Innovative Financial Instruments and Their Potential to Finance Climate Change Adaptation in Developing Countries

International Institute for Sustainable Development (IISD)

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Abstract: This report aims to unpack why innovative financial instruments have not facilitated more finance toward climate adaptation in developing countries and their potential to do so in the future. It discusses some of the main reasons why adaptation investments are less attractive to private investors compared to other opportunities. For instance, some adaptation projects and programs do not have clear revenue-generating opportunities to recompense the investor taking on the investment risk. Without this clarity, agnostic investors will find other opportunities. As well, the investment size of adaptation projects tends to be smaller when compared to mitigation and other investments, meaning that due diligence and transaction costs are often higher as a proportion of overall project costs.