The Future of Adaptation Finance: methods and perspectives

Abstract

Climate change poses myriad uncertain risks to localities all over the world. The current discourse on risk analysis acknowledges the need for mechanisms to reduce those risks and adapt to changes that may arise. To create efficient strategies for adaptation, adequate mechanisms for finance are needed. It is often assumed that the majority of adaptation finance will come from public funds to support projects that attempt to build adaptive capacity. This paper suggests that while public finance is important, it may not be the most efficient method to manage uncertainties and adapt to climate change. Here we propose a method to finance adaptation via the creation of real options. Real options require a mechanism for valuation and a framework for implementation. We argue that investment grade finance is the best way to realize that framework. This paper elucidates the concept of Resilience Centres as a plausible means to provide the services necessary to implement that framework. We illustrate this framework via the theory of financial gradients. Resilience Centres act as a means for Indeterminate Change Risk Reduction (ICRR), thereby making communities more aware of, and better prepared to execute, best practices in the face of uncertain risks. This paper incorporates an Indian case study to illustrate how this approach to adaptation finance fits into a national context.