Adaptation, the climate opportunity for the private sector

According to a post on the IDB Invest blog, it is estimated that Latin America and the Caribbean (LAC) will have to invest up to 18 billion dollars per year to prevent losses related to climate change, being adaptation actions of vital importance in reducing countries’ vulnerability against massive climate disruptions and natural disasters.

Agriculture, infrastructure, water and disaster risk management are among the largest adaptation financing need. For developing countries, the annual costs of adaptation are estimated at 70 billion dollars and are expected to be in the range between 140 and 300 billion dollars by the year 2030. However, adaptation represents only 7 % of climate financing, and that financing for adaptation comes 98% from public actors.

Investing in preventative adaptation solutions can be more effective and less costly for the private sector than a late response. According to the post’s authors, financial institutions must intensify their role in channeling capital flows towards green investments. This sustainable business opportunity has social and economic benefits. The overall rate of return on investments in building resilience is very high, with benefit-cost ratios ranging from 2:1 to 10:1.

The report published by IDB Invest entitled “Scaling Climate Adaptation Financing in the Private Sector” explains how the IDB is integrating climate adaptation into all agreements, including working with its clients to design climate and sustainability strategies that consider climate protection for their businesses, developing knowledge products for the financial sector to scale up their adaptation finance, and introducing the “climate-events clause” and climate scenarios in risk analysis.