Finding money to save the Third Pole

Climate finance conversations are usually dominated by ways to fund switching to renewable energy, clean transportation and waste management. However, in the past few years there have been urgent calls to also finance adaptation, resilience, as well as loss and damage. 

This is a much-needed shift as the impact of the climate crisis is being increasingly being felt worldwide, and the IPCC reports have been presenting more and more alarming scenarios year after year, so much so that reality has outpaced projections.

Public financing is often placed at the heart of finding funding to adapt and build resilience. The most notable example is the Adaptation Fund which has allocated over $850 million for projects and programs that help vulnerable communities in developing countries adjust to climate-induced impact.

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However, public financing alone is simply not enough to meet the increasing demand for adaptation and resilience finance. Presently, only around 10% of overall climate finance flows are allocated to climate adaptation even as the figure for developing countries needs to increase by 5 to 10 times. Within this, only around 2% of adaptation finance comes from the private sector such as corporations and institutional investors whereas 98% were from public sources.

Private sector engagement and financing in climate adaptation and resilience is imperative if the world is to stand any chance in tackling the climate crisis. This is particularly relevant in the Himalaya as the conversations around the Third Pole Process, spearheaded by the U.A.E government as the COP28 presidency, continue.

The Third Pole Process has been labelled as a comprehensive effort to introduce the Arctic model of collaboration to the Third Pole region. The process is expected to be a sustained effort to define the challenge, to initiate research collaboration, and to help identify effective dissemination of information to enable political deliberations and policy-making. Although engaging the political establishments across the region will indeed be crucial, leaving out the private sector will be a missed opportunity for the Third Pole Process.

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This is easier said than done. There are fundamental barriers to attracting private sector engagement in adaptation and resilience financing, given the challenges with private financial returns. However, this discourse is picking up globally and efforts are underway to mobilise private sector investments.

Innovating financing mechanisms such as through the use of guarantees, co-financing, de-risking and blended finance can definitely help leverage the scarce public finance resources to catalyse private sector finance.

Insurance companies can also play a key role as risk managers, risk carriers and investors. Traditionally, private insurers avoided insuring for disasters, in part because those who are insured are less likely to flood-proof their assets and only those at high risk of flooding will purchase insurance.

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Yet, with a growing insurance market, parametric insurance and risk pooling may overcome these challenges. In addition, exposing the risk vulnerability of the private sector such as through mandatory climate risk assessment and disclosure requirements as regulatory measures may also increase private sector investments for their own long-term stability.

In addition to financing, the private sector also has access to innovative technologies, both digital and physical technologies, which is often a forgotten yet crucial detail. The Himalaya are home to global tech giants such as Baidu, Tencent, Infosys and Alibaba, who have immense potential to contribute to the battle against climate change not just by reducing their own operational footprint but also by developing, deploying and diffusing climate technologies, including with regards to adaptation and resilience.

The Third Pole Process can foster private sector engagement for adaptation and resilience in the Himalaya. Initiating a dialogue as well as research collaboration can be a key first step but it is imperative to ensure that such research is translated into evidence and impact-based action.

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Outside of such multilateral processes, both national and sub-national governments also have a role in fostering private-sector engagement. Many of the countries in the Himalaya are making progress with greening their financial systems and creating guidelines for banks and financial institutions. Such efforts should also look into how adaptation and resilience can be incorporated in an otherwise climate mitigation-dominated space.

It is high time to scale both public and private finance for adaptation and resilience in the Himalaya, and only such coordinated efforts can ensure that the financing needs of the region are met in an inclusive manner.

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Rastraraj Bhandari works on climate finance and carbon markets, and contributes regularly to Nepali Times on issues related to climate change.