DBSA/IDFC CF Workshop on: How to mainstream Adaptation Finance and Nature based Solutions within IDFC and NDBs business

The consideration of sustainability issues, especially adaptation to climate change, is becoming increasingly important in financial markets and real economy players. At the same time, new opportunities and risks are developing that pose new challenges to the existing business practices of financial institutions.

The World Economic Forum (2022) listed extreme weather events, climate action failure, and biodiversity loss ranking as the top three risks to the global economy and human wellbeing, both in terms of severity and likelihood. Adaptation finance enables vulnerable countries and communities build resilience to the impacts of climate change. In this context it is important to observe that societal risks in the form of social cohesion erosion, livelihood crises and mental health deterioration are those that have worsened the most since the pandemic began.

To date, most climate adaptation interventions have been engineered, for example sea walls or irrigation infrastructure, and this has led to a bias in investment towards such engineered approaches. Another, currently underutilized approach, is through nature-based solutions (NbS), and it is widely recognized that NbS are cost-effective solutions that provide environmental, social, and economic benefits and help build climate resilience.

A significant adaptation financing gap has been identified by the international community. In 2019, less than 5% of climate finance went towards dealing with climate impacts, with less than 1% going to coastal protection, infrastructure, and disaster risk management, including NBS (UN Environment, 2019). At both the international and national levels, financial mobilization to invest in NBS for adaptation remain limited and insufficient.

Development banks can provide financing for climate change adaptation and NbS projects, such as early warning systems, coastal protection, and improved water management, which can help protect vulnerable populations from the impacts of climate change. This type of financing helps to ensure that countries are able to develop in a sustainable way and protect their citizens from the worst effects of climate change.

It is important that development banks, and the wider financial sector, include climate adaptation and nature-based solutions (NbS) in their strategic planning, encompassing a risk-layered approach. This requires an understanding of adaptation and adaptation finance, recognizing both how to reduce a finance institutions portfolio exposure and vulnerability to physical and transition climate risks, as well as to identify (new) business opportunities associated with the changing climate.

Significant investments are needed to support the global transition to a low-carbon, climate resilient future. National Development Banks (NDBs) have a unique and important role to play in this transition, both complementing and catalysing private finance as well as promoting best practices. As well as the international development of harmonized approaches to adaptation and climate resilience, through principles and jointly agreed methodologies, NDBs need to mainstream adaptation finance within their operations and across their portfolios in order to promote sustainability and drive change within their respective countries. Climate adaptation and NbS need to be proved at scale over time and across different sectors. Pilot projects can be useful to identify emerging “best practices” to embed those successful methodologies and approaches in larger scale operations to ensuring a smooth mainstreaming within the portfolios of the concerned actors.

IDFC as a club of the biggest National Development Banks can play a crucial role in supporting the scaling up of adaptation finance and NBS for adaptation within their constituency. IDFC and IDFC members may also engage their clients (financial intermediaries and other direct finance clients) in doing more.

The workshop aims the following objectives:

To build and strengthen the knowledge of IDFC members on adaptation finance including integrating adaptation across sectors (incl. financial sector) for a structural/systemic change.
To enable participants to identify core links between sustainable issues and finance.
To build a common understanding for adaptation finance topics, challenges, barriers and ways to increase adaptation finance.
To mainstream adaptation finance within NDBs operations, strategic processes and within portfolios.
To elaborate means for strategic dialogues on adaptation finance solutions.
To look through the adaptation lens and zoom in to NbS to discuss nature-based opportunities that help reduce national vulnerability to climate change, including how to accelerate finance for such interventions
To discuss the role IDFC and NDBs may play in cooperation with the main stakeholders (governments, cities and local governments, public and private sectors, including financial intermediaries, international donors, NGOs, etc.) to foster and mainstream adaptation finance and finance for NbS for adaptation.

This workshop is organized by DBSA and the IDFC Climate Facility with the participation of IDFC members and several partners: Frankfurt School, WWF, UICN, SANBI, EIB,…