Harnessing business innovation is a crucial part of our need to do “everything, everywhere all at once” to address the urgency of climate change and other planetary pressures, said Lori Kerr, CEO of FinDev Canada – Canada’s development finance institution.
“The new reality is here now,” she said. “The world is boiling, unprecedented fires are laying waste to vast areas, people are starving and drowning. But, currently, less than two percent of climate change adaptation finance comes from the private sector.”
The head of FinDev Canada was an advocate of the need for “whole of society” solutions to address mounting environmental challenges during the Global Environment Facility’s Seventh Assembly, which brought together thousands of representatives from governments, civil society, and the private sector last month in Vancouver.
The whole of society approach entails providing a place for civil society organizations, Indigenous Peoples, women and girls, youth, and business leaders to collaborate in planning and implementing initiatives to address environmental crises.
Kerr is among the climate adaptation leaders exploring new ways to harness the financial reserves and entrepreneurial spirit of the private sector to address urgent resilience-building needs in developing countries. The costs of climate change adaptation for developing countries could reach between $140 billion and $300 billion by 2030, according to UN Environment Programme estimates.
This is particularly challenging as public budgets are under pressure everywhere. In developed countries, this squeeze is constraining overseas development assistance resources, while many developing countries are struggling to cope with large debts and high inflation rates.
Now, momentum is gathering for the private sector to be the driving force in what many see as a necessary rebalancing of the global financial system on a more sustainable trajectory. Policymakers, companies, and banks are increasingly viewing climate adaptation as a business and investment opportunity, rather than simply as an area which requires public expenditure or aid.
“An enormous market failure of this century has been the tendency to not value climate and nature,” said Kerr. “Until recently, there has been no market for it. Fortunately, this is changing.”
FinDev Canada offers financial solutions to the private sector in developing countries with the potential to create jobs, empower women, and promote climate action, in support of the Sustainable Development Goals and Paris Agreement commitments.
Kerr pointed to the untapped potential of over $35 trillion in global pension funds as an example of the opportunity to generate markets for climate adaptation and resilience, and to unlock private sector momentum behind climate change adaptation investment.
She added, however, that governments will continue to play a crucial role as “private capital is not going to magically appear.” “Nobody outside of governments can make crucial decisions on public service infrastructure, and governments need to continue to lead by example through policy decisions.”
Kerr noted that developing countries need to continue efforts to create attractive targets for private investment by supporting policy stability, rule of law, and cost-effective ways of managing currency exchange. And governments everywhere need to create incentives for private sector engagement by dissolving investment barriers and encouraging flexible finance flows.
She also applauded moves by international funding organizations, such as the GEF, to create new synergies between governments, civil society, and the private sector in support of local climate adaptation solutions. She pointed to the GEF’s Challenge Program for Adaptation Innovation, a private sector-focused competition which provides seed funding to identify and grow innovative solutions for vulnerable countries to address climate change, as a good example of this.
The Challenge Program for Adaptation Innovation is supported through the GEF-managed Least Developed Countries Fund (LCDF) and Special Climate Change Fund (SCCF). Canada has been a strong supporter of the GEF’s adaptation funds, providing $37.5 million to the LDCF to help support vulnerable countries in their efforts to build more climate-resilient agriculture, water, food, health, and infrastructure sectors, and to invest in climate information services.
A key part of mobilizing private sector investment relates to the use of blended finance, which taps public funds to create conditions that can attract commercial capital and provide financial returns to investors. “More concessional use of finance and the judicious use of precious public funds to create creative blended finance solutions can mobilize private capital at scale for immediate action and impact on the ground,” said Kerr, who worked in the World Bank and Inter-American Development Bank in addition to a stint in academia before becoming FinDev Canada’s CEO in 2021.
While Kerr said there are encouraging moves underway to redirect the vast resources and energy of the private sector to address global environmental crises, success will require adopting the same urgency as when COVID-19 was an “imminent threat on our doorstep.” “Everything has to be available.”
