Financing adaptation is challenging due to uncertainties associated with future climate risks, difficulties in measuring the return on investment of adaptation options, limited funding availability, and the lack of a coordinated, programmatic approach to accessing adaptation finance, with ad hoc, project-based approaches being the norm.
To bridge the global adaptation financing gap, it is crucial to access a diverse array of funding sources, including domestic, international, public and private, and financing instruments. Climate change adaptation investment planning offers a structured approach to unlocking these financial resources and accelerating the transition toward implementing countries’ adaptation priorities.
Specifically, adaptation investment planning is a strategic and structured approach to mobilizing finance for adaptation, leading to the development of a climate change adaptation investment plan (CCAIP).
In this explainer, the NAP Global Network’s experts answer some of the frequently asked questions about adaptation investment planning.
What is a climate change adaptation investment plan?
A climate change adaptation investment plan is a detailed set of concrete, investment-ready priority adaptation activities linked to available financial sources and instruments to support their implementation. The development of an adaptation investment plan usually involves different activities, including
- narrowing down and selecting the sector, geographic region, etc. to define the adaptation investment plan’s focus;
- assessing climate risks and identifying and prioritizing adaptation investments;
- appraising the priority adaptation investment packages to demonstrate their economic and financial viability as well as their adaptation benefits; and
- matching the adaptation investment package with appropriate sources of finance and financing instruments.
What are the sources of finance and types of financial instruments that should be considered in an adaptation investment plan?
Countries will have to consider a diversity of domestic, international, public, and private options for adaptation finance, as well as specific instruments (e.g., grants, debt, market-based 6 instruments, credit risk management mechanisms, etc.) adapted to the country’s specificities and level of indebtedness.
To effectively mobilize domestic resources for climate change adaptation, countries can
- strengthen domestic taxation to capture revenue from the natural resource extraction and use;
- review and reorganize existing tax incentives to ensure they are efficient, effective, and aligned with policy goals
- broaden the tax base through mechanisms like a value-added tax, property taxes, and potentially wealth taxes;
- implement environmental tax reforms, such as carbon taxes, and remove fossil fuel subsidies;
- enhance the efficiency of public procurement processes;
- develop robust domestic debt markets, supported by a strong institutional investor base; and
- provide practical guidance on the appropriate package of measures, sequencing, and hierarchy of reforms.
Countries can also access a variety of international sources of finance for adaptation. Key sources include
- UNFCCC Funds: Green Climate Fund, Global Environment Facility (which administers the Least Developed Countries Fund and the Special Climate Change Fund), and the Adaptation Fund;
- multilateral development banks and development finance institutions (e.g., the International Finance Corporation); and
- bilateral cooperation from countries.
The “private sector” is diverse, encompassing micro, small, and medium-sized enterprises (MSMEs), large corporations, financial institutions, etc. Each country must understand which segment of the private sector it is targeting, identify barriers to private sector engagement in adaptation finance, and determine the most suitable approaches for these entities to invest in priority adaptation investments for the country. Key engagement strategies include
- raising awareness about the importance of adaptation investments;
- using climate risk assessments to inform the selection of the most appropriate adaptation investments;
- building the case for these investments by demonstrating how they can not only avoid losses but also reduce costs and generate revenue;
- implementing de-risking mechanisms, such as blended finance or credit risk guarantees;
- using fiscal policies and regulations to enhance private sector investments;
- establishing institutional frameworks to encourage and facilitate private sector investment in adaptation (i.e., public–private partnership frameworks).
Different financial instruments can be mobilized to unlock adaptation finance, including the following:
- Grants provide non-repayable funds, while concessional loans offer repayable funding with favourable terms to support large-scale adaptation projects.
- Equity involves investment in exchange for ownership stakes, aligning investor and project interests.
- Bonds, including green, climate, or resilience bonds, raise capital from investors to finance environmentally sustainable and adaptation projects.
- Debt-for-nature or debt-for-climate swaps allow countries to restructure sovereign debt in exchange for commitments to invest in conservation or climate change adaptation.
- Guarantees reduce investment risks by ensuring repayment in case of default, encouraging private sector participation.
- Insurance products protect against climate-related losses, providing financial security and encouraging investment in resilience measures.
- Blended finance combines public and private funds to leverage additional resources and reduce risks, making adaptation projects more attractive to private investors.
What are the factors enabling climate change adaptation investment planning?
- Leadership and strong political will are essential for adaptation investment planning, as active support and advocacy efforts from key leaders can help mobilize resources, drive policy reforms, and encourage collaboration to unlock adaptation finance. Support from ministries of finance is especially important, ensuring sufficient funds are allocated to adaptation, integrating climate considerations into broader fiscal and economic policies, assessing the impact of investment packages on economic and fiscal risks associated with climate change, and convening all relevant actors for the development and implementation of the climate change adaptation investment plan.
- Institutional arrangements for adaptation investment planning involve establishing clear policies and regulatory frameworks, creating dedicated agencies or interministerial committees, and ensuring robust engagement of all relevant actors. These structures facilitate coordination across various actors and levels, enabling the systematic integration of adaptation investment packages into the country’s broader planning and budgeting systems. Frameworks such as budget tagging and tracking systems, “green taxonomies,” and climate-resilient fiscal planning mechanisms also enable adaptation investment planning processes.
- Engagement with all relevant actors in a gender-responsive and socially inclusive (GESI) way is crucial. This includes government actors, sectoral ministries, and non-government actors (civil society, private sector, and academia). GESI considerations must be integrated throughout the adaptation investment planning process to ensure that investments will benefit those who need them most— vulnerable people in communities on the frontlines of climate change—and to avoid inadvertently exacerbating existing inequalities.
- Data, knowledge, and communications increase the efficiency in developing an investment plan. While the starting point is to draw from all the data and information used in the NAP process, adaptation investment planning may also need to generate new data and models, especially for more detailed climate risk assessments and economic appraisals. Effective communication is key to keeping actors informed about the process as it unfolds, providing regular updates, and maintaining key documentation accessible to all stakeholders . Yet, uncertainty in climate projections and economic modeling must not paralyze action.
- Skills and capacities of key actors need to be enhanced to identify key climate risks, determine relevant adaptation activities, and pinpoint the most suitable sources of finance and instruments in a manner inclusive of GESI considerations. Knowledge and technology transfer are also essential, particularly when adaptation activities require the use of innovative technologies that have not been previously employed by the country for climate change adaptation purposes .
What is the link to the NAP process?”
The adaptation investment planning process should be part of the NAP process, allowing countries to move from articulating their adaptation priorities to implementing them in a swift, timely, and coordinated manner.
Whether a NAP document has been produced or not, the broader NAP process should be leveraged to increase efficiency in the development of climate change adaptation investment plans. The NAP process not only leads to the identification of a country’s adaptation priorities: it also provides an enabling environment for adaptation action, including adaptation investment planning. This enabling environment includes, among other things, the availability of data and information to understand and map the country’s key climate risks, skills and capacities in climate change adaptation and finance, engagement and mobilization processes, and institutional arrangements (see next section).
How can gender and social inclusion (GESI) be integrated into an adaptation investment plan?
To ensure the investment plans result in gender and socially equitable outcomes, GESI should be integrated throughout the process of developing the plan.
- Buy-in from the leaders of the process should be secured to ensure that equity is a key consideration.
- GESI actors, including experts from the ministry in charge of gender or social inclusion but also from a large range of civil society organizations such as women-led, feminist, youth, and Indigenous groups should be involved in the whole process from the outset and at critical stages, such as the selection of criteria for the appraisal and the prioritization processes as well as the revision of advanced draft(s) of the plan.
- Enhancing skills and capacities on gender-responsive and socially inclusive investment plans of the actors involved in the process is key to ensure it is considered across the process.
- During the identification and prioritization of the adaptation packages, GESI should be considered by ensuring that
- Additional risks assessments carried out are gender-responsive and socially inclusive.
- Adaptation investment packages are gender-responsive.
- Alignment with GESI policies and strategies is one of the criteria for prioritization.
- During the appraisal and matchmaking process, GESI should be considered by ensuring that
- GESI is one of the appraisal criteria.
- Funder requirements on GESI issues are reviewed.
What are the main differences between a NAP financing strategy and an adaptation investment plan?
While there is no single definition of a NAP financing strategy (or adaptation financing strategy, or resource mobilization strategy), it generally refers to a document produced during the NAP process that outlines—in broad terms—a country’s requirements and strategy for obtaining funding to implement its adaptation priorities. It can serve as a jumping-off point for developing a more detailed and focused adaptation investment plan.
Both a NAP financing strategy and an adaptation investment plan aim to help countries adopt a more structured approach to adaptation finance. However, they differ in several ways, including the following:
- purpose: The NAP financing strategy provides a structured approach to understanding the overall NAP financing needs and identifying potential sources of finance to bridge the country’s adaptation finance gap. It focuses on creating a comprehensive framework to secure the necessary funds for the entire NAP. The climate change adaptation investment plan primarily aims to identify a set of adaptation investments that are ready to implement, as well as specific funding sources and instruments needed for their implementation.
- scope: A NAP financing strategy covers the entire scope of the NAP, addressing the broader needs of the country’s adaptation efforts and, potentially, the associated costs for implementing its priorities across the full time horizon of a NAP. In contrast, the adaptation investment plan is typically narrower, focusing on specific sectors or geographic regions, and more time-bound. This targeted approach allows for a more detailed and actionable plan to pursue and secure immediate investment opportunities.
- outcomes: The NAP financing strategy identifies the adaptation finance gap and serves as a guide for longer-term financial planning and resource mobilization. Conversely, the adaptation investment plan results in the creation of priority adaptation investment packages. These packages are detailed and ready for implementation, ensuring that the identified projects can move forward quickly.