As COP-27 starts in Egypt this week, finance for climate adaptation will be a crucial topic on the international agenda. The UNFCCC has been clear that a substantial increase in the scale of adaptation finance, both public and private, is essential to respond to climate risks now and in the future. And while a recent assessment of global climate finance flows found that adaptation finance is increasing, this is not keeping pace with need. Little progress has been made on the commitments made in Glasgow last year for Global North countries to double adaptation finance by 2025.

This global ‘adaptation finance gap’ is also evident closer to home. There is currently no robust assessment of the size of the shortfall in adaptation finance in Scotland. However, the Climate Change Committee has found that the nation’s progress in adapting to climate change has stalled, and an initial estimate has put the size of the adaptation finance gap in Glasgow City Region alone at £184 million a year.

Given the scale of the challenge, tackling this shortfall won’t be possible through public funding alone. Yet there are several barriers that make private financing of climate adaptation action a challenging proposition. Adaptation projects, such as flood defences or early warning systems, mostly provide ‘public goods’: benefits to society at large that don’t easily generate revenue and financial returns. These benefits often accrue over longer time horizons, while the design of interventions to address climate risks are often technically complex and place specific. Data and knowledge about climate risks and the effectiveness of particular responses can also be uncertain, and difficult to access.

New Adaptation Scotland resources

In this context, how then can we start to close the adaptation finance gap in Scotland? That’s the challenge that the Adaptation Scotland Climate Finance Working Group set out to tackle. Since 2020 the group has brought together experts from the public, private and third sectors to explore how to advance understanding of, and increase access to, adaptation finance. Last month, their work culminated in the launch of two new resources: a Guide to Adaptation Climate Finance, and an accompanying set of examples of Developing adaptation finance business cases.

The Guide to Adaptation Finance offers a starting point for professionals developing adaptation projects to think through the range of financing options beyond conventional grant funding models. It presents three use cases: public finance; blended finance, where public funds are combined with private finance; and place-based finance, focused on investment in a specific region or community. For each use case, the guide provides an overview of financing options, practical tips, and case studies from Scotland and beyond.

Developing adaptation finance business cases complements the guide by bringing these applications of different financing options to life. The report outlines three case studies of adaptation projects that would traditionally be funded through public grants: coastal managed realignment in the Firth of Forth, flood management in the Scottish Borders, and a holistic community climate resilience approach in the Outer Hebrides. The business cases, developed by climate economics experts at Paul Watkiss Associates, assess the potential for a range of innovative financing options to support these projects, identifying several opportunities and challenges.

Next steps for advancing adaptation finance

Our new Adaptation Scotland resources offer a step forward in helping to develop the knowledge and skills needed to successfully finance more adaptation projects across the country. But, as was highlighted at our launch webinar, adaptation finance is still an emerging, and rapidly developing field. Just in the last week, we’ve seen investment readiness funding awarded by NatureScot to seven projects looking to develop new business models for nature-based solutions, whilst the Cities Climate Finance Leadership Alliance has published new recommendations for financing urban climate resilience.

Over the next few months, through the Adaptation Scotland programme we’ll be working with partners to build on our work to date. We’ll be doing more to share and get feedback on the new resources, to develop a case study focused on an urban example, and to scope out the strategic priorities for further advancing adaptation finance in Scotland.

If you are interested in finding out more about this work, please get in touch.