Engaging the Private Sector

Globally, governments and civil society organizations have mostly focused on the role of the public sector in financing climate change adaptation (Oxford Consulting Partners, 2015). However, public sector finance alone will not be enough to fund NAP processes, given the amount of funding needed, particularly for the implementation of adaptation actions prioritized through the NAP process. As such, there is growing interest in understanding how the private sector may help finance climate change action. Uncertainty remains, though, regarding ways to mobilize private finance for climate change adaptation in general, and thus also for NAP processes. Experience in this regard is still limited. There are currently only a few examples of analysis and research on private investments, particularly by domestic actors, in climate change adaptation (e.g., United Nations Environment Programme Finance Initiative [UNEP-FI] & GIZ, 2016).

The NAP process provides an opportunity for governments to direct and influence investments by the private sector in the implementation of adaptation actions. Initiating, coordinating and maintaining the NAP process (its development phase) is largely a public good. Therefore, private finance is almost exclusively relevant for the implementation of adaptation actions prioritized in the NAP process (as Figure 4 shows).

Figure 4. Potential role of private finance in supporting the NAP process.

5.1 Understanding the private sector

When considering the potential role of the private sector in supporting NAP processes, it is important to clearly understand the motivations and decision-making processes of the sector’s actors. Financial decisions within the sector are typically informed by a business case that assesses the expected risks versus the potential benefits of a particular investment. A combination of factors makes it difficult to articulate the business case for climate change adaptation. These factors include uncertainties regarding future climate change impacts; the very context-specific nature of required adaptation actions, which makes it difficult to quantify the benefits arising from adaptation actions; and the lack of cost-benefit analyses of climate change adaptation actions (Atteridge & Dzebo, 2015). These specific features of climate change adaptation make it more challenging to develop a business case for related investments than, for example, for investments in climate mitigation. Governments will need to consider the specific challenges associated with making the business case for climate change adaptation as they seek to engage the private sector in NAP processes.

Nonetheless, the private sector is already making substantial investments in climate change adaptation. Three main reasons drive these investments:

  • Managing risks for business continuity and reputation. Data show that climate change is already having negative direct and indirect impacts on all types of businesses, with consequences for local economies and for investors (e.g., UNEP-FI & GIZ, 2016). Private sector actors therefore have an incentive to manage climate risks once they are aware of them. Doing so can also help create and secure a positive reputation in the eyes of customers and shareholders.
  • Capitalizing on new markets and business opportunities arising from the need to adapt to climate change. As suppliers of goods and services, businesses can develop and distribute solutions that help people, communities, businesses and governments adjust to the current and future effects of climate change. They can create the new and innovative products and solutions needed by all sectors to adapt to climate change.
  • Complying with policies, regulations and investors’ interests. Large companies in developed countries, but also increasingly in emerging economies, need to comply with voluntary and mandatory environmental and social safeguard guidelines (GIZ, 2015b).

However, the private sector’s contribution to financing climate change adaptation has largely been “invisible” until recently, particularly in developing countries. A combination of factors explains this gap in knowledge: differences in terminology and definition, confidentiality requirements, and activities supporting climate change adaptation being hidden in normal business operations. The predominance of the informal sector in most developing countries imposes an additional challenge.

Box 4. Key considerations to systematize engagement of private sector actors

  • Type and nature of the adaptation investment. This should be considered in terms of the investment’s objective, scale, lifetime, volume of the capital required and associated risks. For example, once the public sector has piloted a specific innovation, private finance can support its scaling up through large-scale replication and delivery. The sources of private finance will also vary at each stage of an innovation (from research and development to commercialization). To illustrate, early-stage venture capital and private equity firms typically finance technology development (e.g., more water-efficient irrigation systems). When a proof of concept exists, private equity markets can finance the manufacturing and commercialization of the technology, although this is not automatically the case in all developing countries (Schmidt-Traub & Sachs, 2015).
  • Type of private sector actors to be engaged. Different types of private sector actors have different risk profiles influencing their access to private finance for climate change adaptation. These risk profiles also affect their willingness and/or capacity to invest their own funds in developing new markets or tools (UNEP-FI & GIZ, 2016). For example, small and medium-sized enterprises often have access to microloans from banks or other lending institutions at very high interest rates or high guarantee requests. Microenterprises often do not have access to loans from banks. They receive finance from microfinance institutions, or often from informal sources such as family and friends or loan sharks.
  • Private sector perceptions of climate risks. If private sector actors do not perceive climate change as a risk or as an opportunity to their business activities, they will not invest in climate change adaptation. When businesses are affected by climate variability and change directly, they are more likely to be interested in taking action.

Governments need to assess where opportunities lie for engaging the private sector in adaptation actions. Governments especially need to consider elements such as the type and nature of the adaptation investment, the type of the private sector to be engaged, and the sector’s perception of climate risks (see Box 4) (UNEP-FI & GIZ, 2016; Schmidt-Traub, & Sachs, 2015).

When evaluating opportunities for engagement, governments need to recognize and understand the diversity of the private sector. This diversity influences the range of private finance available. Diversity exists in terms of size, from micro, small and medium-sized enterprises (MSMEs) to large multinational corporations. Private actors also have diverse motivations. They may be geared entirely to financial (or “for-profit”) goals or entirely to social goals (e.g., private charities and remittances from migrant workers). Different types of private actors may be active in different sectors and scales (e.g., domestic versus international enterprises). The high diversity among private sector actors means climate change impacts them differently, as they have different levels of exposure and vulnerability to climate change. Similarly, they can contribute differently to the implementation of adaptation actions.

To manage this diversity, it may be particularly useful for governments to distinguish between two main sources of private finance when exploring how to mobilize private finance for the implementation of adaptation actions:

  • Private enterprises (i.e., commercial companies). These enterprises may support adaptation efforts by climate-proofing their operations and developing climate-resilient products and services in line with the adaptation priorities of the government.
  • Private financiers. These include private commercial banks, microfinance institutions, private insurance companies, institutional investors, equity and venture capital investors, private foundations, and charities. These organizations can provide direct financing to private and public sector actors for the implementation of adaptation actions.

Governments can also use public funds to catalyze private financial flows toward the implementation of adaptation priorities. Public-private partnerships (PPPs) are an example of this type of collaboration. These financing options are explored in the following sections.

Key issues for consideration

  • Clearly understanding how specific private sector actors are already contributing to the implementation of adaptation actions helps start a constructive dialogue about their engagement.
  • Using the language of private sector actors when engaging with them is important. Avoiding complex terminologies used by climate change practitioners and academics can help to better communicate messages about the need for and opportunities associated with climate change adaptation.
  • Different engagement strategies are needed to reach different actors, as the private sector is a very diverse group. A clear understanding of the complex range of private sector actors active in a country and their motivations to engage in adaptation can help inform the design of these strategies.
  • The opportunities and challenges associated with different sources of private sector finance must be weighed carefully when assessing which may be most appropriate to support the implementation of specific adaptation actions prioritized through the NAP process.

5.2 Engaging private enterprises and private financiers

Private enterprises can undertake activities that support climate change adaptation and therefore potentially finance the implementation of adaptation actions indirectly. These activities can include the following:

  1. Integrating climate risks into business operations (including, but not limited to, its physical infrastructure, procurements, business plans and supply chains). This concerns all types of businesses. Multinationals are increasingly interested in integrating climate risks into the management of their supply chains. In addition, more and more examples exist where MSMEs assess their risks and develop adaptation strategies. They often have support from bilateral and multilateral providers or “business multipliers,” such as business associations that have the potential to influence multiple private sector actors. An illustrative example is a coffee-processing company in Rwanda planting shady trees across its coffee plantations, applying organic pesticides and considering new pest-resistant coffee plant varieties to minimize the risk of water scarcity due to climate change on its activities (UNEP-FI & GIZ, 2016).
  2. Developing and distributing non-financial products and services that support climate change adaptation. These investments occur at varying scales in response to shifts in market conditions driven by climate change. Examples of climate-resilient products include climate-resilient seeds, water-efficient irrigation systems, equipment for early-warning systems and telemedicine technologies to respond to the predicted increase in infectious diseases due to climate change (UNEP-FI & GIZ, 2016). Examples of climate-resilient services include a consulting company offering climate and weather modelling or sector-specific data analysis, and a seed company offering agricultural extension services to farmers (including on climate-smart agriculture) to ensure the quality and quantity of seed production. Private enterprises can also support governments in the implementation of climate change adaptation initiatives such as constructing climate-resilient roads and flood-protection barriers and the scaling up of other climate-resilient solutions.

In developing countries, private enterprises are mostly MSMEs. Most of these are in the informal economy. These enterprises are often vulnerable to climate change, especially when they are involved in climate-sensitive sectors such as water and agriculture. MSMEs in developing countries are frequently unaware of either the risks or opportunities associated with climate change. They also have limited capacities (financial and human resources) to assess and address climate risks compared to larger companies. In most developing countries, chambers of commerce, business associations, consultancy firms and state institutions also are not able to advise MSMEs on adaptation measures. Private enterprises, especially MSMEs, often depend on private financiers for the funding they need to invest in adaptation actions. As such, private financiers are another key source of private finance that governments can use to advance the implementation phase of the NAP process.

Private financiers can provide financing to governments and other private sector actors to support the implementation of adaptation actions prioritized in the NAP process. Examples include a private commercial bank providing debt financing to a government to improve its network of hydrometeorological stations, or a private microfinance institution providing loans to farmer cooperatives to buy climate-resilient seeds and irrigation kits.

Private financiers can use a variety of mechanisms to finance the implementation of adaptation actions: debt instruments (e.g., loans, microfinance), equity instruments (e.g., mezzanine finance, equity participation), de-risking instruments (e.g., guarantees, insurance and risk-financing facilities) and grants (e.g., corporate social responsibility contributions, private philanthropic grants). As shown in Box 5, many new approaches to financing climate change adaptation are also beginning to be applied in different contexts. So far, domestic and international private investments in adaptation finance have mostly focused on insurance schemes (UNEP, 2016). A relatively small portion can also come from corporate social responsibility and philanthropic activities from private corporations and foundations (Bhinda et al., 2014). An example of this type of activity is an international company financing a climate change adaptation project in a developing country as part of its corporate social responsibility commitments.

Box 5. Examples of innovative private financing mechanisms for the implementation of adaptation actions

  • Green bonds raise revenue to finance projects that meet certain environmental standards. The market for green bonds has grown significantly in recent years. They have been used to support climate-related investments in areas such as renewable energy and sustainable forestry management (IFI, 2014; International Bank for Reconstruction and Development, 2015). While large middle-income countries have benefited the most from their use, green bonds have also benefited some LDCs, such as Timor-Leste, Rwanda, Uganda and Zambia (Hurley & Voituriez, 2016).
  • Blue bonds (or water bonds) are similar to green bonds but focus on investment in socially and environmentally beneficial projects that promote marine conservation, such as sustainable fisheries development (Holmes et al., 2014; Hurley & Voituriez, 2016).
  • Impact investing funds facilitate investment in initiatives that provide social and environment impacts as well as a return on investment. They provide capital to sectors such as sustainable agriculture, microfinance, housing, health care and renewable energy (Global Impact Investing Network, n.d.).
  • Guarantees for development allow a provider to backstop financing for initiatives that advance social and economic development. In developing countries, the provider typically is the public sector (national or multilateral). These guarantees have been used to reduce the risk associated with large infrastructure projects, enable local banks to enter new markets, and backstop low-cost credit to small and medium-sized enterprises. African countries have benefited the most from this financial instrument (Hurley & Voituriez, 2016).
  • Risk financing facilities transfer the financial risk associated with national disasters from individual governments to a shared financial entity. The Extreme Climate Facility, for example, will use a combination of private and public funds to support the issuance of climate change catastrophe bonds to participating African countries. Payments from the facility will finance proactive adaptation actions prioritized in national investment plans (African Risk Capacity, n.d.).

The choice of the appropriate financing instrument, or combination of instruments, mostly depends on the volume of the capital required, the cost of capital associated with each financial instrument (e.g., equity instruments have a much higher return expectation than loans [or bonds] because they assume more risk) and the transaction costs associated with the investment (UNEP-FI & GIZ, 2016). As Figure 5 shows, the most appropriate type of private financier and financial instrument for financing the implementation of an adaptation action depends on the scale of the private capital required and the type of business requiring the capital.

Importantly, MSMEs with limited resources to assess climate risks on their operations may need special types of financial mechanisms that incentivize them to consider climate risks. Some domestic private financiers in developing countries are already experimenting with new financing models to support this process, as Case Study 4 shows.

Figure 5. Overview: Private sector actors, financial instruments and associated scales of finance (adapted from Frankfurt School diagram in UNEP-FI & GIZ, 2016).

Case Study 4. Financial products that incentivize climate change adaptation: The case of the Centenary Bank in Uganda

The Centenary Bank is a private commercial bank in Uganda, with the goal of serving the rural poor and contributing to the country’s economic development. Since 2014, the bank has been exploring how to adjust existing financial products to incentivize climate risk management by farmers (Dazé & Dekens, 2016). In 2017, a new scheme will provide a preferential interest rate on loans for farmers who buy climate-resilient seeds and/or irrigation kits. The Centenary Bank will partner on this scheme with a domestic seed company and a private company with expertise in irrigation technologies.

In parallel, the Government of Uganda has developed a draft NAP document for its agricultural sector (Uganda Ministry of Agriculture, Animal Industry and Fisheries, 2016). The new scheme to be piloted by the Centenary Bank is already in line with the priority adaptation options identified by the government, including promoting climate-resilient crops and strengthening irrigated farming. The draft NAP document therefore provides a basis to support and scale up the initial efforts of the Centenary Bank.

Key issues for consideration

  • Gaining an understanding of how businesses already integrate climate risks in their operations, how private investment in climate-resilient products and services occurs, what drives these investments, and how they are financed can enable NAP teams to capitalize on early movers and enhance their alignment with the adaptation priorities of governments.
  • Particular attention may be given to MSMEs because they are especially vulnerable to climate change. Also, MSMEs may significantly contribute to the implementation of adaptation actions if provided with better information and access to affordable finance.
  • Strategies for engaging the private sector in the implementation phase of the NAP process should target both private financiers and private enterprises, as they are two interdependent funding options for the implementation of adaptation actions.
  • The NAP process can contribute to improving links between private enterprises and private financiers. The process can create opportunities for improved dialogue among actors and increased understanding of climate change adaptation (e.g., through targeted training courses).

5.3 The role of the public sector in attracting private finance in the NAP process

As indicated in the previous section, the public sector has a key role to play in mobilizing the potential of private enterprises and private financiers to support the implementation of adaptation actions. Data show that three-quarters of global climate finance and more than 90 per cent of private resources are invested in their countries of origin (Buchner et al., 2015). This suggests that, depending on where private finance is available for investment and its willingness to take risk, the main opportunity for private sector adaptation financing may be in the domestic private sector. Governments therefore need to create a supportive environment to attract private finance, particularly for domestic private investment, to support implementation of adaptation actions. This needs to be done at two levels: the country’s general business environment and the business environment specific to climate change adaptation.

First, many conditions for private sector investments in climate change adaptation depend on the attractiveness of the general investment environment of the respective country. A country’s business conditions and investment climate involve factors such as the stability of the policy environment, the nature and quality of business regulations and procedures, and the quality of infrastructure. A supportive business environment also needs to respond to the specific needs of different private sector actors. Some needs will be similar, while others will differ depending on the type of private sector actors involved. Incentives for investing in new products and markets, access to affordable finance, and strong and stable structure of “business multipliers” (e.g., business associations, training institutions, and financial institutions acting as key multipliers for promoting investments in climate change adaptation) are especially needed for domestic businesses.

Second, some conditions for attracting domestic private investments are more specific to climate change adaptation and therefore need to be considered as part of the NAP process. These especially include, but may not be limited to, the following:

  • Developing and raising awareness of the business case for financing climate change adaptation. This action is particularly needed to change perceptions that climate change adaptation is risky and not revenue generating. It can also help the private sector better understand and manage the complex trade-offs between different adaptation actions (e.g., between short-term and long-term gains). Business cases and proven examples can raise awareness of the costs of climate change impacts and the benefits of adaptation. These examples can also improve knowledge of climate change adaptation options and their cost-effectiveness. In order to build the business case and convince investors, ways to measure returns on climate change adaptation investments are needed. These could include cost-benefit analysis, cost-effectiveness analysis and possibly new metrics to evaluate returns other than financial ones. Different business cases backed up with rigorous analysis may be needed to mobilize different private sector groups.
  • Providing non-financial incentives. Incentives may include climate data and information available in formats that the different types of private sector actors will find useful; decision-support tools to help private sector decision-makers understand and incorporate climate risks in business activities (e.g., climate risk assessment tools, cost-benefit analysis, portfolio-risk analysis for financial institutions); capacity building for businesses to conduct climate risk planning and management (including climate change vulnerability and risk assessments); capacity building for “business multipliers” to catalyse best practices tools and relevant information; introduction of conducive policies and regulations supportive of climate change adaptation across all sectors (e.g., zoning regulations that take into account changing climate risks); removal of policies that potentially create maladaptation (e.g., low water prices can lead to over-extraction and make investments in drip irrigation unattractive); and appropriate coordination among public agencies.
  • Providing the right economic signals to incentivize private investments in the implementation of adaptation actions. This can be done through, for example, tax breaks and fast-track permitting for companies that implement priority adaptation actions; risk guarantees for securing the demand for new climate-resilient products and services through government procurement contracts; favourable conditions set by export credit agencies to make investments in climate change adaptation more attractive; financial support for climate risk assessments; and start-up financing/seed financing for new products and services.
  • Using national and international public funds to support the implementation of adaptation actions by the private sector. For example, sectoral ministries can engage the private sector in capacity building and awareness raising about new climate-resilient products and services for replication and scaling up. A few facilities or funding windows with a mandate for private sector engagement have been established within multilateral climate funds over the past few years, such as the PPCR Private Sector Set Aside and the GCF Private Sector Facility. Private sector engagement in the GEF is at an exploratory stage, but a strategy has been developed to strengthen it with a focus on PPPs and working with MDBs (UNFCCC Standing Committee on Finance, 2014). The amount of support from bilateral and multilateral development finance institutions to the private sector has also increased over the past few years. This trend is expected to continue in the future (Pereira, 2012).
  • Exploring mechanisms such as through levies, fees and royalties for increasing national public revenue from the private sector (see more information in section 3). For example, governments could put systems in place to use non-renewable energy taxes from the private sector to finance the implementation of the identified adaptation priorities. This often requires developing countries to strengthen their tax systems. Some initiatives, such as the UNDP/OECD’s Tax Inspectors Without Borders, are working toward this objective.

Key issues for consideration

  • Identifying and estimating the impacts of climate change on different private sector actors, along with their existing efforts to adapt, may promote private sector awareness of the need to invest in adaptation.
  • Involving the private sector in stakeholder consultations and priority setting around the NAP process may be instrumental in identifying areas for collaboration and understanding the conditions for attracting domestic private investments in climate change adaptation.
  • Participation of private sector associations in the NAP process, including its development phase, may be encouraged by enhancing their awareness of adaptation needs (e.g., through training programs) and strengthening their capacity engage their members (e.g., through tailored brochures or case studies).
  • Integrating private sector perspectives on adaptation priorities (e.g., their costs, technical feasibility, barriers to implementation and financing) into stakeholder engagement activities and the development of financing strategies may enhance implementation of these measures as well as private sector ownership of the overall NAP process.

5.4 Public-private partnerships

Public-private partnerships (PPPs) are one way the public sector may engage the private sector in the implementation phase of the NAP process. In PPPs, the public and private sectors allocate and share risks amongst themselves. This allows for more practical and doable financing and delivery of large-scale projects. PPPs are particularly appropriate for investments in areas such as building and operation new infrastructure, climate-proofing existing infrastructure, and managing natural resources. Interest in PPPs has grown in recent years in part because of their potential to provide better value for money than conventionally delivered projects.

PPPs take a wide range of forms that vary in the extent of involvement and risk taken by the private sector partner(s) (Alloisio et al., 2014). Approaches can include the following:

  • Greenfield projects. The private sector is invited to provide new installations needed to meet growing demand. Examples include cellular networks, airports and manufacturing plants built from scratch.
  • Concessions. These include long-term contracts under which the private sector assumes full responsibility for operating and managing an infrastructure asset, including investment and renewal. However, ownership remains with the public sector. Examples include urban passenger transport systems, water and waste water services, and waste and recycling collection contracts
  • Management and lease contracts. These are shorter in duration (five to seven years) with less risk and responsibility being transferred to the private sector. Private operators assume responsibility for the management and operations and are remunerated according to pre-agreed performance targets. Investment remains the responsibility of the public sector (World Bank Group, 2016). Examples include drinking-water treatment plant operation, and water and sanitation operation contracts.

Based on the above, PPPs offer possible financing opportunities for the implementation phase of the NAP process (see Case Study 5). They appear particularly suited for the following types of projects (Green Growth Best Practice, 2014; Smith et al., 2016):

  • Enabling resilient (green) infrastructure and systems. Upgrading and financing new, climate-resilient infrastructure for key vulnerable sectors where large “public good” infrastructure is needed but cannot be provided cost-effectively by governments alone. Examples include irrigation equipment to deal with drought, waste water treatment plants and ports.
  • Managing natural resources. Collaboration and shared ownership of natural resources and protected areas, such as for ecotourism. This can support compliance and identify links between adaptation and resource management.
  • Information and technologies. Improving climate information and services through technologies that support business decisions and capacity, such as weather stations or drought-resistant seeds.
  • Innovation, research and development. Provision of the long-term commitment needed by the private sector to invest in innovations that can facilitate adaptation.

Case Study 5. Advancing irrigation through a PPP in Megech-Seraba, Ethiopia

In 2004, the Ethiopian government began to explore the potential to expand its irrigated lands through a project in the Megech-Seraba region in northern Ethiopia. The purpose of this project was to increase the agricultural production of approximately 6,000 smallholder subsistence farmers by providing reliable water availability and flood protection. This entailed the construction of two pumping stations and open channels as well as pumping irrigation water from Lake Tana. Taking into consideration the potential economic, social and environmental effects of this large-scale project, the Ethiopian government decided to move ahead, considering the use of a PPP with the support of the World Bank to help implement the project.

In 2012, the Ethiopian government signed a contract with the French operator BRL Ingénierie to provide services for construction supervision, operations and maintenance, and capacity building of water users associations for the Megech-Seraba project. According to the Ministry of Water Resources of Ethiopia, the government provided the capital investment for the construction of the project and covered all associated costs of the operations and maintenance services with a concessionary loan from the World Bank. The government aimed to offset the operation and maintenance cost of the system by collecting user fees from farmers (BRL Ingénierie, Metaferia Consulting Engineers, & Ethiopian Ministry of Water and Energy, 2010). The contract duration of the PPP is eight years, after which operating and maintenance service responsibilities are to be turned over to a new local public entity, trained by the PPP contractor (Public-Private Infrastructure Advisory Facility, 2012).

The government provided the capital investment for system construction, and the water service is billed to the end-user. BRL Ingénierie’s risk exposure should be limited to operation and maintenance costs. Through the PPP, the Ethiopian government intended to ensure efficient construction supervision, high-quality operating and maintenance services of the irrigation system, and adequate training and education to small landholders and the new public operating entity (Public-Private Infrastructure Advisory Facility, 2012).

However, PPPs can be relatively complex in design and usually involve high contracting and (up-front) financing cost. They require policy and market conditions that create an enabling environment that balances the need of governments to effectively deliver public goods and the private sector’s commercial interests. Private sector participation can only be expected when market conditions are favourable and adequate returns on investment within an acceptable timeframe can be assured. Several key factors are needed to make PPPs effective from a public and private perspective. These include a stable regulatory and enabling environment; tailored technical assistance, capacity-building and awareness-raising; and early involvement of civil society or community groups (Gardiner et al., 2015). National governments have an important role in creating this enabling environment by establishing frameworks suitable for PPPs.

As these components suggest, for PPPs to be successful, both the public and private sector must have specific capacity to enter into an agreement and administer it successfully. Such capacity is absent in many jurisdictions in developing countries, both at the national and sub-national levels, and it takes both time and experience to establish it (Colverson & Perera, 2011). Consequently, the potential benefits of PPPs must be carefully assessed against their associated costs and the ability of a country to manage them (Schmidt-Traub & Sachs, 2015).

When the required enabling environment exists, adaptation measures identified through NAP processes can be supported through appropriately structured PPPs. While PPPs can vary in terms of size and complexity, they are commonly associated with large-scale projects in order to attract private sector interest and financing. PPPs have been used in smaller projects but are often bundled to create a larger initiative that encourages private sector involvement. The potential for scaling up and using PPPs for the implementation phase of the NAP process may therefore be limited to a small number of (mostly) large-scale projects.

Key issues for consideration

  • Gaining a clear understanding of PPPs, including their strengths and weaknesses, can better enable an accurate assessment of their suitability for the implementation of specific adaptation measures identified in the NAP process. This understanding should recognize that PPPs tend to be relatively complex in design, usually involve high contracting and (up-front) financing costs, and often involve long-term contracts (up to 30 years or longer).
  • In various countries, governments have established a central unit responsible for liaising with private investors potentially interested in PPPs. Collaborating with this unit and making use of its contacts and experiences may significantly enhance the chances to develop successful PPPs related to adaptation.
  • Policy and market conditions that create an enabling environment for PPPs must be in place. Private sector participation can only be expected when market conditions are favourable and adequate returns on investment within an acceptable timeframe can be assured.
  • Ensuring that both the public and private sectors have specific capacity to enter into a PPP agreement and administer it will increase the potential success of an adaptation-related PPP.

Suggested further reading about private sector finance:

Gardiner, G., Bardout, M., Grossi, F., & Dixson-Declève, S. (2015): Public-Private Partnerships for Climate Finance

GCF Private Sector Facility. (2016a): Establishing a programmatic framework for engaging with micro-, small- and medium-sized enterprises

GIZ (n.d.-a): Climate Expert, which helps small and medium-sized enterprises adapt to climate change.

International Bank for Reconstruction and Development (2015): What are Green Bonds?

The Global Innovation Lab for Climate Finance (n.d.), which screens proposals from around the world to identify instruments that have potential to drive investment in developing countries at scale.

UNDP (2015c): Low Emission Capacity Building Project: Tracking Private Climate Finance Flows at the National Level: Proposed country-level methodology

UNEP-FI & GIZ (2016): Demystifying Adaptation for the Private Sector

World Bank Group (n.d.-a): PPP Knowledge Lab, which promotes smarter public-private partnerships.

World Bank Group (n.d.-b): Public-Private-Partnership in Infrastructure Resource Center (PPPIRC)

31 Direct impacts can include degradation of the company’s infrastructure, reduced quality and quantity of raw materials, and delays in product and service delivery. Indirect impacts can include reduced income, increased costs of insurance, reduced productivity due to reduced availability of labour, and changing demand for goods and services.

32 The IFC (2016) estimated that US$22.6 trillion in mitigation and climate change adaptation investment opportunities exists in the emerging markets from 2016 to 2030.

33 Private sector actors who support climate change adaptation rarely label it as such. They tend to use terms such as “risk management,” “disaster recovery,” “business continuity,” “new business opportunities” or aspects of “sustainability,” “reliability,” “diversification” or “resilient supply chains” (Koh, Mazzacurati, & Swann, 2016).

34 These points are drawn from GIZ, n.d.; Koh et al., 2016; Prowitt et al., 2011; Smith, Hayman, Anderson, & Laird, 2016; Shaw, n.d.; UNEP, 2016; and UNEP-FI & GIZ, 2016.

35 PPPs commonly incorporate three key elements: (1) a contractual agreement defining the respective roles and responsibilities of public and private actors, (2) risk-sharing among public and private actors, and (3) a financial reward for private parties clearly defined in contractual and risk-sharing arrangements (Gardiner et al., 2015).