Most people recognize that the climate crisis is upon us. Yet there is still a lack of understanding of how to protect businesses and communities from the impacts of climate change.
Climate change is increasing risks and impacts across the world, particularly in developing countries where there is less capacity to adapt. By 2030, studies suggest that the cost of making climate-vulnerable business sectors resilient is expected to be in the billions per year.
Fortunately, there is a growing demand from the private sector for products and services to help various stakeholders better manage their exposure to climate risks. This demand is an opportunity for all firms not just to build resilience to climate risk but also to speed the recovery post-pandemic.
Demand for climate solutions from businesses is growing
Climate risk is driving a large and growing demand for private climate solutions. While relevant action is taking place, it is unclear how much, or whether it will be enough to avoid significant economic loss.
The private sector is already providing many cost-effective climate resilience solutions that are practical and, in many cases, already in place across sectors such as agriculture and transportation. These solutions are helping to build resilience to better manage climate risks such as weather forecasting, flood control, irrigation strategies and infrastructure design and refitting services.
Private solutions can both increase resilience and reduce the impacts of climate risks for many types of assets and businesses, and in turn strengthen the global response to climate change, while also generating economic opportunity and social benefits.
Investors do not need to wait for a comprehensive global strategy to start addressing the effects of climate change – technologies and solutions exist and are ready for investment and scale up.
Climate resilience requires markets to take a more system-wide and forward-looking perspective. Effective long-term adaptation to climate change will require extensive stakeholder engagement, higher levels of expertise and prioritization of proven resilience products and solutions to facilitate investment and move beyond project-based adaptation towards a more integrated systemic approach.
Radical strategies will be needed to transform key economic systems to be more resilient and productive in the face of a changing climate.
A new assessment sheds light on the associated risks and uncertainties to protect businesses and communities
A Private Markets for Climate Resilience (PMCR) assessment, funded by the IDB and the Nordic Development Fund (NDF), looks at how the private sector is addressing climate risk in the agriculture and transportation sectors in the following six developing countries, Colombia, South Africa, the Philippines, Nicaragua, Kenya and Vietnam.
It provides an overview of the private market and innovation in climate resilience, identifies opportunities, highlights weaknesses inhibiting a market response and examines the role of policy.
The (PMCR) is a pioneering effort and the first initiative by development institutions to better understand climate resilience solutions provided by the private sector. It examines current best practices and opportunities related to climate resilience, by identifying leaders that are shaping the national markets, highlighting products, services, tools and processes. The study found that smaller firms, including some microenterprises, are among the most innovative enterprises in climate resilience.
Coffee plantation in Nicaragua
Resilience is place, time and actor specific
Resilience actions are dependent on the type of risk and vulnerabilities linked to the local climatic conditions being addressed. Political context, existing market structures, geography and environmental conditions, institutional capacity, socio-economic conditions and regulation requirements are also key.
Adaptation benefits come down to good practices, but, without a clear understanding of vulnerability drivers, geographical settings, including climate risks and local context, even known good practices can lead to maladaptation.
Many companies providing resilience services are often small- and medium-sized businesses. In the countries and sectors under investigation, the study finds a general lack of awareness of the business case for resilience, combined with the relatively high cost of doing business for smaller companies.
Building private markets for climate resilience
To flourish, sustainable markets need more than just willing buyers and sellers. They also depend on relevant public services, including access to reliable information to promote behavioral change, as well as favorable policies, enabling market conditions, trust and oversight.
Strong policies are needed to incentivize the private sector to embrace and invest on long-term business continuity, instead of focusing on short-sighted climate-proofing of operations and treating resilience as an added cost.
These markets also need access to capital investment flows to scale up promising technologies and services. Consequently, the financial sector also has a key role to play in providing investment capital, affordable insurance, credit and other blended financing products.
Many of the barriers to market expansion we identify were not specific to climate but rather a general reflection of local conditions. Typical examples are a lack of government incentive for business innovation, burdensome regulations and taxes, and the inability for smaller players and start-ups to get access to capital or to good credit.
In turn, climate change can exacerbate these barriers even more for small producers and micro-, small- and medium-sized enterprises (MSMEs).
The climate crisis and pandemic underscore our common vulnerability and the unequal distribution of capacities and resources available to build resilience against these threats. Building greater climate resilience is therefore a necessity as climate risks are accelerating.
There are countless business and investment opportunities presented by the need for buyers to better manage climate risks that threaten property and assets, value chains, people, settlements and natural ecosystems. This report shows that we have just begun to scratch the surface on unlocking private innovation in climate resilient technologies, products and services in developing and emerging markets.
Rice drying in the Philippines
The PMCR Global Report builds on the findings of national reports produced by the country teams as well as resilience dialogues held in each country that resulted in the following Resilience Solutions Factsheets:
Rice Sector in Colombia
Coffee Sector in Colombia
Rice Sector in the Philippines
Wine Sector in South Africa
Maize Sector in South Africa
Potato Sector in Kenya
Cocoa Sector in Nicaragua
Rice Sector in Vietnam
Photo copyright: NDF