Executive Summary

Many developing countries are demonstrating their commitment to preparing for and adapting to the impacts of climate change by initiating national adaptation plan (NAP) processes. Concurrently, most have also included an adaptation component in their nationally determined contributions (NDCs) to fulfilment of the purpose of the Paris Agreement. These initiatives can be complementary and reinforcing. NDCs enable countries to share their adaptation goals, objectives, priorities and actions with the international community, while NAP processes provide a concrete means for successful achievement of these initiatives.

Financing is needed throughout the entire NAP process to enable its potential to be reached—from its initiation to the implementation, monitoring and evaluation of prioritized adaptation actions. The amount of financing needed by countries will vary depending on their circumstances, but is expected to be significant. This guidance note aims to assist countries with the development of strategies for securing this funding. Specifically, it has the following objectives:

  • Provide a clear understanding of the NAP process from a financing perspective.
  • Present the range of potential sources of finance and identify which sources may be more appropriate for different phases of the NAP process.
  • Suggest practical steps that countries might take throughout the NAP process to increase their likelihood of securing finance from different sources.

Practical guidance is also provided in subsections labelled “Key issues for consideration.” These subsections identify issues governments might want to take into consideration when assessing the appropriateness of a financing source given their needs and circumstances and when taking concrete steps toward accessing this source.

The NAP process from a financing perspective

When looking at the NAP process through a financial lens, it is helpful to distinguish between two broad phases, which are illustrated in Figure A:

  • Development phase, which includes actions taken to initiate, coordinate and maintain the NAP process on a continual basis.
  • Implementation phase, which encompasses the detailed preparation and implementation of individual adaptation actions prioritized through the NAP process.

Reflecting the iterative nature of the NAP process, elements of its development and implementation phases may occur (and therefore require financing) at the same time. However, the scale of financing required by these phases differs significantly. The financing needs associated with the implementation phase are significantly greater than those of the development phase.

Figure A. The NAP process: Key elements requiring finance.

Potential sources of finance for the NAP process

Developing countries can access a range of finance sources to support their NAP processes and thereby contribute to the achievement of the adaptation component of their NDCs. At a general level, these sources can be classified in terms of whether they are domestic or international, and public or private. A key challenge for countries is to determine how to best combine these different sources to meet their financing needs, taking into account national capacities and circumstances.

Identified sources of financing for the NAP process are:

  1. Domestic government revenues. Financing from domestic public sources is needed throughout the whole NAP process. Initially, domestic sources can support coordination of the NAP process and facilitate adaptation planning. On an ongoing basis, domestic finance can support the implementation of prioritized adaptation actions and maintenance of the process. Systematically integrating the costs associated with this process into domestic budget processes can provide a relatively predictable and consistent source of financing, particularly for its ongoing operation and maintenance in the medium and long terms. Use of finance from domestic budgets also enhances national ownership of the NAP process, provides greater flexibility regarding the allocation of financial resources to different sectors and jurisdictions, and can leverage additional public and private investment. Domestic budgets also provide a key opportunity to systematically allocate adaptation-related finance to sub-national actors.

    Domestic governments can use various fiscal instruments to raise additional revenue (e.g., through taxes, bond issuance and debt conversion) or redistribute existing domestic finance (e.g., through subsidies and subsidy reform) to support the NAP process. A further option is to establish domestic climate change funds at the national and/or sub-national levels as a financing vehicle to support the implementation phase of the NAP process. These funds can be used to channel, program, disburse and monitor climate-related finance and to facilitate direct access to international climate finance.

  2. Bilateral providers. Financing from bilateral providers can be used to support both the development and implementation phases of the NAP process. Several bilateral donors offer grant-based technical assistance to advance the development phase of the NAP process. This finance is often provided as part of a broader package of support for climate change actions. Technical and financial support for the implementation phase of the NAP process is available from a greater number of bilateral providers. This includes financing from bilateral development banks for the implementation of individual projects.

    Financing from bilateral providers is typically provided through one of two delivery channels: donors’ targeted climate funds and government-to-government negotiations that determine agreed-upon bilateral commitments. Through the latter, bilateral providers are also able to provide support that goes beyond specific projects. Instruments such as budgetary support or basket funding can be used to finance the implementation of larger programs and sector-wide initiatives.

    The flexibility of support from bilateral providers means that this source can be used to finance a wide range of activities, including institutional strengthening and capacity building. The lower risk associated with grants from bilateral providers can also promote investment in innovative projects that may attract additional financing, including private finance. Opportunities for bilateral finance for the NAP process will be determined in part by how important providers are in financing a country’s broader development objectives. It will also be influenced by the degree to which adaptation is emphasized within each provider’s funding strategies, both generally and in specific countries. Effective use of bilateral financing for the NAP process requires in-country coordination by donors to avoid duplication of efforts.

  3. Multilateral providers. A range of multilateral funds established under and outside of the United Nations Framework Convention on Climate Change (UNFCCC) can be accessed to help finance the NAP process. This includes the Green Climate Fund, which is expected to be a significant source of finance for the NAP process. It can support the development phase of a country’s NAP process through its Readiness and Preparatory Support Programme, and can finance the preparation and implementation of individual adaptation actions prioritized through the NAP process. The Least Developed Countries Fund and the Special  Climate Change Fund have been mandated by the UNFCCC to support NAP processes in the least developed countries and other developing countries respectively. Additionally, the Adaptation Fund’s mandate to finance concrete adaptation projects and programs provides an opportunity to finance the implementation phase of the NAP process. Multilateral funds established outside of the UNFCCC can be essential sources for financing the NAP process, particularly for the implementation phase. These funds include the Pilot Program for Climate Resilience and the Adaptation for Smallholder Agriculture Programme. Countries can also consider accessing non-climate-focused funds such as the Global Fund to Fight AIDS, Tuberculosis and Malaria.

    In addition, countries can access finance from multilateral development banks to support the implementation of adaptation actions prioritized through the NAP process, particularly in sectors such as water, energy, infrastructure and food production. Multilateral development banks directly finance discrete adaptation projects or development projects that include incremental costs associated with the provision of adaptation co-benefits. They can also act to catalyze additional resources from the public and private sectors. Countries should have a clear understanding of the funding modalities of the different multilateral funds and multilateral development banks to better align their needs related to the NAP process to suitable resources.

  4. Private sector actors, both domestic and international. Although experience with mobilizing private finance for adaptation is currently limited, the NAP process can provide governments with an opportunity to direct and influence investments by the private sector to support the implementation of prioritized adaptation actions. To realize this potential, governments need to gain a clear understanding of the private sector—its diversity, its motivations, the investments it is already making in climate change adaptation and where opportunities exist to engage this sector in the implementation of adaptation actions. In particular there is a need to understand the different roles that private financiers and private enterprises may play in directly and indirectly financing the implementation of adaptation actions. This understanding can better enable governments to tailor communication and engagement strategies. Consideration can also be given to the different means by which the private sector may be engaged in the adaptation process, including through the establishment of public-private partnerships. The public sector can play a key role in mobilizing the private sector to become engaged in the implementation of adaptation actions by creating a supportive general investment environment and by providing relevant information, incentives and economic signals.

Although a wide range of financing sources for the NAP process exist, the diversity of funders and scale of potential financing available for its development and implementation phases differs significantly (as shown in Figure B). A limited number of sources (primarily domestic public finance, bilateral providers and multilateral funds) provide dedicated support for the development phase of the NAP process. In contrast, more diversified financing (domestic and international, public and private) could be available to support the implementation phase of the NAP process. This trend is consistent with the expectation that greater financing will be required to support the implementation phase of the NAP process. It should be noted, though, that at present finance directly labelled as NAP support is primarily oriented toward its development phase.

Figure B. Potential sources of finance for the NAP process.

The need for a financing strategy

Given the array of financing available to support the NAP process, it is critical that countries align financing needs to the most appropriate sources to meet these needs. The development of a dedicated financing strategy for the NAP process can assist with this process. These strategies can play a critical role in systematically supporting a coordinated national approach to identifying financing needs throughout the NAP process. They can also help prioritize potential financing sources and provide a comprehensive, step-by-step process for realizing a country’s financing goals. These outcomes can be achieved through the development of a financing strategy composed of the following main building blocks (see Figure C):

  • Identifying the financing gap given the estimated total costs of the entire NAP process in comparison to the availability of existing sources of finance to meet these costs.
  • Determining financing options for prioritized adaptation actions by identifying potential sources of financing and suitable financial instruments, taking into consideration national circumstances, relationships and capacities.
  • Identifying operational next steps to improve the chances of accessing the identified funding sources, such as building capacity, fostering relationships with key actors or preparing specific proposals.

Through this process, a NAP financing strategy can play a key role in translating the ideas and plans emerging from the development phase of the NAP process into concrete actions taken to implement identified adaptation priorities.

Figure C. Main building blocks of a NAP financing strategy and its link to the NAP process.

Guidance for consideration

Along with preparing a NAP financing strategy, developing countries can take steps throughout the NAP process to increase the likelihood of securing financing in the future. Key guidance for developing countries to consider includes:

  • Financing needs of the NAP process should be considered from the start. NAP teams should determine the resources required for the development and implementation phases of the NAP process and how they might be accessed early in the process. The development phase should then be designed to improve a country’s potential to secure financing from these sources in the future.
  • Engage key stakeholders early in the NAP process. Ministries responsible for finance and development planning, as well as climate-sensitive sectors, should be engaged early and throughout the NAP process. Efforts should also be made to engage bilateral providers, multilateral providers and representatives of the private sector. Investment of time and resources into these efforts will likely prove beneficial in the long term.
  • Senior-level engagement is critical. Early and continuous political commitment to the NAP process by high-level officials from key institutions is particularly needed to promote the funding decisions that will enable its successful initiation, continuation and impact.
  • Domestic public finance is crucial for sustainably financing the NAP process. The iterative nature of the NAP process means that financing from this source is critical to covering the continuing costs associated with coordination and maintenance of the NAP process over time. Domestic public finance is also likely to be required for investments in public goods that advance efforts to reduce climate risk, such as institutional strengthening, capacity building, and improvement of sectors such as education and health.
  • Financing should go beyond the scope of individual projects. Given the diversity of adaptation financing needs, NAP teams should also consider financing instruments that go beyond support for individual projects and instead target programs and initiatives more broadly.
  • Realizing the potential of private sector financing requires careful design. Engaging the private sector in the NAP process requires a clear understanding of the sector’s diversity, the motivations of its actors and how their interests intersect with countries’ adaptation priorities. This understanding can be used to identify appropriate strategies for improving a country’s investment environment for private sector involvement in adaptation actions.
  • Countries should pursue finance sources appropriate to national circumstances and capacities. The likelihood of securing finance from different sources to support NAP processes will be influenced by factors such as countries’ general investment environments, technical capacities, public financial management systems and existing relationships with financial providers. Countries should take these factors into consideration when developing NAP financing strategies tailored to their needs.

Considering the recommendations contained in this guidance can enhance the probability of securing the sufficient and dependable financing needed to initiate, coordinate and maintain the NAP process over time. It can also increase the likelihood of securing the considerable financing needed to implement prioritized adaptation actions. This financing can transform strategies and plans into concrete adaptation actions that will enable governments to reduce the risk climate change poses for its citizens, infrastructure and economies and achieve the adaptation goals articulated in their NDCs.