CDKN has launched the second episode of our Finance for Resilience podcast series, focusing on demystifying adaptation finance.
“Governance and political buy-in perhaps remain the most crucial factors in determining how we finance adaptation comprehensively at scale”.
In this episode of the Finance for Resilience podcast, we unpack the topic of adaptation finance.
CDKN's climate finance lead, Kamleshan Pillay, is joined by distinguished guests Malango Mughogho and Kathryn Bakos.
Kathryn Bakos is the Director of Climate Finance and Science at the Intact Centre on Climate Adaptation at the University of Waterloo in Canada, and Malango Mughogho is the Director of ZeniZeni Sustainable Finance based in South Africa.
Listen in as they share some of their insights and experiences from their work, including challenges, solutions, as well as important lessons that are being learned in the process.
Listen to Episode 2: Demystifying adaptation finance, or read the transcript below.
Kamlesh Pillay: Welcome to the Finance for Resilience podcast brought to you by the Climate and Development Knowledge Network, or CDKN. If you're curious about policies, information, and solutions around climate change, you are in the right place. Listen in, as we discuss, debate, and look at real-life practical changes that can be made for significant and lasting economic and environmental impact around the globe. The topic of this episode, demystifying adaptation finance.
Hi, I'm Kamlesh Pillay, and I'm the host for this podcast. I work as the Climate Finance Thematic Lead at CDKN at SouthSouthNorth helping to shape the conversation and action around this fascinating topic. If this is your first time tuning into this podcast, welcome. We're glad to have you here. In this episode, our goal is to demystify the topic of adaptation finance, what it is, and why it's important to define.
The adaptation finance gap is noted by UNEP as being appreciable, which means that the current funds available are not sufficient to meet the adaptation implementation needs. The question is why is it so, and what are the solutions to bridge this financing gap? We've decided to ask some non-climate scientists what they think adaptation finance is. This is what they had to say:
Maybe like a business, adaption finance. I don't know. It either could be finance that adapts a lot or a business called adapt to finance.
Adaptation finance are the costs that are put forward to change something from its existing state into a different form.
I think that adaptation finance is probably allocations of funds or distribution of funds to some sort of change.
Off the cuff, I think of adaptation finance as being quite specific to climate change and it's around projects that are funded to help vulnerable communities or countries to handle the impacts of climate change.
I don't know what it means, but I can try and understand by breaking the words apart. Adapt and finance, to me, it sounds like adapting your finance to your lifestyle.
Kamlesh Pillay: One thing is clear. This broad ever-evolving topic is complex, and there's a lot of work to be done around informing people about the concept and the implications of this area. There's no universally accepted definition of adaptation finance. We can go on the IPCC 2014 synthesis report where adaptation finance is really the finance that is used to finance the future impacts of climate change. So it's really forth-looking to kind of future climate scenarios and then obviously the finance that's going to be needed to transition into that climate future.
Let's illustrate this potentially tricky concept of adaptation finance with a practical example of implementation in the city of Venice. Picture Venice, the beautiful Italian city, famous for its unique waterways and interesting city structure. On November 4th, 1966, abnormally high tides, rain, and severe wind caused what was known as the great flood. Thousands of residents lost their homes and over 75% of businesses were seriously damaged. It was a devastating blow to the city and its people.
Consequently, the city took action to prevent any future disasters. They initiated project MOSE, a series of physical barriers consisting of mobile gates to protect Venice against coastal flooding. Because of this investment, the city and surrounds have managed to save billions of dollars in avoided flood damages, not to mention protected stunning architecture and lives and livelihoods of its citizens. A proactive approach trumps a reactive one every time. Granted it took over 30 years from conception to construction, but the rewards are well worth the weight. In fact, this is often the case with adaptation finance. Financiers will focus on investment returns for a three to five-year window. Whereas the timeframe for adaptation finance is usually long-term.
Joining me today to continue the conversation on adaptation finance is Kathryn Bakos and Malango Mughogho. Welcome and thank you for joining me. Would each of you mind giving me a short introduction of your background?
Kathryn Bakos: Hello everyone. My name is Kathryn Bakos and I am Director of Climate Finance and Science at the Intact Centre. I come from Ontario, Canada. So probably a little bit cooler than some places people may be listening to. For those of you unfamiliar with the Intact Centre, we are an applied research center out of the University of Waterloo that helps homeowners, communities, governments, and businesses reduce risks associated with climate change and extreme weather events. So that's in relationship to flooding, fire, extreme heat, and under my personal domain of engaging institutional investors, so those who invest pension funds, to determine how physical climate risk can be incorporated into investment decision-making on ultimately how the performance of companies, stock price and returns can be affected by climate change. So it's an absolute pleasure to be with you all today.
Kamlesh Pillay: Great. And a pleasure to have you, Kathryn.
Malango Mughogho: I'm Malango Mughogho and I'm the Managing Director of ZeniZeni Sustainable Finance. ZeniZeni is a sustainable finance advisory firm.
Kamlesh Pillay: Thanks, Malango, and a pleasure to have you.
So maybe as a starting point for the conversation, and considering that the title of the podcast is demystifying adaptation finance, I think a good starting point would be firstly, to understand the importance of this area. Kathryn, I can pose this question to you first.
Kathryn Bakos: Well, I think it's a great question, but I believe to really understand why adaptation finance is so important, we really first have to understand why adaptation itself is important and then why it needs financing. This is where I would say work from organizations like the Intergovernmental Panel on Climate Change really comes into play, specifically their 2014 synthesis report, which determine that global climate change in itself is effectively irreversible.
So we can slow down the rate of change by transitioning to a greener global economy, in other words, mitigating against that change. But the manifestation of climate change as extreme weather, such as flooding, fire, extreme heat, that will continue to have a global scale impact on individuals, communities, governments, and companies, which will ultimately translate into impact on company share price, industry sector, and asset class performance. Even the communities in which these companies operate will experience impacts such as credit rating fluctuations. And this doesn't even include the human impact of mental health and physical health.
So that's kind of a long-winded answer to say why adaptation measures must be operationalized and to do that must be financed.
Kamlesh Pillay: Yeah. And I guess traditionally we've seen a kind of disparity between mitigation and adaptation, and I think we'll go into that further on in the conversation. But before we get there, Malango, I can ask you to comment on the need for adaptation finance and feel free to lead on from Kathryn's comments.
Malango Mughogho: Yes. As Kathryn said, it's critically important, given that the impacts of climate change are being felt today. And we have to adapt to those now, and there'll be more impacts coming in the future, depending on the degree to which we mitigate overall on climate change.
And then from a financial perspective, in terms of numbers, the Global Commission on Adaptation has estimated in terms of the costs of adaptation over a period between 2020 and 2030, they estimate those costs to be about $180 billion annually. That's per year. So that's a huge amount. And those costs are needed to address adaptation across a whole range of areas such as making infrastructure resilient, new and existing infrastructure, addressing agricultural production, and making our ecosystems, particularly water resource ecosystems, more resilient. So there's a significant requirement of financing to address this.
Kamlesh Pillay: Malango, I think it feeds into the next part of the conversation, which is really about why it's difficult in comparison to mitigation finance. So before I pose the question to you, Kathryn, I think what I'll start off with is just defining mitigation finance as kind of contrasting the two to try and lead into this almost diagnosis of why there's a problem.
Mitigation finance really deals with tangible emission reductions. So just to try and explain to the audience, maybe let's take an example of renewable energy. Solar panels or solar energy is a great example of this. And renewable energy is considered a mitigation finance option because the ultimate outcome is emission reductions or reduced CO2, which is something that would've occurred if would be the traditional fossil fuel system. So if it was traditional energy produced by coal, for example, that would've yielded emissions in the form of carbon dioxide equivalent. And mitigation, therefore, is quantified in terms of tons of carbon dioxide removed. And that is the kind of contrast between adaptation and mitigation where adaptation deals more with future climate impacts as opposed to tangible emission reductions.
So Kathryn, I can now pose the question to you about why there's such a problem with adaptation as opposed to mitigation. And why do we see this problem translated in the finance space specifically?
Kathryn Bakos: I believe if we're looking at why mitigation gets so much attention compared to adaptation, I believe that the conversation itself that surrounds the two tends to focus mostly on mitigation. You have governments, international agreements, such as the Paris Accord, various media sources. I would say 80%, and I think I'm being generous there, probably more than of the conversation regarding climate change within political, financial, capital market worlds, consider climate change almost exclusively, as you were saying, from a perspective of a cost on carbon, a carbon tax, or mitigating greenhouse gas emissions.
But we must take into consideration that there are multiple steps to solving the climate change equation. Mitigating through a carbon tax or beginning a transition, transitioning our industry is one, investing in innovation for carbon capture and sequestration is another very important one, actually getting the carbon out of the air. But we must also pay equal attention to adapting against climate change and the extreme weather risks that will continue to have increasing impacts physically and financially on a global scale. So adaptation is also key to that equation and must become a much more significant part of the conversation. So I'm very happy that we're having this conversation today.
Kamlesh Pillay: Just to tag onto that Kathryn, I think the aspect of tangibility is really important here for adaptation. I think generally we've seen the skew towards mitigation because sometimes the climate impacts are seen to be in the future. And when I mean in the future, I mean in 20 or 30 years' time. And I think what we're seeing, especially in the last five years, is that the climate impacts are becoming more apparent and more visible. And therefore, we are seeing a more heightened focus on adaptation because there's significant economic losses that are now visible and I think that that has helped shift the conversation, at least in the policy context. But Malango, maybe I can bring you in here to understand why there's a problem with financing adaptation.
Malango Mughogho: Yes. I think, as you both mentioned, the historical focus has always been on mitigation. And I think that's because whenever the UN Convention on Climate Change was signed, that was about 30 years ago, it was thought that we can easily address it. We had many years to do it. And I remember once a quote from somebody working for WWF actually on the advocacy side often said, "The best form of adaptation is mitigation." So that used to be the focus.
But I think now, as you say, that we have these impacts being felt and in many different ways, people realize we do need to address adaptation investments. But historically, because the focus hasn't been on adaptation, there's a lack of understanding of the mechanisms that allow you to understand how to measure the adaptation costs. I think it's a very complex process. And also, adaptation is needed across, you could argue, every single sector of any particular country's economy. So it's economy-wide. Whereas mitigation, in most countries, only covers a few sectors. Energy, transport and perhaps forest management, depending on where the country is.
So it requires policy makers, the private sector, civil society to focus across an entire economy. That makes it very, very complex. And I think that makes it hard then for financiers, who typically like to have the boundaries of what they're financing and why, and to understand exactly what the impacts of that financing would be. It makes it a little harder for them to grapple with.
Kamlesh Pillay: The one statement that you mentioned in there that really speaks to the heart of the issue is really this management of uncertainty in the future. I think one of the issues that I've typically experienced in my practitioner work is this almost making the case for adaptation, noting that some of the impacts are yet to be felt and also the economic costs associated with that.
And I think it's something that really makes it difficult for practitioners who are trying to almost demonstrate why adaptation is needed now rather than being focused on in 20 years' time. Kathryn, maybe from a private sector point of view, noting some of your previous work, can I get an example of just how you've managed to create this message or communicate this message towards investors?
Kathryn Bakos: Well, I think if you are comparing between the public and private sector, I think the best place to always start and as we've been talking about is the financial side. So what are the costs. Now Malango talked about global adaptation costs, but if we look at what the costs alone from the physical impact, and the industry sector, that's very easy, who can calculate that very easily is actually the property and casualty insurance sector. So global in the past decade has been the costliest decade due to natural disaster tallying approximately $3 trillion US globally, which is $1.1 trillion higher than previous decades. From flooding alone, the United Nations actually projects that damages could be as high as 27 trillion per year by 2100. So if we're translating that into economic loss, that would account for a 3% drop in global GDP.
Now to clarify, these are insured losses. So if we take those amounts and multiply it by three to four times, or even greater, depending on where you are in the world, you'll get uninsured losses, physical climate risk as the costs of damage, this comes out of taxpayers’ pockets and government budgets specifically for budgets for hospitals, schools and infrastructure development. So from a public sector perspective, that's why we need to focus on it.
But the same can be said, and it must be acknowledged that the physical impacts of climate change will also have and potentially have already have an impact on the private sector. Specifically, companies within the private sector could suffer disruptions to the continuity of their operations. And this is how I interact more with institutional investors and specific companies and industry sectors, because it is the company's responsibility to disclose that risk and then invest in measures that will help protect against those risks.
So I can give you a quick example that if you have an extreme weather event such as flooding that truncates a supply chain, which subsequently impacts the long-term cash flows of the company, fiduciary duty, which is acting on behalf of another interested party, would require that this information be disclosed as it could affect the decision of an investor to buy, hold, sell stock in a company. So the private sector is also responsible, and by investing in these types of changes at company level, investors will begin allocating capital towards companies that have not only identified climate risk, but have implemented adaptation measures to protect against these impacts. So it's the companies themselves that will begin mobilizing adaptation finance in my opinion.
Kamlesh Pillay: Kathryn, you've touched on so two issues there that are really key, and it speaks again to the barriers. The first is this problem with tracking adaptation finance. And my question to you would be, or response to you would be, okay, so if I'm managing future climate risk, so that's just good business, at least from a private sector perspective. And I think it leads into this problem of tracking, because as a business I am not going to tag investing in a sea wall as an adaptation measure. I'm just going to say, it's going to protect my assets. So it's just a good business decision and I'm not going to allocate it to that project category.
And I think, if you had to use that example and kind of scale it upwards, the kind of underlying reason why we have such a problem with tracking adaptation finance is because initiatives are sort of embedded in everyday operations. And also, coupled with the fact that organizations really may have limited understanding of adaptation, it causes this difficulty of really getting an accurate assessment of exactly what we're spending currently on adaptation.
So I think, to go back to Malango, your point, there's this dual problem. It's firstly, quantifying the adaptation needs, the cost of implementation. And then there's also the problem of understanding exactly what we're spending currently. And if you put those two problems together, it becomes very difficult to firstly, develop a financial model for a financier that can adequately prove your business case.
But I think what I want to go towards is just this perception of responsibility. I think Kathryn, you've spoken about healthcare and water, and some of the more social good type of economic sectors. Malango, I'll ask a very pointed question just about whose responsibility is it to undertake adaptation.
Malango Mughogho: Because we're all affected by climate, it's a joint risk. So it's effectively everyone's responsibility. When I say everyone, I mean individuals, governments, and business. But of course, governments play a very, very important role because they can take a broader view and have a different risk appetite to, say, the business sector.
But interestingly, because in certain sectors they are closer to seeing the impacts and feeling the impacts and that most of the impacts currently are felt through weather related events, such as flooding or drought. So for example, businesses in the agri-business chain have already started making investments and recognizing. For example, one of the large brewers in the world, AB InBev for short, recognizes the importance of securing water. So to making investments in water adaptation and the catchments where they grow hops, which is a very important crop for beer, for example. And they're already making investments and that sort of intervention because they have seen that that has an impact on their supply chain.
So a lot of businesses are beginning to see this. But when it comes to particularly public infrastructure, health, and even for example, energy, electricity, we've seen in California, for example, that electricity supply has been interrupted by wildfires, which have been exacerbated by climate change. So there needs to be adaptation in that area. That is clearly in the domain of, I'd argue, a public sector response, even though perhaps the electricity companies themselves are private entities, because it requires a non-company specific response. It has to be a regional or localized response that governments are more able to respond to.
So I do think that the responsibility is across the board, and particularly in countries where the governments are not able, they don't have the capacity, whether financial or even human capacity to respond. That is when the private sector and individuals have to step up to the plate as it were, and take on a role that is traditionally seen in the government's domain. In many developing countries, this is the case. And that's where the private sector, I believe, needs to play a much stronger role.
Kamlesh Pillay: One of the things that you touch on that really is almost the elephant in the room when it comes to adaptation of particular sectors, is the issue of cash flows and revenue streams from adaptation projects. And I think it's the reason why there is this perception that has developed about the responsibility being more on the public side, rather than the private side. Even though I agree with you completely, that it's definitely going to take a joint effort. And maybe, there is a case that private sector is already adapting towards climate change, but they're not, as I said earlier, tagging it as adaptation.
But I think there's this problem of revenue where there are certain sectors like disaster risk management, for example, building a sea wall or implementing some kind of resiliency towards a climate hazard that is not going to generate cashflow or revenue. And in that sense, those types of projects or adaptation projects are going to continue probably to be the responsibility of public sector, at least at a broad level. I think at a localized scale, there is a possibility that a company who is exposed to a particular flood could take action. And that could be an example of private sector adaptation.
But typically, I think because of this issue of revenue streams and this, I mean goes back to our accounting systems about how we quantify vulnerability, and the fact that we don't, making it very difficult for us to actually generate revenue around adaptation. That really limits adaptation in the private sector context to sectors like agriculture and water, where at least there is a possibility of generating revenue from enhanced crop yields, for example, or enhanced water security and the sale of water, for example.
But, moving on, I don't want to dwell too much more on the barriers because I think one of the focus areas of the podcast is really to try and come up with solutions, because I think this is a problem that I think has been acknowledged globally as being a real issue and will continue to be.
So for the next part of the podcast, I'd really like to focus on what can we do. So maybe Kathryn, I can ask just from your experience and your work that you've currently undertaken in Canada, what kind of solution are you seeing? And speaking about the instrument context, like the financial instrument context, but also just generally in terms of the systems and measures and initiatives that are coming about.
Kathryn Bakos: Of course. I think from a global perspective, at least, I would focus on some of the frameworks that are coming out. And Malango and you both really touched upon the need for information and that disclosure in a sense, and the lack of information of what to disclose.
So I think there are specific frameworks that are out there, specifically the Taskforce on Climate Related Financial Disclosure. The acronym is TCFD. The Global Reporting Initiative to name a few. These are great places to start in catalyzing adaptation reform and encouraging assets to be allocated towards adaptation.
You can see with the TCFD, it allows for kind of widespread information. So investors, and this is more from an investor standpoint, investors understanding what the financial implications of climate change actually are, the type of frameworks, this type of framework, it emphasizes transparency. So allowing companies to say, "Do you know what? I want to be disclosing this risk," not because I don't have any risk, but understanding that risk and being able to disclose it.
And ultimately, this will hopefully lead investors to allocate capital towards companies, as I had said before, to those who have implemented measures to protect against these risks. Now, specifically in regards to my own research and what's happening in Canada, I believe these frameworks are a great place to start. But what I see is that there is no way to actually operationalize on it. So again, it's well, let's disclose risk. Well, where is that information and what should I be disclosing and what is considered risk?
And so in my specific research with the Intact Centre, what we've done is created a globally scalable framework which can be applied across industry sectors. Now, this is based on recommendations from the TCFD, and this is a climate risk framework that prioritizes the top one to two means by which extreme weather. So if you're looking at flood, fire, extreme heat, and how that could negatively impact the operations of a company within a given industry sector, while simultaneously identifying actions that an investor should expect a company to take to mitigate against that risk.
Now, if you had mentioned instruments, and there are, and we notice within the industry that there are a lot of instruments that are being created. So you could look at green bonds or derivatives. But one that I'm actually quite fascinated on, and Kamlesh, you spoke about it, but insurance. I think insurance is a great place to start because in its simple form, it literally is written protection against risk. Parametric insurance in particular agrees to make a payment once a triggering event, usually a catastrophic natural event, occurs.
Insurance not only is very good at tallying the impacts of climate change as they manifest as extreme weather, again, flooding, fire, extreme heat, but insurance also assesses and communicates and signals risks while generating incentives for risk management.
So, as an example, here in Canada, the greatest loss due to extreme weather is from flooding. So if a homeowner incorporates measures around their home to protect against risk, they could actually be charged a lower premium. Now, if I extrapolate this and think further down the way as risk management evolves, you can actually see another option in this regard manifesting, which would be if these measures are not implemented, the payout, when a loss does occur, would be lower. So now it's incentivizing those to actually adapt.
Ultimately what we have here is insurance transferring the risk from the insurer to the insured. Now the European Commission even believes that insurance is a great tool, as it ensures that the financial damage does not turn into long-term economic damage, say if a house or a business is damaged and needs to be rebuilt or compensated. However, and I'm really going to emphasize this, do we want this just for our global society to have this damage and to rebuild the same as before? I believe what we want is to build back, as they say, build back better. We want to incorporate resilience and adaptation into the system. We need resilient infrastructure. And Malango had mentioned this before, resilient infrastructure. We need to maintain natural ecosystems and land cover to protect against the future impacts of climate change.
Kamlesh Pillay: Thanks, Kathryn. And I completely agree with you, that insurance is probably the best financial instrument to demonstrate adaptation or elements thereof. It's future looking, it's risk focused, and it's almost planning for uncertainty, or these kind of future impacts. And I think it demonstrates the adaptation case, especially with climate insurance, products that are coming online.
But I'm glad you focused on the risk mitigation side, or at least the incentivizing of adaptation. Because I think the one thing I'll clarify is that insurance is a useful instrument at catalyzing adaptation, but one is focused on reactive financing, so waiting for a flood to happen and then financing the cost thereof. Whereas, adaptation is slightly different where we are focusing on proactive investment that is occurring before these hazards. So there's just a slight nuance there, but I think your point is definitely taken about demonstrating adaptation quite effectively.
Malango, I really want to focus on your work experience and project experience from a practitioner point of view, and just, how have you seen the adaptation finance landscape developing in terms of solutions and initiatives that have allowed us to progress in catalyzing these flows for adaptation?
Malango Mughogho: What I'm going to speak about is not traditionally thought of as finance, but it is a significant part of the overall financing of any project or program. And that's the project preparations process. I always say that finance has many good and bad things about it, but one of the good things about it is that when finance is on the table, it can bring other people around the table very quickly because everything needs funding.
And so, using that as a lever early on in the project preparation stage, financiers can insist that research is carried out or data is gathered that is needed to make, say, a particular project, more resilient. So from the very start, resilience is one of the key goals in project design, for example. I do quite a lot of work around water infrastructure, for example, and recently there was a dam being designed in a country. And this is early stage pre-feasibility, feasibility stage of the dam. And when the climate lens was applied to that to say, "Well, how do we make this dam more resilient?" the climate data was not very specific in terms of giving a direction to say, "Well, there's likely to be more rain or less rain." It said it could be quite variable.
So in the design, the engineers then had to consider this and say, "Well, how do we make this dam resilient?" You don't want to over invest because from an economic perspective, that is not a good use of money. So what they said is that the dam had to be able to cater for higher precipitation rates, but not at the moment.
So the solution then was to design a dam wall that could be made higher, should there be more rainfall, so it could gather more rain. But you didn't want to make that investment right up. But the wall was designed so that it could easily be extended. And that for me is, those sorts of interventions, although I say it's not traditionally financed, but it's project preparation that has to be funded as well, that sort of research. And if that budget is put into - and this is all for new projects, obviously. If a climate lens is taken upfront and included upfront, then the outcomes will be much better.
Because I think one of the key things about adaptation to climates in general, is that the degrees of certainty are quite wide in certain instances. There's some things that we know. The IPCC research and climate models, there's high degrees of certainty on certain impacts, but there's less in terms of certainty for other sorts of impacts.
So actually, a lot of adaptation finance needs to build adaptive capacity into whatever is happening, whatever it's being focused on. And I do think finance needs to go towards that. It's not sexy. Project preparation is not something that people stand up and say, "Oh, look, how exciting. I've given X million dollars to project preparation," but I think it's really, really critical. And even the process of arriving at the decision of the dam I was speaking about gives a methodology to gather research around other different areas when you try to take a climate lens.
Kamlesh Pillay: Malango, I think this integration of climate risk and resilience into decision making paradigms is so critical. And I understand, it may not be a specific insurance product or financial instrument, but really, it's speaking to governance, which is probably the most important part in the financial process.
We're coming to the end of our time together. And I think to be proactive about the area and where we go to in this area, I'd like to pose one last question to both of you. And that really relates to just maybe one recommendation that you - and I know one recommendation is difficult to ask considering that there could be many - around what do you think needs to be done differently in this space? Kathryn, I'll start with you.
Kathryn Bakos: Well, I think it's actually going off of what Malango said, and that based on the industry sectors and the examples that she gave, it's the acquisition of knowledge. So if it's an industry sector that's being impacted, now again, if we're talking about physical climate risks, based on geographic range, those industry sectors are going to be impacted differently depending on where in the world they're located.
But I think it's industry sectors that can mobilize and to acquire information and where are we going to be impacted. And by acquiring that knowledge and understanding that, and then dispersing that information, I believe will be very powerful, so that companies within those sectors can begin to adapt. And investors, as I've said a few times throughout this podcast, that we can allocate capital towards the companies that are implementing those adaptation measures.
So I think it's almost a dominoes effect, beginning with the industry sectors and the companies to understand what the risks are and then implementing change from there to begin adapting. I believe that would be a great place to start.
Malango Mughogho: I fully agree with what Kathryn said about the information side. And for me, I think one of the key areas where a difference could be made is around financial regulators allowing the sector to take a pre-competitive approach to the issue and creating incentives from a regulatory perspective, to affect everyone equally in the sector. When I say everyone, I mean all the different financial institutions they regulate, to be able to respond more effectively.
Because as you mentioned before, the revenue generation ability of some projects isn't there, so there has to be a financial incentive somewhere and I think regulators can do this very easily. And it's not normally their domain, but some regulators are looking at this, and I do think it would make a significant difference almost immediately.
Kamlesh Pillay: And I think to end, I'll also pose a recommendation. And that's really that I think one of the things that we are missing is comprehensive guidance about the initiative specifically needed for adaptation and resilience. And because of this issue that everything is quite localized or is very site specific, we run into this problem that the initiatives are very different wherever you go, what is being implemented in Canada is very different to what is needed in South Africa and Zambia and the like.
And I think that causes a real problem for coming up with initiatives that can be implemented at scale, or without taking local context into consideration. And I think moving towards a future where we have greater knowledge, as you mentioned, Kathryn, that really collates all of the experiences that we've managed to implement currently, and then obviously investing further research into the questions that we are not asking yet, and getting answers to those questions I think is going to be really important in the future.
So lastly, I'd just like to thank both of you for joining me today. I think it's been an amazing discussion, and I hope our listeners have managed to gain some insight, at least a starting point for insight on the area.
We started off by discussing why adaptation finance is important, noting the future climate impacts which are likely to be exacerbated under future climate scenarios. We thereafter focused on some of the barriers which included definitional issues, tangibility of adaptation benefits, revenue streams from adaptation and resilience implementation, and the difficulty in making the case for adaptation.
Lastly, it is acknowledged that there are initiatives that are assisting us in integrating adaptation into financial processes, such as UNPRI, GRI, and TCFD. However, governance and political buy-in perhaps remain the most crucial factors in determining how we finance adaptation comprehensively at scale.
Thank you for joining us for this episode in unlocking climate adaptation. We hope you feel empowered and able to create a culture of resilience in your world. Join us again as we continue to explore climate and development challenges within and across our borders.