Private sector will not fill large climate finance gap for developing countries – report

The report by the Zurich Climate Resilience Alliance (of which Concern Worldwide is a partner) presents new evidence and analysis about the role, potential, and limits of private adaptation finance, ahead of the COP30 meeting in Brazil in November.

“Ten years ago, there was much talk of the move ‘from billions to trillions’ in relation to funding the Sustainable Development Goals, with small amounts of public funding expected to unlock vast amounts of private funding. But this has simply not been delivered. United Nations Framework Convention on Climate Change (UNFCCC) negotiators must not fall into the same trap and expect private finance to meet the adaptation challenge,” Concern Worldwide’s Climate Resilience Advocacy Advisor, Laura Bahlman, said.

“To make meaningful progress on climate finance requires a clear, evidence-based understanding of the current situation and what is possible. Today’s report meets this need by providing crucial evidence to inform UNFCCC processes.” 

The upcoming United Nations Environment Programme (UNEP) 2025 Adaptation Gap Report (AGR) will publish new figures on adaptation needs up to 2035. Based on the interim findings from this update, the report’s analysis uses the lower AGR figure of US$320 billion per year by 2035 as a plausible estimate of the minimum cost of developing countries’ climate adaptation needs.

This figure is approximately 10 times higher than current annual international public adaptation finance flows, indicating a large funding gap.

The report -- The potential role of the private sector in adaptation in developing countries – states that the private sector will not play a major role in addressing this funding gap. Its analysis indicated that tracked private sector finance flows are currently around US$8 billion per year for adaptation -- equivalent to just 3% of countries’ adaptation finance needs.

Adaptation benefits are often public goods, delivering benefits which are shared across society and so provide little incentive for private finance. For example, the private sector has little incentive to pay for major flood protection infrastructure that benefits a whole town, or cash transfers for social protection. Governments must typically deliver these.

The analysis finds that 75% of developing countries’ adaptation priorities do not typically generate financial returns but could yield significant long-term economic and social benefits, including greater resilience, reduced disaster costs, and multiplier effects across communities and markets.

For example, major coastal or river flood protection projects are public goods and do not normally provide financial returns, and thus require public funding, such as cash transfers in adaptive social protection programmes.

The report notes that the remaining 25% of developing countries’ adaptation priorities involve actions where there is theoretical potential for the private sector to invest in under current policies, with returns that may be mixed or commercial. These opportunities are primarily in agriculture, water, and infrastructure.

The report’s authors believe the private sector could provide up to 15% of adaptation needs, which will require concerted policy action and public finance, and will deliver in mostly in middle-income countries and in certain sectors. This does not and will not meet the needs in Least Developed Countries and Small Island developing States at the forefront of climate change. 

“It is therefore inescapable that more international public climate finance is required to increase the amount of grants and highly concessional finance for particularly vulnerable countries, and to play a smaller but catalytic role in other developing countries.”

The report notes there are numerous ways to increase international public climate finance. The ‘polluter pays’ principle is a widely accepted norm in international and domestic environmental law, with broad international adoption. It should be used to create new sources of substantial and predictable public funding that are less prone to changes in national administrations. 

These could include a fossil fuel extraction levy (US$210 billion per year), an air ticket levy (US$4 billion to US$150 billion per year), and a 2% tax on billionaire wealth (US$250 billion per year).

While such levies are under development, the report notes that re-purposing fossil fuel and other harmful subsidies offers an immediate solution and has enormous fiscal potential to help close the adaptation finance gap. 

Fossil fuel subsidy reform can be implemented immediately through existing budget processes to provide an immediate injection of climate funding and support a just transition. This is given further emphasis and imperative through the recent International Court of Justice ruling.

For media queries and interview requests contact Eamon Timmins, Media Relations Manager, Concern Worldwide, at eamon.timmins@concern.net or 087 9880524

Notes to the Editor

To download a summary of the report visit: https://bit.ly/3VwcKk2

To download the full report visit: https://bit.ly/3I4eSfM

The Zurich Climate Resilience Alliance is a collaboration between humanitarian, NGO, research, and private sector partners (including Concern Worldwide), working to build resilience to climate hazards in rural and urban contexts. To learn more visit ZCRAlliance.org