Well-intentioned instead of well-done: The risk of maladaptation in private-sector climate finance

Climate change impacts in the Philippines. Photo: J. Grossmann, Brot für die Welt

Adaptation to climate change is necessary to ensure that impacts do not overwhelm societies and ecosystems around the world. But adaptation planning is an exercise in uncertainty, and because it is based on imperfect information, adaptation strategies can also fail. Some go even further and create conditions that actually make the situation worse; this is called maladaptation. Apart from wasting time and money, maladaptation is a process that makes people even more vulnerable to climate change.

The risk of maladaptation

The latest Intergovernmental Panel on Climate Change (IPCC) report on impacts, adaptation and vulnerability, found increased evidence of maladaptation across many sectors and regions. According to the report, these maladaptive responses can create lock-ins of vulnerability, exposure and risks that are not only difficult and expensive to change, but exacerbate existing inequity.

Maladaptation is caused by inadequate knowledge, a focus on issues in isolation and on short-term gains that do not take into account the long-term impacts of the adaptation options. Non-inclusive governance is also a factor, whereby actors do not consider adverse outcomes for different groups. Maladaptive responses can result in a reduction in biodiversity and ecosystem resilience and increased exposure to risks for marginalized people, particularly affecting marginalized and vulnerable groups and women.

Private sector engagement in adaptation to climate change: Curse or blessing?

The Green Climate Fund (GCF), as the biggest dedicated international fund supporting climate action in developing countries, has a strong role to play in financing adaptation. It has also established the promotion of private sector engagement in adaptation as one of its strategic priorities. There is a gap in adaptation finance that an increased private sector engagement could help close, by catalyzing private sector finance at scale. To achieve this, the GCF is developing a private sector strategy and outreach plan.

The GCF has already made some progress in promoting the private sector’s role in adaptation, as well as the mobilization of private adaptation finance at scale. Most recently, at its 30^th Board meeting in October 2021, the GCF approved one medium (Tanzania Agriculture Climate Adaptation Technology Deployment Programme, TACATDP) and two large (Global Fund for Coral Reefs Investment Window and Catalytic Capital for First Private Investment Fund for Adaptation Technologies in Developing Countries, CRAFT) private sector programmes focused on adaptation, representing US$325 million in GCF finance, and a total of US$1.1 billion, including co-finance.  At the time of their approval, these programmes were widely seen by the Board of the GCF as a step in the right direction for the Funds’ strategic objectives concerning the private sector and adaptation finance.

However, a closer look at these funding proposals raises questions about the potential for the GCF to finance maladaptive actions and responses, a risk that its own Independent Technical Advisory Panel (iTAP) acknowledged in its assessment of one of these programmes (CRAFT). The potential for maladaptation stems from the way these approaches are often structured, with the portfolio of specific investments rarely available at the time of approval, and instead only general categories of technologies, approaches and activities to be financed being identified. This makes it difficult to assess the locally specific long-term impacts of the adaptation options, and could lead to the adoption of technologies or strategies that are most profitable, rather than most suitable for different local groups, especially the most vulnerable. As the iTAP noted in its assessment of the project, some of the technology categories included in that proposal had such wide ranges of coverage that they could end up supporting maladaptive approaches, with no clear safeguards in place to prevent that risk from being realized.

Furthermore, these projects lack decision making and governance structures that include local communities, marginalized and vulnerable groups. As they are private sector programmes, investment decisions are made in a top-down manner, often with very little transparency and oversight at the national and local level. Without strong safeguards, clear and context-specific eligibility criteria and transparency mechanisms in place that the current Environmental and Social Safeguards (ESS) do not provide, many of these decisions can result in the financing of practices and technologies that lead to maladaptation, if they are considered profitable.

The GCF’s private sector strategy

The IPCC report identifies ways in which maladaptation can be avoided, including flexible, inclusive and long-term planning of adaptation actions, with benefits to many sectors and systems. Additionally, it identifies procedural, and distributional justice in decision-making, as well as integrated and flexible governance mechanisms and strong monitoring and evaluation (M&E) processes, as key to preventing maladaptation.

At the GCF Board meeting from 16-19 May 2022, the GCF will discuss a first draft of its private sector strategy and outreach plan. At that, the GCF should take into account the aspects described in the IPCC report in order to promote private sector engagement that allows the GCF to contribute to closing the adaptation-financing gap, while avoiding the promotion of maladaptive responses. Furthermore, other relevant GCF policies should take into account the need for strong safeguards for these approaches to avoid maladaptation, including the new GCF Environmental and Social Safeguards (ESS).

In its private sector strategy, the GCF should articulate clear links between the long-term planning work supported through its Readiness and Preparatory Support Programme and the funding proposals being presented by the private sector. On the other hand, in its new ESS, the GCF should use the new standard on Stakeholder Engagement and Information Disclosure to establish strong requirements for meaningful consultation and transparency for all accredited entities, including private sector ones. It should also add a separate ESS on financial intermediaries, to clarify the responsibilities of accredited entities to manage risks and promote positive outcomes and co-benefits, when they serve as financial intermediaries in programmes and projects.

Bertha Argueta and David Eckstein, Germanwatch