To respond to climate change, we must mitigate its impact by reducing carbon emissions. At the same time, we must adapt to protect communities from increasingly frequent and severe weather events and other climate change effects such as bio-diversity loss.
While the global focus of the financial markets to date has largely been on financing the mitigation of climate change, the urgent need to adapt to our environmental reality has attracted less attention. The Adaptation Economy shines a light on this underexplored side of the climate-finance equation.
We have used a bespoke economic model to examine the adaptation investment needed in 10 emerging and fast-developing markets, while attempting to quantify the economic cost of inaction.
The markets (Bangladesh, China, Egypt, India, Indonesia, Kenya, Nigeria, Pakistan, the UAE and Vietnam) are among those where action is critical, either because of their size and contribution to the global or regional economy, or because of their greater risk of exposure to negative climate effects.
To gauge the level of appetite in the global finance community to finance adaptation in these and other markets – and identify any barriers to investment – we have surveyed 150 bankers, investors and asset managers.
Key findings
For the 10 markets in this study, failure to invest an estimated USD30.4 billion this decade – the minimum projected level to adapt to climate damages as they occur – could lead to a cost of USD376.6 billion in damages and lost growth by the end of 2030 (in a 1.5°C warming scenario)
On average, every dollar spent on adaptation this decade would generate 12-dollars of economic benefit for the 10 markets, highlighting the case for early action
The need for adaptation will become more urgent after 2030, with a minimum estimated investment of at least USD317.4 billion required in the 10 markets between now and 2040, rising to USD1.4 trillion between now and 2050
In a 3.5°C warming scenario, the 10 markets are expected to require twice as much investment this decade; a minimum of USD61.7 billion
Global financial firms currently have very little of their capital invested in climate adaptation projects in emerging markets: just 0.4 per cent in the case of the firms we surveyed
Estimated minimum investment required by 2030 in a 1.5°C and 3.5°C warming scenarioUSD billions, by market
What is climate change adaptation?As yet, there is no globally agreed definition of climate change adaptation. Standard Chartered’s Green and Sustainable Product Framework defines it as:
Data driven climate monitoring, such as early warning systems, climate observation and systems for monitoring GHG emissions
The development and/or use of information and communications technology for collecting, transmitting, storing and using data to facilitate reductions in greenhouse-gas emissions
Design, construction or refurbishment of existing infrastructure and maintenance of eligible infrastructure that features intentional integration of climate-resilient construction and/or soft infrastructure improvement. Examples include heavy rain drainage systems, flood prevention, flood defence systems, sluice gates, drainage systems, tunnels and channels for reinforcement of existing infrastructure. Also, use of climate-resilient crops and drip irrigation for agricultural production systems, stormwater storage, grain storage, soil rehabilitation and climate resilient livestock infrastructure
Infrastructure that builds resilience as above, while also adding climate resilience to the broader local system. Examples include coastal pumping stations in areas of water stress, water reclamation plants in areas of water stress, wetland protection, stormwater management and flood defences, green roofs and walls, afforestation and reforestation, mangrove conservation, and grid resilience, back-up generation and storage designed for climate-related disruption
Examples of climate mitigation and climate adaptation
