private finance – Tearfund's Policy Blog

March 27, 2013 By Sara Shaw

At the international climate talks in 2009 in Copenhagen, developed countries promised that by 2020 they would mobilise $100 billion a year for climate change mitigation and adaptation in developing countries. This is not enough to meet the needs of developing countries. But progress to date on concrete ways to generate even this money has been excruciatingly slow.

Overstretched aid budgets are already providing the bulk of climate finance, to the potential detriment of areas such as education and health. And after an initial flurry of activity the amount of public climate finance from aid budgets appears to be falling. Little progress has been made on developing innovative public sources of finance, such as raising finance from international transport.

The UK government is at the forefront of a move to champion the private sector as a solution that will plug this gap in international climate finance.

But Tearfund’s research  suggests that private finance lends itself more naturally to funding mitigation in developing countries rather than adaptation. ODI recently compiled data around 73 climate finance investment initiatives totalling $8.5 billion by the UK, Japan, Germany and the US between 2010 and 2012 aimed at mobilising private climate finance. Of these investments more than 99 per cent went to mitigation projects and there was virtually no direct investment involving the private sector that targeted adaptation to climate change. Eighty-four per cent of investment flowed to middle-income countries.

Evidence for private sector engagement with adaptation is minimal, and what little there is indicates serious problems in relying on private finance to deliver adaptation for the poorest communities. The underlying need for companies to make a profit in a low-risk investment environment means that Least Developed Countries (LDCs) and other low-income countries are unlikely to benefit from investment as any returns would be low and slow. Adaptation generates tangible benefits for people and communities but, in contrast to mitigation, it may not produce significant monetary gains for investors. And if current FDI flows are anything to go by money is likely to flow to sectors that will not bring adaptation benefits. Questions also arise as to how private sector engagement will support a fully integrated approach to adaptation.

It seems to be a bit old fashioned to say it these days but rich countries bear overwhelming responsibility for causing climate change and its impacts in developing countries – and so are responsible for paying adaptation costs and ensuring that adaptation reaches the poorest and most vulnerable. Governments shouldn’t be relying on private finance to meet the adaptation needs of the poorest communities and countries – it just won’t work.

Read the full report here.