KEY INSIGHTS

■ Management of climate change issues is an important consideration for
sovereign and credit risk.
■ Green bonds are directing capital toward climate change prevention
and adaptation.
■ Supranational organisations can play an important role in creating innovative
financing solutions.

Over recent months, extreme weather events around the world have increasingly dominated the news flow, and the United Nations Secretary‑General at COP27 was unequivocal that the goal of limiting global warming to 1.5°C is now on “life support—and the machines are rattling.” While mitigation—the fight to limit global warming—remains essential, adaptation to the impacts of climate change that are increasingly being felt is now also necessary. A number of countries are engaging in some form of adaptation planning and directing capital toward these efforts. But levels of investments remain small and are not generally keeping up with the pace of climate change. Currently, only 7% of climate‑related investments get spent on adaptation, according to the Climate Policy Initiative.¹

This is also where the opportunity lies for governments. They have tools to direct funds toward both emission reduction and climate change adaptation strategies, and markets can play a role by influencing the cost of capital. The Global Commission on Adaptation’s 2019 report2 estimated that USD 1.8 trillion of investment in five areas of climate adaptation could generate USD 7.1 trillion in net benefits: early warning systems, resilient infrastructure, dryland agriculture crop production, mangroves protection, and resilient water resource management.²

¹ Source: Global Landscape of Climate Finance 2021, Climate Policy Initiative. As of December 2021.
² Global Commission on Adaptation: Adapt now: A global call for leadership on climate resilience. As of September 2019.

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