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Saturday, April 1, 2023

Financing adaptation projects: The conversation continues, by Fadina

I must state from the start that, from an investment and implementation perspective, the insistence in a strict definition of adaptation and adaptation projects may not be necessarily useful. Climate change is a major driver of project development and it is important not to get too constrained by the definitions since many projects and activities have both adaptation and mitigation benefits. It is necessary to integrate thoughts and approaches around adaptation and mitigation to recognise realities on the ground and facilitate effective project financing and implementation.

Lekan Fadina
Prince Lekan Fadina

I admit that it is important for political and procedure reasons and in the context of the United Nations Framework Convention on Climate Change (UNFCCC) that there is need to continue to differentiate between adaptation and mitigation and even more important to monitor and evaluate in terms of these parallel approaches.

In this connection it is critical to ensure that MRV systems capture the activity in the( M)SME sectors that are currently not being captured and that a way forward is to ensure that that (M)SME projects get to benefit from and participate in the funding streams that are being made available through various channels of the UNFCCC Financing Mechanism such as the Green Climate Fund (GCF).

The risks entailed in a climate change adaptation projects are essentially the same as other investment projects and activities. It is usually felt that the risk in adaptation projects are heightened through increased “uncertainty and ignorance”. Conversely there are potential upsides and positive benefits from these risks which may help in developing hedging and portfolio strategies.

In the light of the above, it is envisaged that Blended Finance can play an important role and there is need to find new ways of using public funds to mobilise private sector activity and investment. It is desirable to establish a strong connection of private sector investment and financing for adaptation related projects.

Most African countries including Nigeria are particularly vulnerable to climate change and related issues. They have low capacity and a high incidence of its effects despite the fact that they are among the least responsible for the cause and the least capable of dealing with it. Adaptation to climate change is essential particularly in addressing short- and medium-term impacts. Mitigation and Adaptation are interdependent, noncompeting and equally vital strategies for dealing with climate change. Adaptation needs to be integrated into good development practice so that development and adaptation actions become mutually reinforcing.

Adaptation challenges are dauntingly large and given the constraints on the availability of public sector financing, the   private sector will be required to play a role in addressing these challenges. Given the scope and areas of adaptation related measures it remains less clear his private funds can be effectively mobilised and channelled. It is anticipated that few areas of adaptation will generate sufficient financial returns to mobilise traditional, fully commercial private finance require. It is clear that investment will only reach the developing countries that are considered low risk. It is therefore important to identify those areas the private sector finance can play a role and focus efforts on them.

There are several adaptation related areas where private investors may be expected to play an important and significant role. These include agriculture, water and sanitation, energy and energy access and tourism. These areas are selected on their vulnerability to climate change and their perceived potentials to generate and support opportunities for private sector financing. In addition a number of cross-cutting issues and coping mechanism appear to provide frameworks which will help focus projects identification and development activity. Other cross-cutting issues are urban development and innovative cities which encompass waste, energy, water and other infrastructure.

Financing Adaptation is comparably not as attractive as Mitigation because of the established benefit of carbon market. The FS-UNEP Centre on Climate Change in its empirical analysis on investment requirements and risk characteristics of adaptations related projects structured into three areas capturing different but complementary aspect of adaptation projects looked at the fundamentals and categorisation projects conducted by the private sector. It also looked at climate risks and adaptation, analysing how adaptation projects might reduce or mitigate climate impacts and how uncertainties concerning climate change affect adaptation projects.

Two distinct perspectives were presented: the adaptation planning by the public sector and the adaptation projects by the private sector. These perspectives were reconciled by recommending that both the public and private sectors must collaborate to ensure they achieve the sustainable development goals.

There are various initiatives going on, in response to ensuring that developing countries benefit from various financing mechanism in the public and private sectors funding institutions The African Development Bank Adaptation Benefits Mechanism (ABM) is an innovative mechanism for mobilising new and additional public and private sectors financing to enhance adaptation action. lt has the potential to speed up host countries transformation toward low carbon, climate resilient and sustainable development pathways, by certifying the value of resilience in terms of benefits and incremental costs.

The ABM will contribute a new business model for adaptation that supports achievements of Sustainable Development Goals (SDGs), the Paris Climate Change Agreement, Adaptation and Climate Finance, the UNFCCC long term finance goal, Adaptation ambitions and needs of host countries as expressed in NDCs, NAPs and Sustainable Development Plans.

The ABM will derisk and incentivize investments by facilitating payment upon delivery of project/programme specific adaptation benefits. In order to achieve this, ABM will certify the social, and environmental benefits of adaptation activities based on approved methodologies.

By Prince Lekan Fadina

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