Introduction

The guide was created to unlock private sector capital for adaptation and resilience. It outlines the steps financial institutions can take to support this shift, including collaboration between public and private sectors. The urgency to invest is clear, with climate-related risks increasing in frequency and severity, particularly in vulnerable regions.

Investment criteria

The guide sets out clear criteria for investments in adaptation and resilience. Investments must demonstrate a substantial contribution to adaptation, avoid maladaptation, and be consistent with local or national adaptation strategies. Financial institutions are advised to assess investments based on their quantitative and qualitative benefits, such as reducing asset exposure to climate risks or increasing agricultural productivity. There is a strong emphasis on avoiding projects that could inadvertently increase vulnerabilities or harm sustainability objectives.

Substantial contribution to adaptation and resilience

Investments must significantly contribute to reducing climate risks. For example, an investment in flood defences should reduce the risk of property damage. The guide encourages financial institutions to use both quantitative indicators, like the percentage reduction in assets at risk, and qualitative indicators, such as stakeholder feedback, to assess the impact of investments.

Avoidance of maladaptation and significant harm to sustainability objectives

Investments should not increase risks in other areas or create dependencies that will be hard to change. The guide advises that projects should be aligned with international sustainability standards, such as the IFC Performance Standards, and account for potential long-term risks, particularly those affecting vulnerable populations.

Consistency with adaptation strategies

Projects should align with local and national strategies like National Adaptation Plans (NAPs). If no such plans exist, financial institutions are encouraged to engage with local bodies to ensure that investments meet community needs and are resilient to climate risks.

Adaptation and resilience investment framework

The guide provides a structured framework for identifying, assessing, and managing adaptation investments. It includes eligible activities such as nature-based solutions, climate-smart agriculture, and resilient infrastructure. The framework also supports financial institutions in developing products like adaptation bonds and resilience loans, which can mobilise private capital.

Indicative eligible investments (use of proceeds)

Eligible investments include resilient infrastructure, climate-smart agrifood systems, and water management technologies. These projects are aligned with global sustainability standards, such as the Green Bond Principles and UNDRR’s Climate Resilience Classification Framework. Financial institutions should develop products that cater to these categories to facilitate private sector investment.

Project evaluation and selection

Investments are evaluated based on their potential to contribute to adaptation, avoid maladaptation, and align with local resilience strategies. The guide encourages transparency in this process, with a focus on measurable outcomes.

Management of proceeds

The guide recommends that financial institutions track the allocation of proceeds from adaptation financing and provide annual reports on the outcomes. This includes impact reporting, which should be aligned with established performance indicators to ensure accountability.

Key statistics and evidence

Adaptation finance remains underfunded, with less than 10% of climate finance directed toward adaptation projects. The guide emphasises that EMDEs face annual adaptation financing gaps between USD 194-366 billion, which could increase to USD 565 billion by 2050. Investments in adaptation are economically beneficial, with each dollar spent expected to generate up to USD 12 in return over the next decade.