Climate change disproportionally impacts the most vulnerable in developing countries, which are characterized by low climate resilience, high vulnerability and high exposure to extreme weather events such as floods, droughts, storms, and cyclones. At the same time, international adaptation finance flows in developing countries are 5-10 times below estimated needs and the gap is widening. The private sector plays a crucial role in driving innovation, which is vital for unlocking investment opportunities in climate adaptation and addressing this finance shortfall. Despite a recent increase in private investment, financial flows remain insufficient to meet the levels required to effectively cope with the impacts of climate change​. 

This article provides a summary of key takeaways from two events organized at the United Nations Climate Change Conference (COP29) by UNIDO and the Global Environment Facility (GEF), in collaboration with GARI, UNEP FI and Climate-KIC under the Climate Adaptation Innovation and Learning (CAIL) project, to discuss barriers and opportunities for private investment in climate adaptation: “Investing in Climate Resilience in Emerging Markets: The Unavoidable Opportunity” and “Mobilizing Private Sector Investments for Climate Adaptation: A World Café on Innovation and Learning”. 

The unavoidable opportunity

While the impacts of climate change are profound and escalating, they simultaneously create significant opportunities for innovation and investment. Participants noted that investing in climate resilience and adaptation is an unavoidable opportunity that must be seized with a commitment to climate justice for the most vulnerable communities. Globally, companies are already innovating on products and services that will make communities, businesses, and nations more resilient to climate change, presenting significant opportunities for investors across all sectors, regions, and capital types: “We have shifted from morality to materiality to massive opportunity when it comes to investing in climate adaptation and resilience,” noted Jason Spensley, Senior Climate Change Specialist at GEF. He added that to seize this opportunity, three critical elements can catalyze growth and facilitate scaling: a wave of blended finance funds, robust investment frameworks, and high-quality project pipelines.

Adaptation as a cross-sectoral space

Participants agreed that to effectively scale adaptation and resilience solutions, it is essential for all stakeholders to align and speak the same language. For example, adaptation and resilience are not a specific sector—they are cross-cutting issues that impact every industry. They noted that a systematic approach is needed, one that breaks down silos, fosters collaboration, and encourages the sharing of data, solutions, and products across regions and sectors. The discussions emphasized that investors, regardless of capital type, region, or sector, must focus on addressing human needs while supporting businesses that offer strong, revenue-generating solutions: “Climate change is a humanitarian crisis, so many of the best opportunities can be found in the impacts to human life”, said Jay Koh, Managing Director of The Lightsmith Group. 

The importance of blended finance

The key challenge in the adaptation space lays in effectively aligning public and private investments to expand climate adaptation and resilience, particularly in small island developing states (SIDS) and least developed countries (LDCs), where the need is greatest. Blended finance plays a crucial role in scaling adaptation and resilience efforts, enabling the delivery of solutions to the regions and communities most in need. 

Discussions around this highlighted a pivotal question: “How can we utilize private sources to scale up public investments?” An illustrative example was provided by Lindsey Doyle, USAID’s PREPARE Director. The US Government, through the PREPARE program, has been actively engaging the private sector to increase investment and activity in climate adaptation and resilience, offering catalytic finance to promising ideas. They are focused on closing the gap on climate information – such as increasing the availability and use of early warning systems, providing foreign assistance to make infrastructure more resilient, and mobilizing private capital for adaptation by focusing on adaptation and resilience as a business strategy impacting profits and losses – not a “social responsibility” focus.  

Localized data, metrics, taxonomies

Participants highlighted the crucial need to develop a pipeline of scalable adaptation enterprises with a clearly articulated adaptation rationale, enabling better alignment between business opportunities, community needs, and investors’ interests. However, adaptation enterprises often do not identify themselves as part of the adaptation sector, making it challenging to locate them and offer financial support. This is further complicated by the absence of a clear taxonomy to guide the identification of investment opportunities in adaptation. Chris Kaminker, Head of Sustainable Investment Research and Analytics at BlackRock, provided an example on the potential for technology to uncover investment opportunities. Blackrock has utilized  AI-powered tools to identify 500 listed equities that do not self-identify as climate adaptation and resilience companies but are providing products and services helpful in responding to, rebuilding from climate hazards, and identifying and analyzing climate risks. 

At the same time, insufficient climate risk data deters investment by creating uncertainty about risks and returns. Participants emphasized the critical need to build local, high-quality data sources for climate risk mapping and planning, especially in LDCs: “Climate and nature are very closely related. A significant challenge raised by banks is that if you want to measure physical risk from nature and biodiversity impacts, it will require enormous data management, gathering, and analysis”, said Paul Smith, Senior Consultant at UNEP FI.  

Such initiatives would help business plans improve general climate literacy and enable investors to assess better adaptation needs and identify investment opportunities. For instance, BlackRock’s investment management platform Aladdin assists financial institutions in integrating climate risk analysis into their decision-making by using advanced management technology to assess both physical and transition risks. The platform analyzes seven different hazards and evaluates portfolios and assets to improve risk management. This enhanced risk management approach ultimately leads to greater returns. For instance, companies that demonstrate increased water resilience are likely to achieve higher returns on assets during periods of water stress. 

Discussions emphasized the necessity for greater harmonization of metrics and taxonomies globally to streamline climate adaptation finance. The proliferation of frameworks adds costs for financial institutions and may hinder investment in adaptation efforts. While harmonized frameworks are essential, they must remain flexible to accommodate local and institutional specificities. An example is the CRISP Framework, highlighted by Jay Koh, Co-founder and Managing Director of The Lightsmith Group, which aligns with existing frameworks to assess a company's potential as an "adaptation play" based on its technologies, products, and services offered. This approach aims to enhance clarity and efficiency in identifying viable climate adaptation opportunities. However, discussions highlighted that these frameworks need to be integrated into the mainstream space.  

The next generation of adaptation incubators and accelerators

Participants noted that data quality and technical knowledge, particularly in emerging economies, is inconsistent, fragmented and often quite weak. This makes it challenging for adaptation enterprises to get the technical expertise to develop their approach and for investors to properly evaluate the businesses and their adaptation solutions. While numerous accelerators exist, most of them are designed for climate mitigation enterprises, missing the needs of adaptation companies. This situation raises an important question: how can we develop models for next-generation incubators and accelerators that cater specifically to the needs of adaptation innovators and entrepreneurs? Neil Walmsley, Head of International Adaptation Programmes at Climate-KIC, noted: “The nature of adaptation is very different from other fields – it is not ‘static’ like other markets, where there is more stability and certainty. Adaptation needs can change from year to year, across locations and depending on different sources. This variability makes it challenging for small businesses to structure themselves to effectively address these changing demands”. 

For example, climate literacy can empower vulnerable communities to understand why their lives are impacted and seek solutions. Adaptation enterprises can identify adaptation as a business opportunity, while those already offering solutions can refine their products. Financiers, with better risk analysis, can recognize the relevance of climate risks and opportunities, driving investment. Adaptation-focused accelerators in developing countries need to act more as ‘innovation ecosystems’ that connect the adaptation enterprises with all the different actors and agencies (finance, technical expertise, big businesses, etc) that are needed to allow enterprises to grow to their full scale.  

Additionally, the discussions highlighted that financing is often unavailable, or when it is available, it tends to be extremely expensive and impatient, requiring rapid payback periods—an approach that is poorly suited for adaptation businesses. Many enterprises move between accelerators for small amounts of funding while their primary need is access to affordable capital to scale effectively, integrated facilities that link technical assistance with capital are crucial for driving progress. There is significant room for the financial sector, particularly insurers, to ‘underwrite’ adaptation innovations, providing security and de-risking adaptation solutions until they have grown and established themselves to a point that this is no longer required. In addition, larger companies can play a pivotal role by anticipating future climate risks along their value chains and partnering with adaptation enterprises. These companies can offer opportunities, capital, and support to help enterprises develop and scale solutions tailored to the companies' specific adaptation needs. 

The CAIL project is supported by the Global Environment Facility (GEF) and in partnership with the United Nations Industrial Development Organization (UNIDO) Global Adaptation and Resilience Investment network (GARI) Knowledge and Innovation Community EIT (Climate-KIC) UNEP Finance Initiative (UNEP FI). For further information and to get involved in CAIL’s Communities of Practice, please visit here: CAIL Get Involved | UNIDO.