24 March 2022. Within the context of EIB TA Financial Sector Programme for West and Central Africa, MFW4A and the IPC, Horus and IECD Consortium hosted the seventh webinar of their series on “How banks assess climate risks and integrate them into credit risk assessments”.
Making Finance work for Africa (MFW4A) Secretariat is hosted within the African Development Bank (AfDB) in Abidjan, Côte d’Ivoire.
See blogpost: Topic 7: How banks assess climate risks and integrate them into credit risk assessments
The panelists shared their experiences on how banks and MFIs adapt their credit/loan approval processes to integrate climate change considerations and incentivize sustainable investments with a focus on SMEs. The panelists also highlighted the key steps in the ESM Framework and how climate-related risks can be mainstreamed in financial sector activities.
Participants gained knowledge on:
Resources
The EIB Evaluation Division conducted an evaluation of EIB support for climate change adaptation, covering the period 2015 to 2020. The evaluation finds that the EIB’s relatively low level of support for adaptation does not mirror the vision of the EIB as the EU climate bank as set out in the Climate Bank Roadmap.
Key factors that can explain the EIB’s low contribution to climate change adaptation include client demand affected by data and knowledge related constraints, limited upstream support and staff capacity and the use of financial investment volumes as the only metric for adaptation.
The evaluation concludes that to increase its support for climate change adaptation requires changes in the EIB’s business model and implies greater investment in its skills base, upstream engagement, and access to concessional finance or grants.
COVID-19 recovery stimulus packages are also becoming a lost opportunity to finance climate adaptation. Less than one third of 66 countries studied explicitly funded COVID-19 measures to address climate risks up to June 2021. Meanwhile, the heightened cost of servicing debt, combined with decreased government revenues, may hamper future government spending on adaptation.
On the positive side, climate change adaptation is increasingly being embedded in policy and planning. Around 79 per cent of countries have adopted at least one national-level adaptation planning instrument – an increase of 7 per cent since 2020. Implementation of adaptation actions is also continuing to grow slowly, with the top ten donors funding more than 2,600 projects with a principal focus on adaptation between 2010 and 2019.
Overall, though, the report finds that further ambition is needed to progress in national-level adaptation planning, finance and implementation worldwide.
The panelists shared their experiences on how banks and MFIs adapt their credit/loan approval processes to integrate climate change considerations and incentivize sustainable investments with a focus on SMEs. The panelists also highlighted the key steps in the ESM Framework and how climate-related risks can be mainstreamed in financial sector activities.
- How to assess climate change risks?
- Which approach to take in integrating climate risks into credit risks assessments?
- How to adapt products and services to more climate action?
Resources
Atkins (2021) Study on the Involvement of the Private Sector in Financing Climate Adaptation Actions #76 p.
This study aims to identify new avenues for the involvement of the private sector in climate adaptation finance. It does so by:
- Outlining the current private sector adaptation finance landscape.
- Identifying and analysing the barriers and enabling factors for increasing private sector investment in adaptation.
- Assessing the policy, legislative and regulatory conditions needed to support private sector finance in adaptation through selected case studies, highlighting current good and bad practice within legislative and regulatory frameworks.
- Assessing the potential for the European Fund for Sustainable Development plus (EFSD+) to leverage private sector finance for adaptation, including operational considerations for how this can be strengthened within EFSD+
- Developing operational recommendations on how the EU can support partner countries to create an enabling environment to catalyse private sector finance in adaptation.
The latest OECD report on Climate Finance Provided and Mobilised by Developed Countries in 2019
shows that adaptation finance only accounts for 25% of the total funding. Most investments for adaptation are currently financed by public finance through grants and, to a lesser extent, loans or de-risking facilities. Finance for adaptation needs to be scaled up, as reiterated by all Parties at the UNFCCC COP26, and include private financing as it is happening for mitigation.
There is limited information available on private sector investment in adaptation, in part because of the difficulties of differentiating investment in adaptation from standard business activities. Although reported figures are an underestimate, it is clear that the level of private sector investment is far lower than what is necessary, with the latest estimates of tracked private investment in adaptation representing just 1.6% of total adaptation finance.
shows that adaptation finance only accounts for 25% of the total funding. Most investments for adaptation are currently financed by public finance through grants and, to a lesser extent, loans or de-risking facilities. Finance for adaptation needs to be scaled up, as reiterated by all Parties at the UNFCCC COP26, and include private financing as it is happening for mitigation.
There is limited information available on private sector investment in adaptation, in part because of the difficulties of differentiating investment in adaptation from standard business activities. Although reported figures are an underestimate, it is clear that the level of private sector investment is far lower than what is necessary, with the latest estimates of tracked private investment in adaptation representing just 1.6% of total adaptation finance.
Key factors that can explain the EIB’s low contribution to climate change adaptation include client demand affected by data and knowledge related constraints, limited upstream support and staff capacity and the use of financial investment volumes as the only metric for adaptation.
The evaluation concludes that to increase its support for climate change adaptation requires changes in the EIB’s business model and implies greater investment in its skills base, upstream engagement, and access to concessional finance or grants.
UNEP (2021) Adaptation Gap Report 2021 #104 p.
The sixth edition of the UNEP Adaptation Gap Report: The Gathering Storm finds that there is an urgent need to step up climate adaptation finance. Estimated adaptation costs in developing countries are five to ten times greater than current public adaptation finance flows, and the adaptation finance gap is widening.
On the positive side, climate change adaptation is increasingly being embedded in policy and planning. Around 79 per cent of countries have adopted at least one national-level adaptation planning instrument – an increase of 7 per cent since 2020. Implementation of adaptation actions is also continuing to grow slowly, with the top ten donors funding more than 2,600 projects with a principal focus on adaptation between 2010 and 2019.
Overall, though, the report finds that further ambition is needed to progress in national-level adaptation planning, finance and implementation worldwide.
Climate Risk Management (2021) What role for multi-stakeholder partnerships in adaptation to climate change? Experiences from private sector adaptation in Kenya # 13 p.
There has been limited over-arching investigation of the opportunities, challenges and distributional risks that may result from employing MSPs to increase the adaptation resources available to SMEs (‘MSPs for SME adaptation’). This study contributes to this gap.
Since SMEs dominate enterprise landscapes in developing countries and are fundamental to more inclusive and equitable development. Small-scale agricultural producers and pastoralists form a crucial component of the private sector in sub-Saharan Africa and even small-scale producers in the informal (unregistered) sector can be linked to large and sometimes highly competitive value chains, that incorporate a range of different sized businesses
- MSPs can mobilise a wide range of private sector actors to deliver adaptation goods.
- MSPs can overcome barriers to adaptation for SMEs in remote regions.
- MSPs can expose SMEs to new risks and vulnerabilities.
- MSPs may help upscale SME adaptation through more integrated approaches.
- MSPs may necessitate rethinking donor programming to enable ongoing monitoring.
Neo-liberal market-based development paradigms suggest that in mobilising the private sector, MSPs can offer a more sustainable model for implementing adaptation action, that does not rely on ongoing public or donor finance.
While Kenya has a large and burgeoning private sector, this tends to be characterised by a high number of micro and small enterprises in the informal sector, which are heavily concentrated in a mixture of livestock, rain-fed agriculture and agricultural processing and trade, making them particularly exposed to climate variability.
Strategies employed to unlock the private sector for adaptation within the MSP:
- Value chain and market analysis
- Multi-stakeholder dialogue forums and brokering of business linkages
- Research and other investments in information and tools
- Marketing
- Access to finance, financial incentives and financial de-risking strategies
- Incubation services
- Empowering the consumer base
Given the scale of challenges faced by SMEs in Kenya, weaknesses in the business environment not addressed within an MSP (for example as a result of insufficient consultation, evaluation or funding)
frequently undermine and serve as roadblocks to the effectiveness, uptake and sustainability of partnership activities and investments. There are cases of MSPs that faltered through failures to ensure adequate financing mechanisms, or through insufficient investment in awareness-raising, to ensure buy-in and uptake of new climate-smart technologies or services.
The short duration of the donor-funded projects that typically initiate MSPs, often exacerbate these challenges; with projects discontinued before market linkages have had time to mature, and before the customer base has had the opportunity to benefit sufficiently from an initiative as to become independently empowered to maintain the market. 
IFC/EBRD (2013 ) Pilot Climate Change Adaptation Market Study: Turkey # 55 p.
In Turkey the priority sector is the Manufacturing of
food products and agricultural supply chains. The manufacturing of food products is identified as the highest-ranking sector when considering a combination of economic ‘importance’ and dependency on Climatically Sensitive Infrastructure and Systems (CSIS). Agriculture is the 5th largest contribution to GDP in Turkey. As such, agriculture has been merged with the manufacturing of food products, as there is a clear and important link in terms of supply chains and the provisions of raw materials.
Related:
Climate adaptation technologies / climate business opportunities @ the level of SMEs.
The company aims at contributing to achieve food security by preserving perishable products, as well as to uplift and empower local Nigerian communities, especially women though hiring mainly women to manage the operations and collection of revenue at ColdHubs stations.
Scaling Climate Action through Technology and Innovation by SMEs for Green Investment in Africa
6 July, 2020. The workshop, was financed with a grant from AFDB’s Fund for AfricanPrivate Sector Assistance (FAPA), and is part of the Bank’s Private Sector Investment Initiative
for Nationally Determined Contributions (NDCs), which aims to promote Africa’s private
sector participation in climate-related investments as set out under the Paris Agreement.
Presentation: Africa Consultative Workshop - Scaling Climate Action Through Technology and Innovation by SMEs
6 pilot countries: Angola
• Egypt
• Morocco
• Mozambique,
• Nigeria
• South Africa
The objective of FASTER is to support the Farm Advisory Systems sustainability in Tunisia by enabling the application of innovative solutions, sharing knowledge and best practices, and by mainstreaming research results and technology to local farmers and policy-makers linked to forestry and agricultural sectors who need to face climate change and related challenges.To that end, the project FASTER provides a series of Farm Advisory Services for the targeted groups of interests. It includes the implementation of a Living Lab, the organization of a Summer School, and the establishment of a Knowledge Hub and an E-learning platform.
FASTER Project Living lab focuses on knowledge transfer on adaptation to climate change strategies between researchers in the field of water, soil and forest management, and practitioners engaged in Farm Advisory System in Tunisia.
This project has received funding from the European Union ́s Horizon 2020 research and innovation
Farmers’ Adaptation and Sustainability in Tunisia through Excellence in Research
The objective of FASTER is to support the Farm Advisory Systems sustainability in Tunisia by enabling the application of innovative solutions, sharing knowledge and best practices, and by mainstreaming research results and technology to local farmers and policy-makers linked to forestry and agricultural sectors who need to face climate change and related challenges.To that end, the project FASTER provides a series of Farm Advisory Services for the targeted groups of interests. It includes the implementation of a Living Lab, the organization of a Summer School, and the establishment of a Knowledge Hub and an E-learning platform.This project has received funding from the European Union ́s Horizon 2020 research and innovation
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