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Unlocking investment in climate resilience and adaptation

By Alix Peterson Zwane, CEO  |   Posted 16th September 2021

Over the last year, we’ve spent time thinking and consulting with our government partners, climate experts, and other key stakeholders, about the role investors should play at the nexus of innovation and climate change.

Despite the increasing amounts of funding directed towards climate action from governments and other investors, a lack of quality data and information, a limited understanding of the needs of affected countries and populations, and a perception that return on investment will be low often mean that innovators focused on climate adaptation and resilience fail to attract the funding they need in order to test the effectiveness of their innovation. Just as we have seen since the onset of the COVID-19 pandemic, climate change will wipe out decades of progress in improving the lives of GIF’s target beneficiaries.

That is why GIF is working with mission-aligned partners to find and fund innovations in climate adaptation and resilience with the potential to improve and protect the lives and livelihoods of people living on less than $5 a day who are disproportionately affected by climate change.

As part of GIF’s journey into this space, I was pleased to join an engaging discussion this week focused on unlocking investment in climate resilience and adaptation hosted by The Conduit, as part of their Countdown to COP series.

I spoke about the link between innovation, improved livelihoods, and climate change; and the sectors where GIF believes there to be opportunities for us to be truly additional and make the greatest contribution.

I emphasised one of the stark findings of the recent IPCC report – that we have less than a decade to sufficiently reduce emissions to keep warming below 2ºC. This is a demanding timeframe that requires unprecedented collaboration, technological innovation and significant investment. Many places and people are not even resilient to today’s climate, let alone to the higher temperatures, higher seas, and more frequent extreme events that the IPCC tells us are coming, even if warming is held to 2º. The horrific drought now underway in Madagascar; the recent heatwaves across continental Europe, and the flash floods in North America show the urgent need to climate-proof lives and livelihoods.

In addition to the core foundations needed to improve lives and livelihoods – such as education, health, and more empowered women – there is a roster of investments needed to climate-proof livelihoods against specific climate threats. These include drought-resistant seeds, disaster early warning systems, social safety nets, more efficient water systems, and nature-based approaches to flood control and coastal protection. Well executed, these interventions will not just protect against losses, they will spur investment and boost employment and incomes. These investments should offer high returns. The Global Commission on Adaptation says that the social benefit cost ratio for adaptation investments is 4:1.

But the financing need is in the trillions of dollars. Innovation can make that investment more affordable and even more effective. This means making public services work better and more efficiently for poor people because many adaptation activities need to be coordinated and undertaken by the government, such as watershed management, for instance, or climate-sensitive social safety nets. But it also means tapping the power of the private sector to make markets work better for the poor.

There is enormous scope for innovation here. For instance, there are many emerging ways for information technology to cut costs and increase resilience. These include more resilient and efficient agricultural supply chains, that reduce transport cost and food waste and maintain food security when climate shocks hit. Here I highlighted GIF’s support of the use of pay-as-you-go technology for water supply, through investments in companies like Drinkwell and City Taps, allowing households cheaper access to better quality water while allowing water utilities to more securely invest in improved supply.

The world is full of innovators with great ideas. But many promising entrepreneurs’ good ideas fail to generate their full potential social impact because there is a mismatch between the kind of capital they need and the kind of capital that is available to them. Often early-stage organisations whose innovative ideas have the potential for impact at scale are not in a position to pursue funding from DFIs or commercial investors, and so they miss out altogether.

To fully unlock the power of innovation, we must ensure that innovators have access to the early-stage, flexible finance they need to test, adapt, and improve their ideas. Along the capital continuum that ranges from aid and philanthropic grant funding at one end to purely commercial capital at the other, we all need to make better use of the development finance toolkit. GIF is focused on being creative about blending capital across the returns continuum, taking smart risks to fund those innovations that have the potential for outsized social return. This is how we de-risk and get firms to scale more quickly.

GIF is agnostic about sectors, we seek to find and fund entrepreneurs and their ideas from anywhere, and then consider how we could support them to generate evidence of impact and pivot their way to an interesting and resilient business model. With that being said, there are certainly areas where our initial thinking shows us that the potential for impact is great. One example is social safety nets. Bad luck – an illness, a drought – can tumble households back into poverty traps. Safety nets, including government cash transfers, and private remittances, can protect households and communities. There is a lot of potential to adapt them for climate resilience.

Agriculture is perhaps the most climate sensitive sector, and of course is crucial for poverty reduction. GIF’s investment in One Acre Fund to test and scale up new farming innovations and promote strategies that enhance small-holder adaptation is an example of this. And our work with researchers at Stanford to use satellite imagery and machine learning to measure crop yield.

Early childhood education, which may not strike as climate adaptation, is actually another good example. Many children born today will live into the 22nd century. Over their lifetime, they will need to adapt to profound changes in climate and unimaginable changes in technology, labour markets, and society. For instance, those born into rural areas will need to constantly adapt their farming systems, or will need to move to less climate-sensitive urban occupations.

As we approach COP26, we must be honest that there is a serious lack of tools to measure adaptation effectiveness and track progress. In the area of gender, GIF has championed the need to learn about cost-effectiveness and pioneered metrics for comparing impact across a wide variety of different interventions to promote women’s agency. This is a good precedent for similar-needed work in adaptation.

I would like to thank The Conduit for inviting me, and the Chair Charles Donovan, who is Executive Director of the Centre for Climate Finance and Investment at Imperial College Business School. I was delighted to share in the event with my fellow panellists, representatives from Natura (Andrea Álvares, Chief Brand, Innovation, International and Sustainability Officer) and the Global Resilience Partnership (Nate Matthews, CEO).