The Business Of Climate- Adaptation: Keeping It Fair

Climate change will disrupt the global economy in ways none of us really know, and companies that properly adapt to it will survive and perhaps even thrive. But the tools for profiting currently lie in the countries that created the mess – not those that will suffer. Here’s how the Higher Ground Foundation and others hope to level the playing field.

27 February 2013 | Farmers in the semi-arid area of India are struggling to survive as rains fail and soil erodes at an estimated 16.3 tons per hectare per year, according to Totally Pradeep, the Institutional Advisor at Samuha, an Indian non-governmental organization (NGO) focusing on health and environmental issues.

“It’s a game of dice,” he said during the webinar “Climate Adaptation: Urgencies and Opportunities for Business,” with the Higher Ground Foundation in October. “They go through each month without any idea of what it might bring.”

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Challenges and Opportunities

Realizing these communities’ vulnerabilities to climate, Pradeep saw an opportunity in working with Higher Ground, a nonprofit focused on financing climate adaptation projects in developing countries with funds from wealthy governments and businesses.

“The private sector is the biggest driver of growth in developing countries,” says Su-Lin Garbett-Shiels, Climate and Environment Advisor for the UK’s Department for International Development (DFID).

Higher Ground has developed a metric called the Vulnerability Reduction Credit (VRC) , which Pradeep and Sumaha hope to utilize. VRCs quantify climate-change induced vulnerabilities and facilitate climate adaptation. The tool factors in income and wealth of a subject community to determine the human vulnerability to climate impacts. Higher Ground plans for the credit to be available on a voluntary market where companies looking to fight climate change in the hardest hit areas will participate.

“The VRC is a tool that can prioritize and facilitate adaptation investments,” says Higher Ground Executive Chairman and co-founder Karl Schultz.

And such investments will become more and more critical as climate-change takes hold across the globe – with impacts that won’t be limited to one region or one sector. Last year’s flooding in Thailand, for example, threatened the world’s supply of hard disks and altered the entire electronic industry.

But Schultz says there are opportunities for the private sector when it comes to adapting to climate change.

“Higher Ground looks at the ways, whys and hows of climate adaptation finance and how they can support greater business action,” he says.

The Ways, Whys and Hows

Schultz says that spending on adaptation costs roughly $150 billion a year, and that figure is only expected to rise. In a poll given by Higher Ground on reasons why companies in developed countries would pay for climate adaptation in the developing world, 33% said supply chain risk reduction and 14% said for first mover advantage in adaptation.

In order for companies to stay competitive in the global market and meet the investment needs for adaptation, the Higher Ground Foundation suggests three broad types of tools that will be necessary-funding mechanisms, governance and capacity, and a metric that can compare across several sectors.

As of right now, the metrics have been at a national level and focus on input, like finance for training, rather than output and they come from public investment and overseas development assistance, Schultz says. These have been driven by public sector and large foundations with little involvement from the private sector.

And leveraging private finance is a fundamental part of funding mitigation and adaptation activities, which, Schultz, says, can come from the sale of VRCs. This will create a new revenue stream from the private sector.

In terms of governance and capacity, it’s a sign of progress that multi-lateral development banks are increasing their involvement with adaptation initiatives and the UNFCCC has developed the Adaptation Fund and the Green Climate Fund. Unfortunately many of the nations hit hardest by climate lack the capacity for adaptation. This is another problem Higher Ground hopes to fix with the market for VRCs, Schultz says, which will expand under a robust new framework for projects with many new players and hopefully lead to more investments and solutions for this issue.

Leveraging the Private Sector

A recurring question in the climate realm is that the impact of climate change is a societal risk rather than a threat to an individual and should be handled as so.

“But government doesn’t have a bottomless pocket,” says Jeremy Richardson, head of climate change and sustainability services at URS, an engineering firm. “So the next question is how to bring in the private sector.”

One of the imperatives for business is to protect their operations from climate impacts. But consequences of climate change to areas vital to business, such as water supplies, health and agriculture are likely to be severe, says Garbett-Shiels of DFID. The World Economic Forum’s (WEF) Global Risk 2013 report found water supply and food shortage crisis as well as rising greenhouse gas emissions were among the top five risks in the likelihood and impact section.

This gives the private sector another imperative to act-providing goods and services that will help communities adapt to climate impacts.

For example, Sunlabob, a Lao private commercial company, provides renewable energy to areas not yet on the public electricity grid. Sunlabob is a full service, profitable company and the energy it provides will create more climate resilient communities in the rural regions it services.

While cases like this reveal signs of progress, the private sector still faces many obstacles to adapting to climate change in the form of lacking capacity, awareness and policy.

“I think one of the things that make businesses nervous about climate change is the uncertainness,” says Richardson.

Although a company may understand the threat climate change poses, it might not know the extent of this threat and choosing what source of information to trust can be difficult. And businesses often lack the wherewithal to take a proactive stance in adapting to climate change while fiscal incentives aren’t available and government policies aren’t supportive.

“There’s obviously a line between what is the role of the private sector and what the public sector can do to incentivize more action,” says Garbett-Shiels.

She says both sectors have a role to play in financing climate adaptation. The private sector can’t be expected to finance adaptation alone, Garbett-Shiels says, but they are expected to cover the costs of climate impacts on private businesses. The public sector, however, should create policies that incentivize adaptation-friendly technology as well as a market for adaptation goods and services.

“The public sector should send the right signals to the private sector that adaptation is important,” says Garbett-Shiels.

The Pilot Program for Climate Resilience, (PPCR) which supports broad-based strategies to integrate climate risk into development planning, is one example of gathering all the necessary stakeholders together and encouraging private sector engagement.

Richardson notes the partner initiatives between the public and private sector offer opportunities for both sides in financing climate adaptation, where the risks are shared and a deep understanding of which sector should take on what risk is required.

“They are gathering a good body of evidence of how to set up these public private partnerships where risk is shared in a sensible way,” Richardson says.

The Case In India

For the risky situation in India’s semi-arid region, Samuha’s approach is centered on creating carbon neutral villages that combine climate mitigation and adaptation activities with heavy involvement from the local people.

“In the present-enviro-political scenario, our communities have the opportunity of continuing as the victims, dependent on government and civil society for their future, or become part of the solution,” Pradeep says.

Pradeep is seeking to use sustainable practices for farming reducing the climate impact on the land and people living there. For instance, biomass generation and rainwater harvesting could reduce the impact of farming on the land and lead to better crop yields.

Cookstove projects create the core of Samuha’s mitigation strategy. From there, Samuha can bring in other technologies like solar water heaters and LED lights. Samuha’s adaptation strategy is based on climate change interventions that the organization has had experience with like social welfare programs and sustainable agriculture practices.

By creating enterprises that focus on farm-gate procurement credits-or purchases at the net value of an agricultural product-and retail, along with the help of climate resources like VERs (Verified Emissions Reductions) and Higher Ground’s VRCs, Samuha plans to spur economic development. Capacity building and pilot projects will be done with grants adding to the region’s development.

There is an urgency to act, says Pradeep on climate, and there are opportunities that climate adaptation brings.