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IDB Invest’s White Paper Calls for Rapid Rise in Climate Adaptation Financing

Climate adaptation financing remains low at a mere 7% of all climate-related financing, which is a particularly dire problem for Latin America and the Caribbean because the region includes nine of the world’s 20 countries most exposed to climate change, a new IDB Invest white paper shows.

Only 49% of the region’s financial institutions provide green products and services, well below the 95% average for international banks, despite recent estimates showing that each dollar invested in infrastructure resiliency can produce $4 in profit, according to the paper, titled “Scaling Adaptation Finance in the Private Sector.”

“Investing in early response and preventive adaptation solutions can be more effective and less costly for the private sector,” IDB Invest CEO James P. Scriven said during the UN Framework Convention on Climate Change (COP27) in Sharm El-Sheikh, Egypt. “IDB Invest has stepped up its adaptation financing to support companies and financial institutions to address this gap.”

The new paper outlines opportunities for companies and investors to avoid future costs related to rebuilding infrastructure and lower agricultural output stemming from natural disasters or climate change. It also presents solutions ranging from climate-smart technologies and green infrastructure such as mangroves and coral restorations to new instruments, including resilience bonds, that can scale up climate finance.

To date, nearly all adaptation finance tracked has been funded by public actors (98%) as development finance climate portfolios increasingly prioritize adaptation. However, contributions from the private sector are undercounted because companies often do not classify investment as adaptation finance even if it would be considered adaptation finance in the public sector.

Latin America and the Caribbean has one of the world’s largest adaptation financing gaps. The region needs up to $18.1 billion more each year to respond to and prevent ongoing losses.

Closing that gap is critical to achieving Paris Agreement goals. Finance must be scaled up by several orders of magnitude, from both public and private actors, because investment levels are still far from what is needed to avoid the worst climate change impacts, according to the white paper.

While international public support is crucial to closing the gap, private sector finance could close current adaptation finance gaps by focusing on sectors such as agriculture, infrastructure, water, and disaster risk management, which have the highest adaptation finance needs.

The paper will be unveiled on November 12 in Egypt at COP27 event hosted by IDB Invest. Learn more here.

About IDB Invest

IDB Invest, a member of the IDB Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of $15.3 billion in asset management and 375 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.