Better understanding incentives for private sector financing of adaptation solutions

Expected Outcome:

In support of the European Green Deal, the Adaptation Strategy and the EU Mission on Adaptation to Climate Change, project results are expected to pioneer ways to mobilise the private sector to finance adaptation solutions.

Project results are expected to contribute to all of the following expected outcomes:

• The private sector (in the broadest sense, including the business or financial sector, private investors, those that have available corporate social responsibility budget to invest, etc) is increasingly financing adaptation solutions. This can be for instance thanks to increased and improved range of investment concepts, financing mechanisms and/or business models.
• The private sector engagement with the Adaptation Mission is stepped up, from a few businesses having signed the Mission Charter as Mission’s friends to businesses and the financial sector taking an active role in accelerating climate adaptation, including feeding knowledge to the Mission Community of Practice on best approaches.

Scope:

Financing was highlighted by 93% of the Mission Charter signatories as the biggest challenge their region or local authority face^[1]. This was not unexpected and financing for adaptation is also one of the key enabling conditions identified by the Mission Implementation Plan.

Adapting to the impacts of climate change requires mobilising significant resources, which can only be achieved by mobilising private and public funding alike. So far, the private sector involvement in financing implementation of adaptation measures and solutions has been quite limited. At this stage, climate adaptation generally relies to a large extent on some kind of public support.

As the impacts of climate change are expected to trigger significant economic losses and damages, which will affect the private sector in terms of increased financial strains and considerable risk (short-term and long-term), it is imperative that the private sector, including the financial sector, are part of the mind shift into acting for and funding climate preparedness. In this, the private sector needs to invest much more actively in climate adaptation efforts. This new mindset should include rethinking and redefining risk and responsibility for adverse effects, considering risk allocation and obligations across public and private actors.

The proposal should identify economic (non-financial) incentives for the private sector to finance adaptation solutions. The proposal should address all of the following aspects:

• Developing calculations and the most appropriate methodologies for calculating the economic rationale for financing adaptation solutions, aimed at convincing the private sector to finance them. This could include, but is not limited to, the following: (i) calculations of the risks/losses caused by climate change; (ii) calculations of the economic benefits of the adaptation solutions across different time horizons (e.g. with new or retained revenues/contributions that the implementation of the adaptation solution could generate, avoided costs/losses, cost of inaction, lower insurance costs, attribution and monetisation of co-benefits (including social and environmental co-benefits)); and (iii) calculations of the overall cost/benefit.

Ideally, if all benefits are calculated, they can outweigh the costs. Such calculations and economic rationales may need to be different for the different climate risks and key community systems.

• Identifying how to overcome in innovative ways the main barriers to the financing of climate adaptation solutions by the private sector (both from the investor and investee point of view) and how to improve the economic rationale and developing and test innovative ways to economically incentivise (in non-financial ways) the private sector to finance them. This could include an increased and improved range of investment concepts or strategies, financing mechanisms and/or business models, etc. These innovative ways may need to be different for the different climate risks and key community systems.
• Testing the above by developing minimum 8 case studies, in 3 different Member States / Associated Countries. The case studies should work on adaptation solutions that require financing but have not yet found financing. Each case study should explicitly encompass a calculation of the economic rationale for financing (as per above) and, where in this calculation all benefits taken together do not exceed the cost and hence this is not a sufficient incentive, propose and test innovative ways to economically incentivise (in non-financial ways) the private sector to finance the proposed adaptation solutions. In at least 3 of the cases the adaptation solutions should be nature-based adaptation solutions. It will be considered as a positive element if the case studies cover a variety of climate hazards and key community key community systems identified in the Mission Implementation Plan, namely critical infrastructure, health & well-being, water management, land use & food systems, ecosystems.

To reasonably achieve the expected outcomes, the project consortia should include participation of relevant private sector actors from the business and financial sectors and their commitment to further contribute to the deployment of the solutions identified in the cases studies or to support the development of the business plan for the climate resilience investments beyond the duration of the project.

Due to its nature, this topic requires the effective contribution of social sciences and humanities (SSH) disciplines and the involvement of SSH experts, institutions as well as the inclusion of relevant SSH expertise, in order to produce meaningful and significant effects enhancing the societal impact of the related research activities.

In addition to the standard dissemination obligations, the results of this action should be promoted towards the Mission’s Community of Practice, to allow broad replication. The format should be adapted to the target audience being the private sector, so presenting the case studies and the lessons learnt in a practical and attractive manner.

Proposals should include a mechanism and the resources to establish operational links and collaboration with the Mission Implementation Platform^[2], and other relevant knowledge platforms such as Climate-ADAPT. Projects funded under this topic will get direct access to and will be expected to participate in the exchanges of the Mission’s Community of Practice, to the networking activities supported by the Mission Implementation Platform, and to share relevant knowledge to feed the work of the project stemming from HORIZON-MISS-2024-CLIMA-01-01. These networking and joint activities could, for example, involve the participation in joint workshops, the exchange of knowledge, the development and adoption of best practices, or joint communication activities.

In addition, projects will be requested to feed their results and contribute to the monitoring in place under the leadership of the Mission Implementation Platform on the progress towards the objectives of the Mission and provide information and data to contribute to the visualisation of the Mission progress in Europe.

Applicants should acknowledge these requests and already account for them in their proposal, making adequate provisions in terms of resources and budget to engage and collaborate with the Mission.

Finally, proposals should, also through the Mission Implementation Platform, build on knowledge from and connect to the other relevant projects funded by Horizon Europe^[3], LIFE and Technical Support Instrument (TSI) and other EU and national funding programmes.

[1] Analysis of information provided by the signatories of the charter of the Mission Adaptation to Climate Change, 70488a33-37b9-40f6-8b74-daca0f048f47_en (europa.eu)

[2] Currently managed by MIP4Adapt under the contract CINEA/2022/OP/0013/SI2.884597 funded by the European Union. About MIP4Adapt (europa.eu)

[3] The projects CLIMATEFIT, P2R , FARCLIMATE, PIISA, SOTERIA, NATURE DEMO, e.g. BIOFIN and GoNaturePositive and EuropaBON and projects funded under HORIZON-MISS-2024-CLIMA-01-06 could particularly relevant