How to finance climate adaptation measures

• Cities often need help to raise finance for climate adaptation projects.
• We discuss some of the challenges of financing these projects and some innovative ways to get around them.
• What can we learn from the EU Mission on Adaptation to Climate Change focusing on supporting EU regions, cities and local authorities to build resilience?

Everyone is spending more on climate change action. According to the recent Climate Policy Initiative report “Global Landscape of Climate Finance: A Decade of Data”, global climate finance is almost reaching a USD trillion for the first time. This is good news for our planet. However, most of this climate financing is going towards climate mitigation measures such as new renewables, energy efficiency, and low-carbon transport. Only 5% of the total is going towards climate adaptation. So why so little interest in adaptation? And how can it reach the heights of financing for mitigation?

What are the challenges of financing climate adaptation in cities?

The low level of financing going towards adaptation isn’t due to a lack of potential projects. The challenges are more nuanced and specific to the ‘nature’ of adaptation projects.

• 📉 Low Financial Returns – ‘Money talks’, and it can be challenging to put a number on the benefits of an adaptation project. For example, planting trees in a city will benefit the environment, but it’s difficult to estimate quantifiable returns for an investor. This makes it difficult to find investors and large amounts of capital to finance adaptation projects.
• 🛣 Long-term vision – Adaptation measures require long-term vision and commitment from many stakeholders. This is challenging when politicians and city officials have short terms in office. Cities need larger strategic frameworks for climate adaptation measures that don’t hit the bin when there’s an office change.
• ⏱ Limited Resources – Raising finance isn’t for the fainthearted and needs a solid team to negotiate low rates, convince investors of returns and follow all local rules and regulations. Cities with limited staff resources and expertise to raise climate finance for adaptation projects will struggle to get the changes their city needs.
• 👤 Siloed City Departments – Most cities won’t have a specific ‘climate adaptation’ department. Adaptation measures will usually fall under the responsibility of departments such as water management, transport, nature conservation, and health. When these departments aren’t aligned on climate adaptation measures, it can be challenging to finance transformative adaptation measures.

Innovative ways to finance climate adaptation in your city

There are genuine challenges when raising finance for climate adaptation – but every challenge is an opportunity. To tackle this issue, cities worldwide have been taking innovative approaches to finance climate adaptation in their cities. We have compiled some of the best ways to finance adaptation measures and share examples of cities leading the way.

Private funds – Most city dwellers will live in housing estates or apartment blocks that some unknown developer designed. The buildings will rarely have been designed with climate adaptation in mind. Private funds are a way for city residents to take more control of the climate adaptation projects in their city.

• Action Example - Vrijburcht multipurpose living-and-working complex in Amsterdam. In this project, future residents jointly developed the project, including carrying out the risks involved in the pre-financing. This gave the future residents greater power to create the attractive and sustainable building they wanted.

Green Bonds – Environment, Social and Governance (ESG) investing is growing, and green bonds are becoming more popular with pension funds and asset managers. Cities need to take advantage of this trend and promote investment from their citizens. Citizens with pensions could direct their fund manager to invest in bonds issued by their local city – generating a return whilst benefiting from living in a greener, cleaner city.

• Action Example – Paris issued a €300m Climate Bond in 2015. 20% of the funds are dedicated to adaptation – through planting trees and creating green spaces. These adaptation measures probably won’t save money, but other projects in the investment complement them. ~50% of the funds have gone to energy efficiency measures, including renovations to social housing and upgrading public lighting. Bundling measures in this way makes sense, and for further insight, check out this article.

Financial Incentives – There is growing awareness for climate change action, and more and more people want to get involved and play their part. Offering incentives such as grants and tax rebates for climate action projects is one way of getting the public to share the costs associated with climate change.

• Action Example – Hamburg is leading the development of green roofs in Europe. As part of their “Green Roof Strategy”, they made subsidies available for green roofs on residential and commercial buildings. Grants of up to 60% of installation costs were made available, encouraging the public to turn the city green.

Crowdfunding – The “power of the crowd” should not be underestimated! Crowdfunding is increasing, with many startups financed by thousands of individuals' collective investments. The same approach can be applied to climate adaptation financing. Citizens can put small amounts of money together to improve their city for themselves and others.

• Action Example – Citizens in Ghent have used crowdfunding to make their city more sustainable. Citizens crowdfunded to support climate adaptation projects such as urban farming and edible streets.

Public-Private Partnerships, Blended Finance or Blending – Climate change action will need considerable investments in adaptation projects. To achieve this level of capital, more public-private partnerships will be required. This type of financing has allowed us to build substantial motorway projects and other large infrastructures such as hospitals and schools.

• Action Example – A public-private partnership was created to develop Bilbao's “Zorrotzaurre” district. The project would likely not be developed without this arrangement, and the partnership allows the new development to be ‘climate-proof’.

The EU Mission on Adaptation to Climate Change

The Mission on Adaptation to Climate Change is a European Union initiative that seeks to help EU regions, cities, and local authorities build resilience against the impacts of climate change. It’s one of the five EU missions, “sister” of the 100 Climate-Neutral and Smart Cities by 2030. Here are take-aways relevant for financing adaptation measures:

1. Designing comprehensive financial risk protection strategies to guard against damage and losses resulting from extreme climate events, as well as creating financial resilience, is essential for closing the climate protection gap.
2. Using funds available for the renovation wave to retrofit public buildings and social housing is a great opportunity to make them climate-proofed.
3. Check the Horizon Europe Work Programme 2023-2024 to access concrete funding opportunities on agriculture, nature-based solutions or addressing health risks.

More investment, more action

Climate change is a battle on two fronts. We need to curb our emissions, so we don’t worsen a bad situation. And we need to adapt to the climate change effects already locked in. Both areas need considerable increases in investment if we’re to stand a chance of beating climate change. A great approach to tackling investment challenges is a multi-solving approach. Read about multisolving in this article.

Climate adaptation will not only help people in cities cope with the future effects of climate change, but it also offers an opportunity to make our cities more enjoyable and livable at the same time. Think water squares creating new social spaces in cities. These projects shouldn’t be viewed as purely low-revenue environment projects but as city transformation projects.

Antonio is the Climate Action Specialist at Futureproofed. His specialities include mitigation and adaptation measures research, urban climate adaptation, local climate data, and more. When he's not hard at work helping cities become more sustainable, he can be found cycling across Flemish fields.

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