention may be required (Dougherty-Choux et al., 2015). Potential interventions by governments can include: directly providing financial incentives for private sector engagement with the NAP; indirectly facilitating private sector access to appropriate, flexible and affordable financing for adaptation; working to address market imperfections; and de-risking investments in order to spur private sector action. Insurance can also play an important role in underwriting changing risk profiles—for both internal and external investments. In addition, international public financing, such as grants, can be used to support private financiers investing in adaptation (see Case Study 4).

Governments can use financial incentives to motivate private sector actors to invest in new products or markets that support adaptation and meet NAP priorities. These financial incentives for investing in NAP priorities can include: tax breaks; risk guarantees; procurement contracts that help secure demand for new climate-resilient products and services through government; and favourable conditions set by export credit agencies to make investments in climate change adaptation more attractive (Parry, et al., 2017). Governments can also use mechanisms like taxes, levies, fees and royalties to raise funding that allows for financial support to be offered for climate risk assessments; extension services; and start-up or seed financing for new products and services.

De-risking investments, particularly large-scale infrastructure investments that support the NAP’s priority areas, will be crucial to making these investments attractive to private investors. This can happen through a number of instruments, including partial credit guarantees, political risk guarantees and blended finance. Blended finance, which pools public and private sources of capital for large-scale investments, can also help mobilize private investments in adaptation options by de-risking these investments. Blended finance allows public finance to cover riskier investments (with higher returns), while private financing covers less risky elements of an investment. All capital gains from both types of investment are then reinvested into the higher-risk projects (Crishna Morgado & Lasfargues, 2017). The use of blended finance therefore reduces the risks associated with private financing and improving returns on investment for larger-scale investors. In order for private financiers to access blended finance, the government can require that projects meet certain social and environmental criteria, including support for both strengthened resilience and the achievement of the country’s adaptation plan.

Determining the desired role of governments in enabling private sector access to financing for adaptation should be undertaken as part of the NAP planning process, particularly should it seek to develop a resource mobilization or NAP financing strategy. Such a strategy will connect the adaptation priorities identified through the NAP process to promising sources of domestic and international public and private financing. The strategy can then be integrated into the country’s NAP implementation plan. The private sector, including insurance companies, banks, business multipliers and enterprises, should be involved in the development of the strategy.

How can the private sector help and promote crowding-in?

While governments can provide access to financial resources and incentives to promote, accelerate and expand NAP-related adaptation actions, the private sector can also play an important role in facilitating and crowding-in access to finance. As a first step, the private sector can and should actively participate in multistakeholder dialogues as part of the NAP development process, particularly in the development of a NAP financing strategy. This will help to ensure that private sector interests are reflected in the strategy, enabling further engagement at later stages, and could help those involved identify climate-related risks, market opportunities or potential policies or regulations that might impact their operations.

Private sector actors can also support and encourage climate risk disclosure efforts. Industry groups, ratings agencies, shareholders and other stakeholders are already contributing to this drive, with some leading asset managers promoting climate risk disclosure as an issue of investment stewardship (Koh et al., 2017). In 2017, 16 of the world’s biggest banks, representing USD 7 trillion in combined assets, were working to evaluate their exposure to climate-related risks (Koh et al., 2017). S&P Global has incorporated environmental and climate risks into its corporate credit ratings (S&P, 2017). With investors increasingly looking at ways of reducing the exposure of their portfolios to climate risks, companies that disclose these risks and actively work toward minimizing them can secure a competitive advantage and be better placed to attract future investment: their competitors may soon follow.

Private sector actors can also familiarize themselves with domestic and international sources of adaptation financing and seek out these opportunities. A prominent international example includes the funding available through the Green Climate Fund’s Private Sector Facility.

Finally, private sector actors can also actively engage in cost-sharing financing mechanisms with the public sector, such as public–private partnerships or blended financing facilities. This can influence and contribute to the funding of larger-scale NAP priority projects, in which multiple private sector actors may be able to contribute, while reducing their risk exposure.

Case Study 4. Providing on-lending to smallholder farmers in Kenya

Kenya’s NAP process places a strong emphasis on Climate Smart Agriculture (CSA), which aims to transform the country’s agricultural systems to ensure food security and development in a changing climate (FAO, 2018). Since 2013, the Finance Innovation for Climate Change Fund’s (FICCF) CSA initiative has promoted a private sector response to CSA investments. It focused on adaptation, climate resilience and—where appropriate—low-carbon interventions in four commodity value chains: dairy, indigenous chicken, sorghum and cassava (Finance Innovation for Climate Change, 2014). The FICCF provided repayable grants to microfinance institutions for on-lending to smallholder farmers and aggregators in highly productive zones to invest in climate-smart technologies and practices. This project was a part of the Strengthening Adaptation and Resilience to Climate Change in Kenya Plus programme, a GBP 28 million initiative supported by the United Kingdom’s Department for International Development, and delivered by Development Alternatives Inc., Matrix Development Consultants, and the International Institute for Sustainable Development.

In order to ensure the effectiveness of these grants, a key contribution from the Kenyan public sector was the provision of reliable access to data and information on current and forecasted weather and climate. The Kenya Meteorological Department, as part of this initiative and in collaboration with the Agriculture and Climate Risk Enterprise in Africa Limited, provided targeted downscaled weather and climate information services to farmers, extensions agents and aggregators. The use of information technology was key to providing the weather advisories to farmers, which lowered transaction costs and increased the efficiency of captured and valuable data.

This public–private partnership is an example of climate finance invested into resilient value chains through existing microfinance institutions to promote the transition to commercially oriented CSA. The initiative combined financial inclusion with a climate lens and increased market linkages. The initiative increased microfinance institutions’ understanding of CSA and strengthened their capacity to provide loan programs for smallholder farmers to invest in CSA. It also demonstrated that smallholder farmers are enthusiastic about engaging in CSA practices that address climate risk and improve productivity, when equipped with the appropriate financial enablers (Murphy, 2018).

3.3 Institutional Arrangements

In order to promote private sector engagement in the NAP process, governments must work to ensure that appropriate institutional arrangements and legal and policy frameworks are in place that support investment in adaptation and facilitate dialogue among national and sub-national decision makers, private enterprises and private financiers.

A number of institutional, policy and regulatory barriers to private investment in adaptation may exist in a given context. A lack of zoning rules for coastal areas could promote developments that reduce coastal protected areas and increase vulnerability to sea level rise and storm surges (Stenek et al., 2013). Perverse incentives, such as subsidies, may be present which undermine the business case for investing in adaptation. Subsidized electricity in India, for example, has made it cheaper for farmers to pump water out of underground aquifers than to invest in water conservation and more efficient irrigation. This has contributed to a significant over-extraction of the resource and consequently a crisis for the agriculture sector (Jain, 2018).

A lack of incentives can be similarly damaging. In the Canadian province of British Columbia, forestry policy stated that when a company harvested trees on a forest tenure, it had to re-plant trees according to stocking standards for the region, and maintain those trees until they reach a designated size. High maintenance costs meant that companies were incentivized to plant the fastest growing trees, rather than those best suited to a changing climate. This led to a preference for fast-growing pine trees in many re-planting schemes, creating monocultures that were increasingly vulnerable to climate change and related stressors such as mountain pine beetle outbreaks. Thankfully, the government now requires that the impacts of climate change be considered in reforestation practices and plans, and has integrated adaptation into its tree species selection tool (Government of British Columbia, n.d.).

It may also take too long for governments to develop and adopt policies and laws that offer the assurances and stability sought by private sector actors when making investments in adaptation. In addition, there may not be a compelling policy signal for private sector actors to look to when making investments in adaptation; hence the need for a NAP. Finally, the private sector may also express skepticism in the government’s ability to develop and—importantly—implement the adaptation actions prioritized through the NAP process, and as a result they could disengage from the process.

To successfully engage the private sector in the adaptation planning process, governments must ensure that the right enabling conditions are in place, both institutionally and in terms of the policy and legal framework. For the former, open dialogue and collaboration among all stakeholder groups will be central to the success of the NAP process. Government have to get these institutional arrangements right at the outset of the process and must maintain these arrangements through all three phases of the NAP. Getting the private sector on board with the NAP process during its inception will help to ensure their continued participation and support throughout the process (see Case Study 5). Institutionally, this may require that the government include private sector representatives in the NAP’s oversight committee, should one exist, or that structures are established to ensure communication between those driving the NAP process and the private sector—a private sector NAP focal point, for example, or a sub-committee featuring private sector representatives from prioritized sectors like tourism, water, energy and fisheries.

The government should also promote coordination among all relevant public agencies through the NAP process. Cross-sectoral collaboration on climate adaptation is a central tenet of the NAP process—it helps ensure the private sector gets a unified government position on climate change adaptation (and its role in the country’s long-term development) from across the various ministries. The Government of Saint Lucia, for example, made efforts to understand why private sector engagement in adaptation was limited: it then took strides to remedy this through policy, regulation, and increased coordination (see Case Study 6).

Governments should also support and work with business associations and multipliers, such as chambers of commerce or smaller, more local associations of individuals like farmers, fishers or miners. They are important institutions for reaching private sector actors, particularly MSMEs operating in developing countries. Governments should work to ensure that these multipliers have a good understanding of climate change and the business case for investing in adaptation, and can involve them in NAP design (see above). They can then take these messages and capacities to their membership.

Within the legal and policy context, governments should also work to ensure that there is stability in the domestic laws, policies and regulations that will influence adaptation investment decisions. The revision or adoption of legislative instruments around supporting adaptation should be periodic, timely and transparent. Passing such legislation in an ad hoc or opaque manner could discourage investments in adaptation, which are often long-term and risky to begin with. The NAP itself is a useful instrument in this regard—it provides investors with a timebound idea of where national policies and regulations around adaptation are likely to evolve and is built upon a platform of collaboration among stakeholder groups. Beyond stability in the policies and regulations that relate to adaptation, governments should try to ensure stability in the nature of business regulations and procedures, and in the level of international support that they receive on climate adaptation; investments in medium and long-term adaptation responses are much more likely in such an environment.

Before developing new or revised policies and regulations to support adaptation, governments should identify whether any existing legislative instruments promote maladaptation and work to revise or repeal them. This will likely involve drawing on research from outside organizations, including civil society, the media and academia. Attention can then be turned to the participatory development and adoption of policies and regulations that provide a level playing field for more environmentally friendly investments and corporate behaviours supportive of adaptation (Crishna Morgado & Lasfargues, 2017).

For developing countries in particular, policies should be developed as part of the NAP process that stimulate MSMEs to invest in adaptation. This can include overarching, long-term economic development planning strategies and frameworks that integrate adaptation, as well as more specific policies focusing on areas like land and property rights, building codes, and carbon taxes (Dougherty-Choux et al., 2015). For example:

  • In agriculture, property rights and land-use rights are vital for smallholder farmers and small-scale agricultural operations. By ensuring farmers’ control over the land, a clear system of property rights facilitates longer-term investments in irrigation or other improvements that tend to limit degradation and support adaptation (Dougherty-Choux et al., 2015).
  • In construction and land-use planning, building codes and zoning ordinances are examples of regulations that can drive businesses to upgrade their operations or can prevent them from inhibiting the adaptive capabilities of local communities (Dougherty-Choux et al., 2015).
  • More generally, governments can offer fast-tracked permitting for adaptation-focused activities.

The effectiveness of new regulations to support adaptation will depend in part on the government’s enforcement capacity.

Governments can also require or encourage the disclosure of climate risks among companies and investors (Koh, Mazzacurati, & Trabacchi, 2017). Such disclosure obligations serve to promote actions that minimize exposure to climate risks among companies seeking investment, or exposure to such risks in investment portfolios. Since the Paris Agreement in 2015, several governments have adopted policies to this end, including those recommended by the Task Force on Climate-related Financial Disclosures (TCFD) (see Box 5). While climate risk disclosure may be more feasible for companies operating in developed countries with strong regulatory environments, the identification and disclosure of climate risks along supply chains could lead to increased investments in climate resilience in downstream, developing country companies or producers.

Understanding both the supply of and demand for adaptation finance is critical for governments designing policies, regulations and public finance instruments that can catalyze flows of private adaptation finance (UNEP FI, et al., 2016). Governments must seek to understand any market imperfections that distort the risk and return profiles of adaptation investments early on in the NAP development process and prior to embarking on the development of policies or regulations that support adaptation. These market imperfections can include many of the barriers already discussed, such as a shortage of long-term credit inhibiting investments in coping with longer-term climate impacts, or incomplete or asymmetric climate information leading to uninformed decision making (UNEP FI, et al., 2016). Once barriers have been identified, governments can focus on addressing them through policies that enable the market to more efficiently perform its role in allocating capital, helping to increase the amount of financing available for adaptation (UNEP FI, et al., 2016).

Box 5. Emerging regulations on reporting physical climate risk

Since the signing of the Paris Agreement in 2015, there have been a number of regulatory developments in the field of climate risk with growing relevance to investors and financiers. The Task Force on Climate-Related Financial Disclosure, for example, recently acknowledged that the mispricing of climate risks could lead to the mispricing of assets, the misallocation of capital and could potentially give rise to concerns about financial stability. Following these findings, insurance supervisors and regulators supported the adoption of a climate risk disclosure framework. As a result, 16 of the world’s biggest banks—representing a combined USD 7 trillion in combined assets under management—are currently working to evaluate their exposure to climate-related risks (Koh, Mazzacurati, & Trabacchi, 2017). Deutsche Asset Management, for example, is working on a global database of corporate sites’ exposure to climate risks, in order to identify where natural disasters relating to climate change may pose the greatest risks to investment portfolios (Koh, Mazzacurati, & Trabacchi, 2017).

Further, the EU’s Institutions for Occupational Retirement Provision Directive (IORP II) (2016/2341) required that registered pension funds consider and disclose climate matters in investment and risk decisions. Similarly, in France the Energy Transition Law (Article 173) sets out mandatory requirements for public traded financial and non-financial French organizations to disclose their climate risk—including any physical risk—and for institutional investors to assess and disclose the climate risks of their investment portfolios (Koh, Mazzacurati, & Trabacchi, 2017).

Case Study 5. Red Stripe adapting to climate change in Jamaica

In 2013, Red Stripe—Jamaica’s most famous brewery—began its Project Grow initiative,turning to local cassava production instead of relying on imported corn syrup for its malt, beer, and stout beverages (Jamaica Observer, 2017). The initiative’s goal was to increase the use of local cassava by 40 per cent by 2020 through the development of a sustainable and resilient cassava starch supply chain (Heineken, 2015). To date, more than 300 farmers have been supported by Project Grow (Jamaica Observer, 2017).

Cassava production is, however, subject to climate change impacts such as drought, floods and hurricanes. Increased incidences of drought in recent years have resulted in failing cassava, yam and ginger crop yields in some parts of the country. The Jamaican Rural Economy and Ecosystems Adapting to Climate Change II project, funded by USAID in cooperation with Red Stripe, has supported increasing the adaptive capacity of cassava farmers by providing them with technical assistance, delivering training, promoting the use of high-yielding and drought-tolerant cassava varieties, and propagating high-yielding planting materials (Jamaica Observer, 2017).

These actions have supported the achievement of the goals set out by Jamaica’s NAP process by bolstering the resilience of cassava farmers. Red Stripe is also a member of the Private Sector Organisation of Jamaica, an active supporter of Jamaica’s climate change agenda and NAP process. In addition, Red Stripe actively participated in “Uncut Conversations,” a public outreach initiative of the government to discuss climate change mitigation and adaptation with local communities and stakeholders. Engaging Red Stripe in this campaign was a strategic decision to involve them in the process and to encourage other private sector actors to follow suit. These conversations proved influential in spreading awareness about ongoing adaptation initiatives and actions, thereby spurring further private sector engagement.

Case Study 6. National Adaptation Planning in Saint Lucia

In 2014, Saint Lucia’s Climate Change Adaptation Policy (CCAP) highlighted the importance of the private sector to achieving of the country’s adaptation goals. It recognized the need to create partnerships between the public sector, the private and financial sectors, civil society and communities (Government of Saint Lucia, 2015). To facilitate coordination across stakeholders following the launch of the country’s NAP process, the government launched a study of the private sector’s engagement in climate change actions in 2017. The study found that the main barriers to private sector engagement in climate action included a lack of communication between the public and private sector, the lack of a platform for the private sector to get involved in, and the lack of a strategic long-term vision for private sector engagement (Environmental Governance Consulting, 2018).

In response, the Government of Saint Lucia is taking steps to increase coordination across sectors and address some of these barriers. The government submitted a proposal to the Green Climate Fund (GCF) for NAP Readiness and Preparatory Support in March 2018, and the private sector was identified as a key stakeholder to be engaged during consultations (Caribbean Community Climate Change Centre, 2018). Saint Lucia’s NAP document prioritizes the development of a Climate Change Private Sector Engagement Strategy, the first consultations for which were held in November 2018 with support from the NAP Global Network. Included as part of the development of this strategy is the identification of potential public–private partnerships that can advance the country’s adaptation goals. In addition, sectoral adaptation strategies for fisheries and agriculture, developed during the NAP process, similarly identify the strong need for private engagement on adaptation actions (Government of Saint Lucia, 2018).

How can the private sector help promote crowding-in?

The private sector can actively engage with and support institutional arrangements and policy-making processes that promote investment and engagement in the NAP. In terms of institutional arrangements, this can be done in a number of ways:

  • Becoming a member of a coordination body for the NAP process. This demonstrates active support for adaptation, enables more consistent, ongoing and active participation, and brings wider private sector actor interests to the NAP priority and agenda-setting processes.
  • Participating in NAP-related events and dialogues, whether as a member of a private sector organizing body, associations or individually. NAP processes may call on the private sector during multistakeholder dialogues and consultations, and it can be in the best interest of the private sector to attend and encourage others to do so as well.
  • Identifying and mobilizing industry-led organizations, associations and partnerships. These collaborations will be a flagship for industry leaders, will act as a multiplier for further engagement, and can be an effective conduit for climate information and capacity building. Global compacts and commissions led by the private sector are increasingly promoting opportunities to make voluntary commitments to adaptation action and collaborate with like-minded businesses (see Box 6). These can also facilitate the forging of new partnerships and collaborations with industry or supply chain partners to share resources, risks and capacities.

While the political and regulatory environment is the responsibility of government, the private sector can contribute to policy-making processes to promote better engagement of like-minded enterprises and financiers in a number of ways:

  • Participating in stakeholder consultations and dialogues to provide their perspective on adaptation priorities in the development and implementation stages of the NAP. In doing so, the private sector can bring relevant issues to the agenda and prioritization process, and can be consulted on policy and regulatory options prior to their adoption. Private sector actors should also be encouraged to participate in these processes to help identify possible opportunities for public–private partnerships. This will enable collaboration and continued engagement with the implementation stages of the NAP process.
  • Adopting voluntary standards in the absence of (and in addition to) any mandatory political or regulatory requirements. Doing so—whether on a global or local scale—can send signals to and drive future policy conversations, and can help push sectors or industries toward best practices. Becoming partners or signatories to voluntary adaptation agreements and initiatives could strengthen corporate reputations and influence further crowding-in.
  • Quantifying and disclosing their exposure to climate risk in an effort to attract adaptation funding in the absence of government policy or regulations.

Box 6. The Business and Sustainable Development Commission & The Global Compact on Caring for Climate

The Business and Sustainable Development Commission and the UN Global Compact offer an opportunity to align business goals with UN-led climate initiatives, to solidify the business case for climate change adaptation actions, to shape policy agendas, and to further engage the private sector in the fight against climate change.

The Business and Sustainable Development Commission, launched January 2016 and headed by Unilever, aims to make the case for why business leaders should engage in the Sustainable Development Goals (Business & Sustainable Development Commission, 2018). The Commission’s flagship report, “Better Business, Better World”, mapped economic incentives for companies aligned with the SDGs—including SDG 13 for Climate Action—and how they can attain them. To help make the case, the report noted that environmental externalities, many of them associated with a changing climate, are now costing more than USD 4.5 trillion per year (Business & Sustainable Development Commission, 2018). The report noted that achieving the SDGs—including SDG 13—will require leadership from the private sector.

Similarly, the UN Global Compact, the world’s largest business initiative on corporate sustainability, calls for businesses to align their strategies and operations with universal principles on human rights, labour, the environment and anti-corruption (United Nations Global Compact, 2019). The Compact, through its Caring for Climate initiative, provides a platform for businesses to commit to taking practical actions on climate change—and to champion such actions (Business Leaders of the Caring for Climate Initiative, 2012). To date, Caring for Climate has been endorsed by 463 organizations, including General Mills, H&M, IKEA Group and Nestle S.A.

3.4 Capacity Building

Operating with the information they require, the financing they need, and the institutions, policies and regulations that can help them achieve their adaptation aims, private sector actors may nonetheless lack the technical capacities needed to participate in the NAP process. Governments, typically working in collaboration with civil society, development partners, academia and other businesses, can work to identify and address these capacity gaps.

Private enterprises may lack the capacities needed to understand and use climate data and information, and to integrate climate risk management into standard business operations, including the conducting of climate risk assessments. They may require enhanced capacities in the use of techniques, technologies and equipment needed to adapt—the adoption of conservation agriculture practices, for example or the use of drones for pollination. They may require capacities to develop the business models needed to commercialize adaptation products and services, or to implement business strategies that can reduce their exposure to climate risk. They may also need help identifying and seeking out appropriate financing for adaptation investments. For private financiers, increased capacities are often required to integrate climate risks into investment portfolios and financing products, and to better quantify and track the adaptation returns on investments.

Governments can play a role in addressing capacity shortfalls like these and others, often in collaboration with a partner institution. They can facilitate the strengthening of technical capacities among businesses and financiers through training programs, outreach programs and the development of context-specific guidance notes (if required). Initially targeting the building of capacities of business multipliers may be a good way to increase the effectiveness and reach of any training measures, provided these multipliers can successfully share these skills with their members.

Governments can also offer guidance and training on ways to measure returns on climate change adaptation investments, including cost-benefit analysis, cost-effectiveness analysis, portfolio risk analysis for financial institutions, and new metrics that measure returns beyond the financial (Parry, et al. 2017). This again may have to be undertaken in collaboration with partners, should governments not have the internal capacities or resources to provide training on their own. In addition, capacities often need to be built on how to translate risk and vulnerability assessments into responsive management plans and concrete actions. Building on risk assessments, governments can ensure that private sector actors have access to adaptation decision-making support tools designed to help them understand and incorporate climate risks into business activities: many such tools are available.

Among the foremost technical capacities required by private sector actors is the ability to conduct climate risk and vulnerability assessments. Improved understanding of how climate change translates into risks—and opportunities—across a company’s operations and its supply chain, or in an investor’s portfolio, will help strengthen the business case for investment in adaptation measures. Governments should work to facilitate the building of these capacities. This can be done by connecting development partners with private sector actors; GIZ’s Private Sector Adaptation to Climate Change (PSACC) initiative, for example, provided members of the private sector with a tool to conduct climate risk management and planning, thereby strengthening their capacity to develop strategies for adaptation (see Case Study 7).

Case Study 7. Vulnerability assessments through the Climate Expert initiative

Developed under GIZ’s Private Sector Adaptation to Climate Change (PSACC) program, the Climate Expert tool enhances the capacity of private sector actors to engage in climate change adaptation activities by providing a four-step approach to conducting climate risk management and planning. The approach is designed to help companies, including MSMEs and industrial zones, analyze climate change risks and opportunities, and to generate strong adaptation strategies (Frei-Oldenburg, Wohlgemuth, von Stieglitz, Stahr, & Eisinger, 2018). The tool includes guidance on how to assess the costs and benefits of different climate risk management options, and is freely available at www.climate-expert.org (GIZ, 2019).

Agrumar Souss, a citrus processing company located in the Souss-Massa region in Morocco, used the Climate Expert tool to assess its exposure to climate change and identify corresponding business opportunities and adaptation pathways. Floods, drought, rising temperatures, stronger winds, heavy and more frequent rainfall, and a late frost were all identified as negative impacts of climate change upon the citrus business, putting the company’s supply chain at risk (GIZ, 2019). The company used the Climate Expert approach to identify and assess adaptation measures that they could employ to strengthen their climate resilience, including the use of an anti-backflow system to address heavy and more frequent rains, strengthened windbreaks in company orchards to reduce the trees’ exposure to strong winds, and addressing frequent drought through the use of irrigation pumps powered by solar energy (GIZ, 2019). By building the capacity of companies like Agrumar Souss to understand and integrate climate risks into their business operations, the Climate Expert initiative has helped advance private sector involvement in adaptation.

How can the private sector help promote crowding-in?

There are a number of ways in which private sector actors can help build their capacities (and that of their peers) to engage with the NAP process and with adaptation actions more broadly. These can include:

  • Working through chambers of commerce or other business multipliers to establish dedicated committees or learning events that promote peer exchange among companies undertaking adaptation planning and implementation. Business multipliers could also support exchange programs on adaptation among their members.
  • Participating in adaptation training activities and workshops provided by development organizations, civil society and public sector actors, and publicly communicating this participation to encourage similar businesses or private sector organizing bodies and associations to do the same (see Case Study 8).
  • Developing and sharing the business case for engaging in climate change adaptation. Some actors have been successful in articulating the motivation behind their adaptation actions: making this rationale public knowledge can enable others to understand and adopt best practices.
  • Establishing metrics and monitoring and evaluating the success of implemented adaptation actions—while documenting any successes and failures and sharing these with other private sector actors. This sharing can be done through relevant networks and platforms, such as the NAP Global Network and NAP Global Support Programme, or through relevant external partners like WBCSD.
  • Contributing to NAP-related stakeholder consultations and dialogues, in part to identify key areas for future capacity development and information sharing.
  • Supporting government and academia in the design and launch of degree or professional programs focusing on business and climate change.