Enabling Environment for Private Sector Adaptation An Index Assessment Framework Vladimir Stenek, International Finance Corporation Jean-Christophe Amado, David Greenall, Deloitte © 2013 International Finance Corporation The material in this publication is copyrighted. IFC encourages the dissemination of the content for educational purposes. Content from this publication may be used freely without prior permission, provided that clear attribution is given to IFC and that content is not used for commercial purposes. The findings, interpretations, views, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the Executive Directors of the International Finance Corporation or of the International Bank for Reconstruction and Development (the World Bank) or the governments they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. Cover photo courtesy of the World Bank Photo Library. Enabling Environment for Private Sector Adaptation An Index Assessment Framework Vladimir Stenek, International Finance Corporation Jean-Christophe Amado, David Greenall, Deloitte Acknowledgements © 2013, International Finance Corporation Authored by Vladimir Stenek, International Finance Corporation Jean-Christophe Amado, David Greenall, Deloitte The project team would like to thank the following individuals for sharing their insights on cli- mate change adaptation: Tim Faveri (Tim Hortons Inc.), Samuel Kwong (John Swire & Sons), Glenn Frommer (Mass Transit Railway), Sonia Lacombe (Rio Tinto Alcan), Lwandle Mqadi (Eskom), Andy Wales (SAB Miller) and Matthew White (AB Sugar). We would also like to thank the following individuals for their support in the project: Valerie Chort, Maeva-Johanna Charles, Maeve Hall, Pradeep Kumar Dadhich, Angelica Ulrika Berg, Michael William Ellis and Anita Shinde (Deloitte). Contents iii Contents Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3. Scope and Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Assessment of Drivers and Barriers To Climate Change adaptation in the Private Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Definition of Country Indicators and Measures. . . . . . . . . . . . . . . . . . . . . . . . . 7 Piloting the Index Framework in Three Countries. . . . . . . . . . . . . . . . . . . . . . . 8 4. Drivers and Barriers to Climate Change Adaptation in the Private Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6. Piloting the Index Framework in Three Countries. . . . . . . . . . . . . . . . . . . . . . 57 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Data and Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Institutional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Economic Incentives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Communication, Technology and Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 iii iv ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK List of Tables Table 1: Factors Influencing Climate Change Adaptation in the Private Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Table 2: Indicators for the Index Framework to Evaluate whether Countries have in Place Favorable Conditions to Promote Climate Change Adaptation in the Private Sector . . . . . . . . . . . . . . . . 13 List of Figures Figure 1: Overview of the Sequential Process To Develop the Index Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 2: Overview of the Current State of Indicators of Enabling Environments for Private Sector Adaptation in Three (3) Pilot Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Preface v Preface T he Group of 20 (G20) nations increas- to take stock of mechanisms to mobilize pri- ingly recognize the importance of green vate capital, including from institutional inves- growth, and many countries are demon- tors, for inclusive green growth investments strating strong leadership through effective in developing countries. This work is intend- and progressive policies. However, govern- ed to inform the creation of a public-private ments do not act alone—the private sector G20 Dialogue Platform on Inclusive Green is an important partner, providing new tech- Investment. nologies, business models and investment As part of this effort IFC commissioned a opportunities across a variety of sectors to series of supporting documents and materials, help scale up transformation. In 2012 the including this publication, specifically created G20 Development Working Group commis- as underpinning material to inform the final syn- sioned the International Finance Corporation, thesis report produced by IFC for consideration as the largest development finance institu- at the G20 meeting in St. Petersburg in 2013. tion dedicated to private sector develop- These publications can all be found at www.ifc. ment with a strong emphasis on sustainability, org/Report-MobilizingGreenInvestment. v 1 2 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Introduction O ver the past years dramatic chang- lack of incentives for adaptation investments. es in climate patterns have been This leads to business environments that are observed and extreme weather con- unfavorable to climate change adaptation, ditions have been experienced around the that create sub-efficient markets, and place world: record temperatures, destructive floods in peril longer term financial stability and job and tropical cyclones, dramatic droughts, and creation. In contrast, policy, regulation and raging wildfires. There is much evidence show- markets that appropriately incorporate cli- ing that climate change is partly responsible mate change information can create environ- for these trends. Overall, it is middle- and ments that stimulate financial, environmental low-income countries that experience greatest and social sustainability in the private sector, losses from a changing climate due to gener- through increased resilience and the provi- ally greater climate vulnerability of their so- sion of adaptation solutions for the overall cio-economic systems. society. Climate change threatens to set back the This report reviews practical and imple- inclusive green growth goals if climate resilience mentable interventions that have significant is not an integral part of development plans and potential for the creation of an enabling en- investments in both public and private sectors. vironment for private sector adaptation and Conversely, climate resilient growth and adap- the promotion of climate resilient develop- tation investments are paths that contribute to ment paths. While there is a broad spectrum shared value creation and long-term sustain- of conditions favorable to climate change ad- able growth. Implemented appropriately, adap- aptation, five priority areas are highlighted in tation investments can avoid costly losses and this report: Data and information, Institutional reduce social vulnerabilities, promote job cre- arrangements, Policies, Economic incen- ation, and produce ‘win-win’ opportunities in tives, and Communication, technology and other climate and green growth areas. knowledge. However, private sector—particularly the In each of these areas, specific interven- more vulnerable small and medium enter- tions capable of promoting private sector adap- prises and smallholders, which account for tation are analyzed, with an emphasis on their largest share of employment—often face sig- expected economic, social and environmental nificant barriers preventing the integration returns. Measures, indicators and examples are of climate change adaptation in planning and also provided to inform private sector organi- operations. The barriers are diverse, ranging zations and policy makers about where condi- from lack of information about climate risks tions for adaptation investment are favorable, and opportunities, to policies that don’t en- and what specific improvements can enhance a courage adaptation or even promote actions country’s environment for attracting private in- that increase climate change vulnerability, to vestment in climate change adaptation. 2 Introduction 3 This initial set of measures and indicators Acknowledging that further work needs to is applied to three countries in an effort to be done to develop detailed guidance and in- demonstrate how country environments influ- dices for objective evaluation of levels of the ence the uptake and level of climate change ad- enabling environment for adaptation, this study aptation in the private sector. aims to produce initial indicators for systematic support of climate resilient development in the private sector context 2 4 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Executive Summary W ith escalating weather-related loss the private sector has a considerable role to and damage, and data improve- play in delivering part of this funding, especially ments, the imperative to adapt to in today’s constrained fiscal environment. more extreme weather and climate change One of the greatest challenges for govern- is steadily being recognized by private sec- ments, international organizations and com- tor organizations across the world. As proof, munities consists in implementing successful 90% of companies in the Standard & Poor’s strategies that engage the private sector— Global 100 market index have identified pres- across economic sectors and world regions—to ent or future business risks associated with take action and mobilize resources for climate climate-related hazards in their financial and change resilience. However, there is very little non-financial reports. In many developing knowledge of progress to date and where im- countries, high exposure to climate-related provements in country enabling environments hazards and existing socio-economic devel- are needed to enhance private sector adap- opment challenges accentuate climate change tation. In an effort to inform such strategies, vulnerability. Small- and medium-sized enter- this report presents an Index Framework that prises and smallholders are particularly vul- assesses at a country level whether favorable nerable and stand to win the most from taking conditions are in place for climate change ad- action on climate change. The opportunities aptation in the private sector. of promoting inclusive green growth for these A review of climate change adaptation private sector actors through climate change drivers and barriers based on existing litera- adaptation, from improved access to water ture, together with IFC’s field observations of or food security to creation of sustainable private sector needs and motivations and con- community livelihoods, are numerous. For in- sultations with six companies, informed the stance, research by the United Kingdom has definition of the following set of sixteen indica- been estimated that by 2020 climate change tors and measures. This analysis has found that adaptation goods and services could be worth short of one single ‘silver bullet’, five areas need US$186 billion worldwide. Yet, little is known to be considered in an integrated manner to about the magnitude of climate change adap- successfully enhance private sector adaptation, tation efforts and investment levels in the pri- namely: data and information, institutional ar- vate sector. rangements, policies, economic incentives, and At the global level, commitments have communication, technology and knowledge. been made to make US$100 billion available In an effort to clarify the business case for each year by 2020 onward to fund actions that putting in place mechanisms that enable/incen- reduce greenhouse gas emissions and build cli- tivize and/or remove barriers to climate change mate change resilience in developing countries. adaptation in the private sector, information Governments have repeatedly confirmed that on costs and benefits has been provided when 4 Executive Summary 5 Data and information Economic incentives 1. Climate and hydrological projections 11. Government incentives 2. Direct and indirect impacts 12. Finance 3. Adaptation measures, costs and benefits 13. Full-cost accounting for water and energy 4. Community vulnerability, risk and adaptation 14. Environmental trading markets Institutional arrangements Communication, technology and knowledge 5. Institutions and forums 15. Information and communication technologies Policies 16. Technology and knowledge 6. Building standards and/or codes 7. Public infrastructure 8. Local zoning rules 9. Permitting and impact assessments 10. Investor relations and/or stakeholder management available. Contrary to beliefs that there is too uniform across the five areas important to pri- much uncertainty to know whether it is finan- vate sector adaptation and levels of country in- cially-sound to adapt, this report includes many come and development are not good measures examples that demonstrate positive returns on of favorable conditions for adaptation. investment, for instance of actions to improve The approach in this Index Framework climate and hydrological projections, create in- demonstrates the value of going beyond raising stitutions or forums to do adaptation research awareness in the private sector by taking a or exchange best practices, or incorporate ad- closer look at what conditions enable/incen- aptation considerations in public infrastructure tivize and create barriers to adaptation ac- design and operation. tions. It can be leveraged to identify areas in a The Index Framework is applied to three country where important climate change adap- countries with different levels of income. tation drivers are missing or barriers to action Challenges in assessing enabling environments remain, assess policies or initiatives that may for private sector adaptation exist where in- have conflicting impacts on the private sector formation on policies and economic incen- and, in general, inform where government, do- tives is missing or is of difficult access. This nors and investment organizations should focus ground-truthing of the Index Framework has their efforts to increase private sector involve- shown that country performance is not always ment in climate change adaptation. 3 6 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Scope and Approach T his report seeks to define what import- sectors in the world’s poorest countries where ant conditions need to be in place at a climate change adaptation investments are country-level to promote climate change needed to reduce vulnerability and ensure long- adaptation in the private sector, and how to term development and growth. assess the level of the enabling environment To develop a meaningful Index Framework, favorable to private sector adaptation in a giv- three sequential activities were carried out: en country. While it is acknowledged that virtually all 1. Assessment of drivers and barriers to cli- private sector actors, irrespective of sector, mate change adaptation in the private size, location, products and services, will be af- sector; fected by a changing climate, the examples pro- 2. Definition of country indices and mea- vided in this report are applicable firstly to the sures; and key sectors, such as agriculture, power/water 3. Piloting of the Index Framework in three utility sectors and manufacturing, but also rel- countries. evant to other sectors. This is in recognition of the fact that these sectors have a considerable number of private sector opportunities for in- Assessment of Drivers and Barriers clusive green growth: from improving access to Climate Change Adaptation in the to water and water quality, to increasing food Private Sector security or creating opportunities to support sustainable community livelihoods.1 Further, as Drivers of climate change adaptation are fac- part of the International Development Agency tors that promote, enable and/or incentiv- 16th replenishment, the World Bank singled out ize action by the private sector. Barriers, on agriculture, water and infrastructure as priority the other hand, discourage/raise obstacles to FIGURE 1:  Overview of the Sequential Process To Develop the Index Framework 6 Scope and Approach 7 climate change adaptation decision-making Definition of Country Indicators and and implementation, which in turn make pri- Measures vate sector adaptation less opportune, efficient and/or effective, or may require costly chang- A review of climate change adaptation drivers es. Barriers lead to missed opportunities to and barriers based on existing literature, to- generate revenues from emerging business op- gether with IFC’s field observations of private portunities or avoid escalating costs due to cli- sector needs and motivations on adaptation, mate-related impacts.2 Identifying these drivers informed the definition of a set of indicators and barriers requires: measuring whether countries have favorable conditions in place to promote private sec-  Defining what constitutes adaptation in tor adaptation. Each indicator has been bro- the private sector; and ken down into one or more specific measures  Understanding the process through which (e.g. characteristics of data/information avail- the private sector makes decisions about able in-country, existence/absence of given whether and how to invest in climate policies) that, once combined, are capable of change adaptation. assisting with assessments of country enabling environments. In an effort to understand the landscape Further, six worldwide companies from of actions that private sector actors can take to the agribusiness, manufacturing and utility adapt to climate change, a compendium of cli- sectors were consulted to understand what mate change adaptation actions in the private factors among the existing universe of drivers sector was considered. and barriers are the most critical in enabling, Five areas have been identified to play incentivizing and constraining private sector a decisive role in private sector adaptation, adaptation (see Appendix A). These consulta- namely: tions consisted of a questionnaire for senior corporate managers asking them to indicate  Data and information; the priority drivers and barriers influencing ad-  Institutional arrangements; aptation, and phone interviews to understand  Policies; what motivates their decisions to adapt/not  Economic incentives; and adapt or delay action.  Communication, technology and knowledge. The benefits of adapting are known to outweigh the costs of climate change over Across these five areas, important drivers the medium- to long-term in several cases. and barriers have been identified for each type However, there is little information to date on of private sector adaptation action. the business case for putting in place mecha- Section 3 of this report summarizes the re- nisms that enable/incentivize and/or remove sults of this assessment of drivers and barriers barriers to adaptation in the private sector. In to private sector adaptation. This subsequently an effort to clarify the benefit-to-cost ratios of informed the choice of indicators and measures investments in data/information, institutional for the Index Framework. arrangements, policies, economic incentives, and communication, technology and knowl- edge for private sector adaptation, some in- formation on costs and benefits has been provided, where available. 8 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Section 4 presents the indicators and mea- strengths and weaknesses on promoting pri- sures of the Index Framework, as well as the un- vate sector adaptation. The results of this derlying business case analyses. analysis are summarized in Section 5. This pilot application is intended to shed light on how the Index Framework could be Piloting the Index Framework in used to determine in given countries what fa- Three Countries vorable conditions are present, and which ones are missing, to motivate the private Three countries from different regions of the sector in taking action on climate change ad- world—a low-income, middle-income and a aptation. It also contributes to inform govern- high-income countrya—have been selected as ments and funding agencies on where gaps in pilots for testing the indicators and measures data/information, institutions, policies, eco- defined in the Index Framework. All three nomic incentives, communication, technology countries have been the stage of some cli- and knowledge exist, and on possible capacity mate change adaptation work in recent years, needs that must be addressed for private however they demonstrate different levels of sector adaptation. a Based on the World Bank’s country lending groups. 4 Drivers and Barriers to Climate Change Adaptation in the Private Sector 9 Drivers and Barriers to Climate Change Adaptation in the Private Sector L ittle is known about the magnitude of and operational expenditures), and following climate change adaptation efforts and relevant regulation and policies. However, at investments in the private sector, par- a more granular level, there is a suite of fac- ticularly in SMEs. This is partly because ac- tors influencing private sector adaptation. tions with climate change resilience benefits Identifying how decisions about whether and are being taken on grounds other than cli- how to adapt are made, constituted the basis mate change and, as a result, are not re- for identifying the factors that influence pri- ported as adaptation actions, and, in some vate sector adaptation, namely the availability instances, such as R&D, operational or cap- and scope of: ital expenditures, information remains confi- dential.  Data and information; Climate change adaptation in the private  Institutional arrangements; sector can take multiple forms: from commis-  Policies; sioning studies on future changes in the per-  Economic incentives; and formance of select assets or operations to  Communication, technology and knowl- investing in ‘climate-proofing’ measures (e.g. edge. flood defences) or purchasing insurance to transfer given risks. It is by nature context-spe- Out of the universe of existing drivers and cific and a function of economic activities (in- barriers influencing private sector adaptation, cluding the local and/or global footprint of there are several factors that play a critical role operations and value chains), bio-climatic con- in creating enabling environments. Some are ditions and socio-economic factors. As a re- external to an organization and/or individual sult, most of the existing literature on private (e.g. market and/or policy environments), and sector adaptation has been focused on set- others are internal and based on perceptions ting up the stage for discussions or on ana- and experience. For instance, previous neg- lyzing sectoral issues, rather than evaluating ative experiences associated with natural di- the magnitude of private sector investments sasters or extreme weather have often been or progress in mainstreaming climate change correlated with higher levels of engagement on considerations in private sector planning and climate change adaptation. 4 decisions-making.3 While little can be done to evaluate and/or At its core, what motivates the private influence at a country level internal factors of sector to take climate change adaptation ac- private sector adaptation, opportunities exist tion is simple: maintaining or increasing value to leverage external factors in order to under- (e.g. revenues, credit, reputation) and/or stand and improve country enabling environ- keeping costs down (e.g. loss and damage, ments. Some of those opportunities have been business interruption, capital expenditures identified in the climate change adaptation 9 10 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK literature. For instance, OECD has found that resources. For example, offering microfinance the following factors play an important role for programs and/or improving access to critical companies: information and communication technologies (e.g. internet) are likely to play a critical role in  Ability to finance adaptation that involves enabling climate change adaptation for these considerable upfront expenditures and actors. medium- to long-term benefits; In an effort to capture the needs and con-  Capacity and expertise to carry out cli- straints of all private sector actors, including mate risk, opportunity and adaptation as- multinationals, industry associations, SMEs sessments; and smallholders, Table 1 presents the set of  Existence of research institutions and drivers and barriers that have been identified partnerships with governments and scien- to play a critical role in enabling/incentivizing tists; and and/or discouraging climate change adapta-  Policies, laws and regulations encouraging tion. Additional factors have been considered or requiring climate change adaptation.5 as part of this work, however they have been filtered out as playing a smaller role in influ- However, this does not capture the full encing private sector adaptation thanks to extent of factors that can influence private feedback from the private sector and IFC’s sector adaptation, especially with regards to field observations (see Appendix A). This set small- and medium-size enterprises (SMEs) of factors provided the basis for defining the and smallholders (e.g. farmers and fishermen) indicators and measures of enabling country in developing countries. These actors face an- environments for private sector adaptation other set of challenges around awareness and presented in Section 4. Drivers and Barriers to Climate Change Adaptation in the Private Sector 11 TABLE 1:  Factors Influencing Climate Change Adaptation in the Private Sector Data and information  Free and easy access to climate (e.g. temperature, precipitation, sea level rise, solar radiation, wind) and hydrological (e.g. soil moisture, groundwater, runoff, evaporation, flood) observations elaborated for specific sectoral and geographic needs.  Free and easy access to climate (e.g. temperature, precipitation, sea level rise, solar radiation, wind) and hydrological (e.g. soil moisture, groundwater, runoff, evaporation, flood) projections elaborated for specific sectoral and geographic needs.  Climate/hydrological observation and projection datasets in a temporal and spatial resolution that are relevant to business decision-making (e.g. hourly/daily data, near- term timescales and spatial resolution of 50km2 or less) and in a business-friendly format (e.g. in the form of indices avoiding the need for data manipulation).  Data/information readily available on select impacts taking into account climate projections (e.g. flood risk maps, surface/ground water hydrographs, fire risk maps, rainfall intensity-duration-frequency curves).  Decision-support tools to understand and assess risks and opportunities, and/or identify and select adaptation actions elaborated for specific sectoral and geographic needs.  Data/information about the climate change risks and adaptation needs of communities, as well as that related to environmental concerns, which enables the private sector to take them into account in its adaptation process.  Data/information about the costs and benefits of climate change adaptation actions.  Data/information on climate-related insurance loss claims and insurance products/premiums for selected climate-related risks.  Data/information about diversification strategies to adapt to climate change (e.g. available options, costs and benefits) elaborated for specific sectoral and geographic needs.  Data/information about trends in operational performance and/or demand for climatically sensitive products or services (e.g. trends in crop productivity vs. trends in cli- mate) elaborated for specific sectoral and geographic needs.  Sector-specific data/information about locations vulnerable to climate change and locations favored by climate change (e.g. sector-specific vulnerability/hazard maps).  Data/information and/or promotion of new products and services where a changing climate creates competitive advantages. Institutional arrangements  Coordinating agencies made of government, private sector, civil society, NGOs and/or academia with activities focused on climate risk and adaptation, including funding for climate change adaptation in the private sector.  Public-private partnerships dedicated to assessment of climate change adaptation challenges, and provision of solutions.  Brokers and other intermediaries active in environmental trading markets with climate change adaptation benefits (e.g. water markets).a  Government and/or industry organizations that, considering climate change risks, provide support to alternative productions/activities and/or relocation in the private sector (e.g. government export agency). Policies  Building codes and building standards taking into account changing climate conditions and the associated impacts on building design and operations (e.g. insulation for pro- jected changes in temperatures and precipitation, updated intensity-duration-frequency rainfall information for stormwater, drainage, wastewater and flood management infrastructure).  Local zoning regulations incorporating data/information about future changes in climate and their impacts on new and/or existing infrastructure and buildings  Land use/construction permitting rules promoting climate change adaptation measures (e.g. permits used to promote tree planting to cool urban areas or absorb more water where the Urban Heat Island effect or flooding pose risks).  Land tenure policies and laws/regulations that secure over the long-term the land rights of vulnerable populations who may be more at risk from expropriation and/or land loss due to climate change impacts (e.g. more severe floods) or due to actions by other groups (e.g. land purchase or leasing by organizations looking for more climate resil- ient locations).  Stakeholder consultation and/or engagement requirements promoting disclosure and/or consideration of climate risks, opportunities and adaptation.  Environmental and/or social impact assessment laws/regulations and/or government guidance with requirements to assess the impacts of changing climate conditions and consider adaptation measures (e.g. the European Commission 2013 Guidance on Integrating Climate Change into Environmental Impact Assessment and the pending proposal to revise the EIA Directive).  Legal/regulatory obligation on operators of critical infrastructure (e.g. utilities) to incorporate and, where necessary, disclose climate change risks and opportunities in their strategic and operational plans (e.g. supply/demand forecasts, Integrated Resource Management Plans).  Laws/regulations authorizing regulated utilities to offer differentiated tariff/service options making it possible to reflect customer choices on security of supply on cost of water/energy during periods of scarcity. (continued on next page) 12 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK TABLE 1:  Factors Influencing Climate Change Adaptation in the Private Sector (continued) Economic incentives  Incentives in support of purchases of climate change adaptation technologies and/or implementation of adaptation actions and/or R&D in the private sector (e.g. water effi- ciency incentives).  Public and/or private financing instruments (e.g. loans, equity or guarantees) in support of climate change adaptation uptake in the private sector, including purchase of technologies, implementation of adaptation actions and/or R&D (e.g. loans for water efficiency investments).  Microfinance programs for SMEs and smallholders in support of purchases of climate change adaptation technologies and/or implementation of adaptation actions and/or R&D (e.g. microloans for investing in drought-resistant crops).  Charges and/or levies used to fund climate change adaptation works in the critical public infrastructure.  Carbon finance supporting activities that improve climate change resilience while reducing greenhouse gas emissions.  Environmental trading markets promoting efficient use of environmental resources under pressure from climate change impacts and generating additional revenue opportu- nities (e.g. water markets).  Insurance or financial risk management products that transfer climate-related risks, while incentivizing risk reduction actions. Communication, technology and knowledge  Professional post-secondary education curriculums incorporating climate change impacts and adaptation knowledge and/or training (e.g. engineering, environmental/so- cial management, geology, biology, business and public administration and economics).  Climate change adaptation technologies and/or process innovation are produced, sold and/or promoted in the private sector (e.g. water-efficient irrigation, hard flood de- fence structures, drought-resistant crops, desalination, sensor technology).  Information and communication technology infrastructure enabling user applications and software for climate change adaptation (e.g. early disaster warming and climate information can be provided to farmers via mobile phones).  Mechanisms encouraging technology/knowledge transfer and/or sharing of best practices between countries and/or regions, as well as across sectors.  Tools to analyze and compare the effectiveness and efficiency of different diversification options (e.g. different crops or different areas of operations). a Environmental trading markets enable actors to trade environmental entitlements (a set of share of a pool of environmental resources) and/or allocations (an amount of environmental resource given over a timer period) within a market framework. 5 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 13 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change S ixteen indicators has been defined as for having in place incentives and removing bar- the initial set of the Index Framework. riers to adaptation: from avoiding costly loss This set of indicators is by no means and damage due to increased flooding, to in- definitive—other indicators, including those creasing revenues and jobs in economic activ- from Table 1 need to be incorporated for a ities favored by a warmer climate. In the past comprehensive set—but it provides an indi- eight (8) years, economists around the world cation of some of the key conditions that a have demonstrated that there is a strong busi- country needs to have in place to create an ness case for governments to take action on enabling environment promoting adaptation in climate change risks, opportunities and adap- the private sector and socio-economic pros- tation. The World Bank has estimated that by perity in a changing climate. spending only 0.2% of their projected revenues Having enabling country environments in on adaptation (between US$70 and 100 billion place for private sector adaptation can be a between 2010 and 2050), developing coun- motor for economic growth and opportunities. tries can avoid a large share of future loss and For instance, the United Kingdom government damage due to climate change impacts.6 estimated the contribution of climate change The benefits of adapting to climate adaptation goods and services to the world’s change do not stop at avoiding damage and economy at US$104.3 billion in 2010/11, US$5.2 loss; the private sector also stands to reap re- billion of which was generated in the United wards over time from adaptation investments. Kingdom. Extrapolating these numbers into Using available cost data and information the future using projected growth rates, by as well as corporate examples, this section 2020 adaptation goods and services could be worth US$186.1 billion worldwide, the equiv- alent of 0.2% of the projected 2020 global b Based on projected global GDP of US$95,000 Gross Domestic Product.b Given that climate billion in 2020 and forecast year-on-year change adaptation is very much in its infancy, growth rates for climate change adaptation goods and services estimated by the UK govern- and developed countries have committed to ment out to 2017–2018 (using an annual growth increase funding for mitigation and adaptation rate of 7.1% between 2018 and 2020). See www. for developing countries from today’s level of gov.uk/government/uploads/system/uploads/ US$10 billion annuallyc to US$100 billion each attachment_data/file/31721/12-p144-adapta- year from 2020 onward, the value of private tion-and-resilience-climate-change-2010-11. sector revenues from climate change adap- pdfand www.usinnovation.org/sites/default/ files/Global- Economic- Outlook%20 _The- tation will most likely exceed US$186 billion Conference-Board.pdf. yearly by 2020. c Based on US$30 billion developed countries Beyond promotion of climate change ad- committed to deliver as Fast Start Finance for aptation, there are a host of economic reasons climate change for 2010–2012. 13 14 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK TABLE 2:  Indicators for the Index Framework To Evaluate Whether Countries have in Place Favorable Conditions To Promote Climate Change Adaptation in the Private Sector Indicator Description Data and information 1. Climate and hydrological projections National climate (e.g. temperature, precipitation, humidity, solar radiation/cloud cover and wind) and/or hydrological (e.g. soil moisture, groundwater, runoff, evaporation, flood/drought) projections based on calibration and validation of climate and hydrological models 2. Direct and indirect impacts National data/information about climate change direct and indirect impacts relevant to the private sector and elaborated for specific sectoral and geographic needs 3. Adaptation measures, costs and benefits National data/information about climate change adaptation measures, and associated costs and benefits, elaborated for specific sectoral and geographic needs 4. Community vulnerability, risk and adaptation National/local data/information about community vulnerability and risk from climate change and/or adaptation priorities Institutional arrangements 5. Institutions and forums Coordinating national bodies and forums with a role in facilitating climate change adaptation in the private sector Policies 6. Building standards and/or codes Building standards and/or codes incorporating climate change impact and adaptation considerations 7. Public infrastructure Public and key infrastructure having factored climate change impacts and adaptation into design, operations and/or decommissioning 8. Local zoning rules Local zoning rules incorporating climate change impact and adaptation considerations for new and/or existing infra- structure/buildings in areas vulnerable to climate change (e.g. floodplains, coastal zones, glaciers) 9. Permitting and impact assessments National/local permitting (e.g. land use and/or construction permits) and/or environmental/social impact assessment rules incorporating climate change impact and adaptation considerations into developments 10. Investor relations and/or stakeholder Incorporation of climate change impact and adaptation considerations in instruments and practices for investor relations management and stakeholder management (e.g. disclosure in security fillings, bond prospectuses, stakeholder consultation, commu- nity resettlement and compensation) Economic incentives 11. Government incentives Government incentives promoting climate change adaptation in the private sector 12. Finance Public and/or private finance instruments (e.g. loans, equity, guarantees) for climate change adaptation, including plan- ning, implementation, purchase of equipment and material, and innovation/R&D in the private sector 13. Full-cost accounting for water and energy Cost accounting and pricing practices in water and energy utilities, which reflect the ‘true’ lifecyle costs of the impacts of more extreme weather and climate change on water and energy management and services, and which incentivizes in- creased efficiency, reduced consumption and improved resilience 14. Environmental trading markets Markets to trade environmental entitlements or allocations (e.g. over water, soil and/or biodiversity resources) under pressure from climate change Communication, technology and knowledge 15. Information and communication technologies Availability and market penetration of information and communication technologies (e.g. internet and mobile cellular) 16. Technology and knowledge Access to and use of technology and knowledge useful to understand, assess and respond to climate change risks and opportunities explains the costs and benefits associated 2, and further descriptions, including associ- with the sixteen indicators defined in this re- ated costs and benefits, are provided in the port. The indicators are summarized in Table following paragraphs. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 15 INDICATOR 1:  Climate and Hydrological Projections Description Measures Costs Benefits Business case summary National climate (e.g. tem-  Free access to data/information from a national or  Installation, operation  Avoided loss and damage The costs of producing perature, precipitation, international body (e.g. government department, and maintenance of from climate-related hazards climate and hydrolog- humidity, solar radiation/ public agency, research center, donor organization) hydro-meteorological  Avoided business ical projections are likely cloud cover and wind)  Data available electronically observation network interruption outweighed by poten- and/or hydrological (e.g.  Data available in both raw format as well as maps  Climate modeling  Better mid- to long-term tial avoided costs and soil moisture, ground- or graphs (e.g. cumulative frequency distributions) capability planning and/or pricing deci- increased revenue oppor- water, runoff, evaporation,  Downscaled projections  Research costs sions enhancing profitability tunities – the World Bank flood/drought) projections  Data available on primary (e.g. average, maximum  Data/ information  Increased revenue oppor- estimates that hydrome- based on calibration and and minimum temperature and precipitation) and diffusion tunities (e.g. new insurance teorological investments validation of climate and derived (e.g. growing season length, hot/cold days, products) in Russia and Central Asia hydrological models flood/drought indicators, soil moisture) hydro-cli- have benefit-to-cost ratios mate variables between 5 to 1 and 53 to 1 Virtually all private sector activities de- compound and derived variables relevant to pend on climate and hydrological data/informa- private sector planning and decision-making tion, from sectors reliant on natural resources (e.g. growing season length, hot/cold days, or crops to sectors vulnerable to natural haz- flood/drought indicators, soil moisture).d ards in their operations and/or value chains. As Development of climate and hydrolog- such, factoring data and information on future ical projections requires, among other things, changes in hydrometeorological (hydromet) access to quality hydromet observations for variables into planning and decision-making is calibration and validation of models, as well an essential step to build climate change resil- as in-country capabilities in climate and hy- ience in the private sector. drological modeling.e Beyond improving the Projections are not all of the same quality quality of climate model projections, quality or format, and this bears implications for ad- hydromet observations also offer a large range aptation. Countries with national long-term cli- of economic benefits. For instance, they im- mate (e.g. temperature, precipitation, humidity, prove disaster warnings that can prevent all solar radiation/cloud cover and wind) and hy- or part of loss and damage from natural haz- drological (e.g. e.g. soil moisture, groundwater, ards. Using disaster warnings, farmers can pro- runoff, evaporation, flood/drought) projections tect their crops, businesses can storm-proof based on models calibrated and validated with their buildings, and dam operators can start observed hydromet data are steps ahead in the reducing reservoir levels to decrease peak promotion of adaptation. The conditions for flood levels.7 Quality hydromet observations adaptation are the most favorable in countries also enable the production and distribution where such projections are i) freely accessible through national or international bodies such d For a definition of primary, compound and as government departments, special agencies, derived variables, refer to Willows, R.I. and research centres and/or donor organisations; Connell, R.K. (eds) 2003. Climate Adaptation: ii) available electronically; iii) distributed in raw Risk, Uncertainty and Decision-Making. UKCIP Technical Report. UKCIP: Oxford, UK. format as well as in the form of maps or graphs e In recent years, the use of remote-sensing data (e.g. cumulative frequency distributions); iv) from satellites to analyze climate in areas where of high spatial resolution thanks to dynam- monitoring is sparse has increased; however, re- ical or statistical downscaling techniques; and mote sensing can never fully substitute for sur- v) include not only primary variables but also face-based measurements. 16 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK of non-disaster data and information helpful (at a 70% forecast skill level), thanks to for planning. For instance, farmers can make improvements in agricultural output and better decisions about crop planting and changes in the number of hectares plant- fertilization based on rainfall predictions. ed, whereas the value of such forecasts Investments in hydromet monitoring also bear has been calculated at between US$240 non negligible indirect benefits: for example, and 323 million each year for the US ag- it is based on hydromet data and information ricultural sector (for forecast skill levels that insurers make pricing decisions and de- ranging from modest to perfect);10 velop new weather insurance products, and  Improved streamflow forecasting in the that power generators maximize the output of United States Columbia river basin has the hydropower plants and decide on new asset potential to increase spot market sales of investments. hydroelectricity by US$161 million a year.11 The costs of installing, operating and/or maintaining a good network of hydromet moni- However, little work has been done to toring stations vary depending on country size strictly quantify the return on investment of and transportation access. Based on twelve se- projects aimed at developing long-term climate lected World Bank projects, the average cost projections. For instance, the cost born by the of comprehensive hydromet improvements for United Kingdom government for producing its developing countries amounts to over US$30 latest probabilistic climate projections, known million.8 Such costs may seem significant for as UKCP09, amounted to over US$17 million, cash-strapped developing countries, however 12 million of which supported the costs of the they generate large benefits. In fact, many de- Met Office supercomputing. While costly, this veloping countries, especially in Africa, are investment resulted in ‘state-of-the-art’ cli- known to suffer from poor hydromet networks mate change data/information which has since with sparse and deteriorating monitoring sta- seen significant uptake in the United Kingdom tions translating into spotty and often inac- impacts and adaptation community.12 Beyond curate data. In Central Asian countries, the that, there is no official estimate on the ben- number of meteorological and hydrological sta- efits of UKCP09 to the United Kingdom tions in operation has dropped by 22 to 62% economy. Similarly, the European Commission and 41 to 48% between 1985 and 2008 respec- invested close to US$20 million between 2004 tively, despite the fact that the impacts of cur- and 2009 to support over US$33 million worth rent and future climate constitute large threats of research on developing an ensemble of cli- to the socio-economic stability and prosperity mate projections for Europe.13 While the exact of the region.9 return on investment remains uncertain, the Several studies confirm the net positive data/information generated have since been economic value of long-term climate and hy- used in a number of studies on future impacts drological projections, though differences in and adaptation. benefits exist between economic sectors and In comparison, there is much more knowl- countries. For example: edge about the return on investment of projects aimed at improving hydromet observations. As  The yearly value of El Niño Southern an example, the World Bank has found that hy- Oscillation (ENSO) forecasts for Mexico’s dromet investments in South Eastern Europe agricultural sector has been estimated to have benefit-to-cost ratios over five years be- range between US$8.3 and 19 million for tween 1 and 11 to 1.14 Similar benefit-to-cost ratio different ENSO frequency probabilities calculations for Russia (between 5 to 1 and 10 to Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 17 1) and Central Asia (between 23 to 1 and 53 to 1) network, improving its forecasting systems, and confirm that the business case for such invest- strengthening its capacity to provide weather, ments is strong.15 climate and hydrological data and informa- Recently, the Pilot Program for Climate tion at US$31million.16 The expected benefits Resilience of the Climate Investment Fund for Nepal’s economy include the increased fi- has identified US$95 million in hydromet in- nancial sustainability of Nepal’s Department vestments to reduce climate change vul- of Hydrology and Meteorology, improved ac- nerability and facilitate adaptation. One of curacy and timeliness of projections, and in- these investments estimated the costs of creased value to data users. modernizing Nepal’s hydromet observation 18 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 2:  Direct and Indirect Impacts Description Measures Costs Benefits Business case National data/informa-  Data/information about direct and indirect climate  Capability to model di-  Avoided loss and damage from Despite the potentially tion about climate change change impacts including flood risk maps, surface/ rect and indirect impacts climate-related hazards high costs, investing in re- direct and indirect im- ground water hydrographs, fire hazard indices, (e.g. flood, drought, crop  Avoided business interruption search on climate change pacts relevant to the rainfall intensity-duration-frequency curves yields)  Better mid to long-term plan- impacts potentially private sector and elabo-  Data/information tailored to the needs of different  Research costs ning and/or pricing decisions trigger benefits that out- rated for specific sectoral economic sectors/locations/sizes (e.g. growing  Data/information enhancing profitability weigh costs in the form of and geographic needs season length for the agricultural sector, Heating/ diffusion  Increased revenue opportu- avoided loss and damage Cooling Degree Days for the building sector) nities (e.g. flood-resistant and increased revenue materials) opportunities There is a dearth of data and informa- parts of the world.19 By the 2070s, total asset tion on where, when and by how much climate value exposed to coastal flooding in 136 of the change will affect the private sector. In a 2011 world’s largest port cities could increase tenfold survey of 60 worldwide financial institutions, compared to 2005 levels and reach US$35,000 less than 30% of respondents felt sufficiently billion due to the combined effect of sea level informed on expected changes in climate for rise, land movement, population growth and specific locations and on the quality and con- coastal urbanization.20 The effects of increased fidence of such information, and over 60% ac- flood risk are already starting to be felt today: knowledged the lack of information on climate the 2011 floods in Thailand harmed more than change impacts for specific sectors.17 Although 14,500 companies worldwide reliant on Thai knowledge of how past and current climate suppliers and cumulated to overall losses worth affects the private sector has somewhat im- US$40 billion approximately.21 proved, much remains to be done to improve Water scarcity has also risen to one of data/information on future impacts. the world’s top risks, and it is now high on the Virtually, all private sector organizations agenda of the private sector. Reports of busi- will face risks and/or opportunities associated nesses suffering from reduced water supply with a changing climate. In 2010, over 90 per- have multiplied in recent years. Two among cent of companies worldwide reported that many examples include: they had suffered from climate-related impacts in the previous three years.18 Climate change  Électricité de France which suffered a loss can affect the private sector in a number of dif- of US$431 million during the 2003 summer ferent ways: by creating new business oppor- heatwave when it limited and suspended tunities, affecting the supply of raw materials, operation of several of its power plants interrupting transport and logistics, damaging due to restrictions on discharge water infrastructure and physical assets, reducing temperature and the high costs of elec- revenues, and creating other indirect impacts. tricity on the open market;23 and Among the host of climate change impacts,  Agribusiness and food company Bunge flooding and water scarcity are top concerns which reported a loss of US$56 million in in the private sector. In recent years, water-re- the third quarter of 2010 in its sugar and lated loss and damage has risen greatly to be- bioenergy business unit due to drought come a significant share of global insured losses. conditions in its main growing areas in Further, it is known that a warmer climate and Brazil.24 rising sea levels will aggravate flood risk in many Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 19 Yet, in many countries very little reliable not take fully into account the effect of climate information is available about future flood and/ change on rainfall and sea level rise, though or drought risk in a changing climate. For in- plans exist to update flood maps.27 stance, following the 2011 floods in Thailand, The effort and resources necessary to insurers and re-insurers started complaining produce reliable flood risk maps incorpo- about the country’s rudimentary flood mod- rating climate change impacts depend on eling which creates considerable uncertainty in the amount and quality of available data in- understanding flood frequency and estimating country (e.g. laser scan terrain data, satellite future potential insured loss. In fact, since images, runoff discharge data, bathymetric 2011 a number of initiatives have launched in data), and the flood risk model used (e.g. one, Thailand to remediate the lack of reliable data/ two or three dimensional models differ in soft- information on flood risk, including: a risk mod- ware costs and computer model runtime).28 eling service by Impact Forecasting, a risk Without taking climate change into account, mapper for insurers by Munich Re and a data- the costs of flood risk mapping alone can be base of industrial parks with associated maps significant: the United States Association of by Guy Carpenter.25 State Floodplain Managers estimates that Flood risk maps are among the tools that the Federal Emergency Management Agency are known to provide essential data/informa- (FEMA) would need between US$4.5 and 7.5 tion to governments and the private sector billion to produce accurate flood risk maps in support of climate change adaptation de- and US$116 to 275 million annually to keep cisions such as land use planning, emergency these maps up-to-date.29 planning, policy development, investments in Recognizing that a changing climate will flood risk management, purchase of insurance have impacts on flood risk, Canada’s prov- policies, and/or relocation to areas less prone ince of Newfoundland and Labrador up- to flooding. Flood risk maps generally provide dated its flood risk mapping template to take information on flood hazards from defined into account climate model projections and sources (e.g. river, ocean/sea, stormwater) by it supported the development of a model to delimiting areas prone to flooding. The quality convert data on future rainfall into flood risk and amount of information contained in flood information.30 To improve knowledge about risk maps can vary greatly to include one or sev- flood and climate change vulnerability, the eral of the following: Newfoundland and Labrador government has committed close to US$1 million over 2011–  Terrain and existing and/or planned de- 2014 to assess the need for new or updated velopments; flood risk mapping studies that incorporate  Flooding depth, velocity, direction and re- climate model projections, and to undertake turn period; and flood risk mapping studies that incorporate cli-  Existing and/or planned flood defences.26 mate change impacts.31 Overall, the potential avoided loss and Overall, very few governments around damage thanks to better flood risk manage- the world have updated their flood risk maps ment are expected to largely trump the costs to incorporate climate model projections. For of flood risk mapping. For instance, using flood instance, even in countries such as the United data from FEMA’s Hurricane Sandy Impact Kingdom where flood risk mapping is consid- Analysis and the United States Geological ered of high quality and high resolution climate Survey’s reports on high water marks, re- model projections are available, flood maps do searchers have managed to predict the extent 20 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK of flooding caused by Hurricane Sandy in New insurance requirements, building codes and York and New Jersey.32 Had this information local zoning regulations.f, 34 been factored into local development planning Although cost estimates for the produc- and zoning before Hurricane Sandy hit, a por- tion of data/information about other types of tion of the US$65 billion economic loss could climate change impacts relevant to the private potentially have been avoided.33 The updated sector (e.g. drought risk) are not as widely avail- flood maps released in 2013 by FEMA for the able, benefits are likely to outweigh the costs, New York City region have been heavily criti- similarly to the return on investment of flood cized for leaving out sea level rise projections risk mapping. with fear that they would trigger non-resilient f Under the Biggert-Waters Flood Insurance Reform Act adopted by Congress in 2012, FEMA is required to consider „the best available sci- ence regarding future changes in sea levels, pre- cipitation, and intensity of hurricanes‟ in its flood risk maps; however the updated flood risk mapping for New York City had been started before this law came into force. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 21 INDICATOR 3:  Adaptation Measures, Costs and Benefits Description Measures Costs Benefits Business case National data/infor-  Data/information about climate  Research costs  Better mid- to long-term planning and/ Improving data/information on mation about climate change adaptation measures and  Data/ information or pricing decisions enhancing prof- adaptation costs and benefits change adaptation mea- associated costs and benefits, in- diffusion itability (e.g. increased production has been shown to leverage pri- sures, and associated cluding measures such as flood pro- potential) vate sector investments in adap- costs and benefits, elab- tection, irrigation and water/energy  Improved capability to make cost effec- tation—IFC’s work with a Latin orated for specific sec- efficiency tive and efficient adaptation decisions American port operator has lev- toral and geographic  Case studies of climate change adap-  New financial products/services (e.g. fi- eraged private sector adaptation needs tation in the private sector nancial risk transfer instruments) investment by a factor of 80 Costing climate change adaptation is cru- has helped to put in perspective the costs of cial to the private sector, and not without inaction, which more often than not exceed ad- good reason: sound planning requires for- aptation costs.36 Probably the most high profile ward-looking financial information on potential example of such work has been the 2007 Stern costs, revenues and operating environments. Review in the United Kingdom which famously Without such information, it is very difficult found that under ‘business-as-usual’ scenarios to justify taking action on the basis of climate inaction on climate change impacts could cost change impacts that may occur in the future between 5% and 20% of global consump- and are uncertain, as well as to understand the tion per capita every year now and forever.37 economic returns of adaptation. An initiative re- More recently, the World Bank’s Economics cently launched in the United States on the eco- of Adaptation to Climate Change estimated nomic risks of climate change (‘RiskyBusiness’) the costs of adapting to a changing climate illustrates the profile that climate change costing for all developing countries.38 These adapta- has taken on for the private sector. Business ty- tion cost estimates range from US$70 to 100 coon, Michael Bloomberg, and former United billion between 2010 and 2050, a sum equiv- States Secretary of the Treasury, Hank Paulson, alent to the amount of foreign aid that devel- have joined forces to fund a US$1.2 million study oping countries receive each year. Economic aimed at quantifying the potential future costs analysis methods other than CBA (e.g. robust of climate change so that leaders across sectors decision-making) have also been used to pro- of the United States economy can start pre- duce data/information on the business case of paring a measured response to those risks.35 adapting to a changing climate.39 A number of other initiatives worldwide However, most of this work has consid- have produced data/information on the eco- ered costs and benefits to national and/or local nomics of climate change adaptation through governments rather than private sector impli- the use of different methods. Cost-benefit cations. Further, very few private sector or- analysis (CBA) has been used to appraise ganizations have publicized quantified climate the costs of adaptation actions (e.g. the cost change impact and adaptation data/informa- of flood-proofing a building or of switching to tion, beyond the costs of single weather-re- drought-resistant crops) and their associated lated disruptions. As a result, little is known benefits and/or avoided loss/damage (e.g. about adaptation costs and benefits in the avoided flooding damage or business interrup- private sector. The work of the Climate Risk tion or improved crop production due to en- Program of the IFC Climate Business Group hanced climate suitability) in order to compare is worthy of mention here as an initiative that different adaptation options. Importantly, CBA aims to fill in part of this data/information 22 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK gap. In an effort to help its clients understand to reinforce its resilience through infrastruc- and respond to the risks and opportunities of ture improvements. In this example, IFC’s orig- a changing climate, IFC has carried out five inal investment in the study of approximately studies that analyze the costs of impacts and US$200,000 achieved a private investment adaptation options for private sector clients in leverage factor of 80. Second, the American different world regions and economic sectors, utility company Entergy Corporation partici- more specifically: pated in the Building A Resilient Energy Gulf Coast study with America’s Energy Coast,  A run-of-the-river hydropower plant America’s Wetland Foundation and Swiss Re (Khimti Khola 1), owned and operated by in order to develop fact-based approaches to Himal Power Ltd in Nepal; quantify climate change risks and opportuni-  An hydropower project in Zambia’s Kafue ties, and inform economically-sensible adap- basin (KGL HP); tation approaches in the United States Gulf  An edible palm oil producer in Ghana Coast. 42 The study estimated that the Gulf of (Ghana Oil Palm Development Company); Mexico could suffer over US$350 billion in cu-  A paper manufacturing operation by mulative losses by 2030 due to possible in- Packages Limited in Kasur, Pakistan creases in wind speed and storm surges, and (Bulleh Shah Paper Mills); and sea level rise. It also identified a number of  A cargo seaport operator in Cartagena, ‘no regrets’ adaptation actions that have clear Colombia (Terminal Marítimo Muelles El positive returns on investment and reduce a Bosque). 40 considerable portion of the risk (e.g. beach nourishment, improved standards for offshore To date, this work has shown that adapta- platforms or levees to protect refineries and tion costs and benefits are highly specific to the petrochemical plants against flooding). With assets or processes being adapted, and that un- these findings, Entergy is better equipped to certainty about future extreme climate makes allocate resources and implement priority ad- it difficult to quantify the economics of climate aptation actions. 43 These two examples show change adaptation reliably in some cases. 41 that resources spent on improving data/infor- The potential benefits of improving pri- mation about the economics of climate change vate sector data/information on the business adaptation in the private sector are capable of case of climate change adaptation are demon- leveraging investments in the private sector. strated by the efforts of two companies. First, Research on climate change adaptation Terminal Marítimo Muelles El Bosque (MEB), costs and benefits can generate considerable a major cargo seaport operator in Cartagena, value. For instance, the United Kingdom gov- Colombia, collaborated with the IFC to un- ernment funded the US$1.3 million Economics derstand the implications of climate change of Climate Resilience project to assess the eco- for the key components of its operations, in- nomic case for adaptation and identify where cluding trade levels and patterns, navigation action is the most beneficial. 44 The results of and berthing, cargo handling and storage, and this work has informed the United Kingdom transportation within and beyond the port National Adaptation Program which lays out fencelines. The study estimated that increased objectives, policies and proposals to address flood risk due to sea level rise could cause an the higher order risks among the 700 risks annual loss in projected revenues of 3% to 7% identified in the country’s 2012 Climate Change by 2032. MEB decided to act upon the study Risk Assessment and avoid considerable future recommendations and invest US$20 million loss and damage. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 23 INDICATOR 4:  Community Vulnerability, Risk and Adaptation Description Measures Costs Benefits Business case National/local data/infor-  National/local climate change  Research costs  Access to community-held data/information The costs of producing data/ mation about community vulnerability/risk and adapta-  Stakeholder engagement  Maintain community performance and so- information on community vulnerability and risk from tion assessments (e.g. reports  Data/ information cial license vulnerability, risk and adap- climate change and/or adap- and/or resource centres) diffusion  Exploitation of ‘shared opportunities’ be- tation are likely outweighed tation priorities tween communities and private sector by positive social and en-  Avoided costly interruptions of economic vironmental benefits (e.g. activity new sources of livelihoods) In any part of the world, the success of between communities and the private the private sector relies on the prosperity of sector. 45 local communities. Communities form essen- Several national and local sources of tial parts of economic value chains by providing data/information exist on community vul- key resources to the private sector such as a nerability, risk and adaptation issues associ- workforce, essential supplies, a customer base ated with a changing climate. For instance, and a social license to operate. most countries have assessed areas of vul- There are several reasons for the private nerability and risk and identified possible ad- sector to assess climate change risks, opportu- aptation interventions to adapt, though the nities and adaptation options, and implement quality of these assessments varies consid- risk management measures while taking ac- erably. Under the United Nations Framework count of communities. For instance: Convention on Climate Change (UNFCCC), a large number of the world’s least developed  Understanding the vulnerability and risks countries and all other country parties have faced by a community due to the chang- prepared and published National Adaptation ing climate and/or its adaptation priori- Programs of Action (NAPAs) and National ties/actions can provide useful insights to Communications respectively. These con- the private sector on its own vulnerability, tain data/information about community vul- risks, opportunities and adaptation; nerability, risk and adaptation. For instance,  The impacts of climate change could af- Cambodia’s NAPA identifies key adaptation fect social licenses to operate if nothing needs based on household surveys, as well is done to maintain social and/or environ- as input from informal leaders, local authori- mental performance under different climat- ties and non-governmental organizations. 46 ic conditions; The Cancun Adaptation Framework adopted  By factoring into private sector decisions at the UNFCCC sixteenth Conference of the and practices the fact that climate change Parties in 2010 created a process whereby all can create and/or exacerbate communi- country parties commit to plan, prioritize and ty concerns over the sharing of resourc- es, potential conflicts can be avoided and/ or mitigated; g Shared value practices seek to promote activi- ties that create positive financial and social re-  Poorly planned climate change adaptation turns for the private sector and communities in the private sector could have negative respectively. See Porter, M., E., and Kramer, M., consequences on local communities; and R., 2011. Creating shared value: How to reinvent  Climate change adaptation creates a new capitalism and unleash a wave of innovation and source of ‘shared value’g opportunities growth. Harvard Business Review, February 2011. 24 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK implement adaptation actions, and, as part of value chain resilience to climate change im- it, develop National Adaptation Plans (NAPs). pacts in the private sector. For instance, United While most NAPs are in progress, a number of Kingdom manufacturer of cosmetics products countries are at a more advanced stage. For The Body Shop sources raw materials, such as instance, the United Kingdom has recently sesame oil and tea tree, from suppliers who completed its first national Climate Change have contracts with Community Fair Trade pro- Risk Assessment and National Adaptation ducers. Some of the company’s primary pro- Plan where it identifies adaptation responses ducers of sesame in Nicaragua are increasingly to identified climate change risks in six areas: facing climate-related pressures, including ex- built environment, infrastructure, health and cess rainfall and droughts. For instance, in 2011 communities, agriculture and forestry, nat- twelve days of heavy downpours cut off trans- ural environment, and business and local portation access and caused considerable crop government. 47 Outside of the UNFCCC pro- losses, forcing a number of sesame producers cess, a number of developed and developing to emigrate to sustain their families. While The countries have realized national, sub-na- Body Shop has not been hit directly by these tional and/or sectoral climate change vul- events, it sees climate change risk as one of the nerability, risk and adaptation assessments, issues that can put at risk its long-term rela- thanks to donor funding in some cases. For tionships with suppliers. This is why The Body example, this is the case of Kenya which de- Shop is working with its suppliers to ensure the veloped a National Climate Change Action resilience of its supply chain and of the com- Plan (NCCAP) thanks to funding from the munity livelihoods that depend on it. As part United Kingdom Department for International of it, The Body Shop supports a number of mi- Development, which was led by its Ministry of cro-insurance schemes so that its primary pro- Environment and Mineral Resources and val- ducers are protected against weather-induced idated by over 275 representatives from all crop failure. of Kenya’s 47 counties. 48 While not solely fo- With the knowledge that climate change cused on climate change adaptation, Kenya’s could create cumulative costs in excess of NCCAP prioritizes adaptation actions and US$350 billion in the Gulf of Mexico over the provides associated cost estimates; examples next 20 years, United States utility company of Kenya’s adaptation priorities include US$172 Entergy collaborated with America’s Wetland million to upscale resilient practices in the ag- Foundation and America’s Energy Coast to ricultural sector (e.g. drought-tolerant crops, create the Blue Ribbon Resilient Communities. water harvesting, index-based weather insur- This initiative has helped communities in the ance, agro-forestry), US$59 million to main- Gulf of Mexico where Entergy operates pre- stream climate change into all water resource pare themselves for more extreme weather management plans and action, and US$534 events through local forums where local million to strengthen climate change informa- tion management systems. Interestingly, the private sector was involved in Kenya’s NCCAP h Private sector organizations involved in the process, which demonstrates the relevance of development process of Kenya’s NCCAP in- climate change adaptation to private sector cluded Kenya Private Sector Alliance, Kenya Airways, Kenya Pipeline Company, Matatu interests.h Owners Association, Commercial Bank of Africa Several companies worldwide have shown Limited, Kenya Bankers Association. See http:// how data/information on community vulner- cdkn.org/wp-content/uploads/2013/03/Kenya- ability, risk and adaptation can help to build National-Climate-Change-Action-Plan.pdf. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 25 government and residents assess, analyze and Communities initiative with a US$400,000 discuss solutions. Through these forums, com- grant. Through this work, the practical lessons munities are better informed and armed on that Entergy has learnt on how to build resil- climate change resilience planning. In parallel, ience to more extreme weather are likely to Entergy has also engaged in discussions with protect future corporate and community value some of its Texas and Louisiana customers, in- in excess of US$400,000. To date, this work cluding city manager, county and parish leaders has already led to tangible climate change ad- and industrial operators, about climate change aptation action. For instance, a number of cities vulnerability and risk and strategies to build have acquired backup generators for water and resilience. sewage systems to deal with climate-related Compared to its benefits, the cost of as- power disruptions, and some communities have sessing community vulnerability, risk and adap- begun restoring and protecting marshlands tation is likely to remain moderate. For instance, along the coast to provide added protection Entergy contributed to the Blue Ribbon Resilient against increased storm surge flooding. 49 26 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 5:  Institutions and Forums Description Measures Costs Benefits Business case Coordinating national  National government and/or private body, consortium  Operating costs  Improved access to data/in- Existing climate change bodies and forums or network with a role in facilitating private sector ad-  Private sector opportunity formation for climate change adaptation institu- with a role in facili- aptation, including: cost (e.g. staff time and adaptation tions and forums have tating climate change  Dialogue between the private sector, government, CAPEX)  Better mid- to long-term plan- shown positive returns adaptation in the pri- civil society and academia about issues and needs; ning and/or pricing decisions on investment—In vate sector  Production and dissemination of data/information enhancing profitability one Canadian example relevant to the private sector (e.g. case studies,  Improved alignment between each dollar of govern- costs and benefits, best practices); and private sector, government, ment funding spent  Capacity-building and support services to under- civil society and academia cre- has resulted in 40 cents stand issues and implement actions. ates economies of scale and in- of private sector adap-  Multisectoral private sector audience creases overall climate change tation investment  Participation of and/or benefits to SMEs resilience Climate change impacts and adaptation  Producing and/or disseminating data/in- are relatively new concerns for the private formation useful to climate change adap- sector. As such, there is a perception that tation; and standards and practices in place dealing with  Building capacity and/or offering support natural climate variability are good enough to services to improve the private sector un- cope with more extreme weather and incre- derstanding of climate change impact and mental changes in climate, or that considerable adaptation issues, and their capability to costs are required to ‘get started’ on these is- take action. sues and build resilience. Working alongside specialized institutions and/or within forums The United Kingdom Climate Impacts represents a way to understand the relevance Programme (UKCIP), one of several good exam- and materiality of climate change effectively ples, was established by the UK government in and cost-efficiently, and approach climate 1997 to support climate change adaptation by change adaptation in a ‘step-wise’ fashion. the public and private sector.50 Advised by a Though the number of institutions and forums Steering Committee made of representatives explicitly working on climate change adapta- from government departments, public agencies, tion with the private sector remains limited, in- private companies and NGOs, UKCIP supported stitutions/forums working in other areas (e.g. a number of climate change impacts and adapta- disaster risk management, water) sometimes tion assessments in the private sector, and de- address climate change impact and adapta- veloped tools for the private sector.i UKCIP also tion issues. Where they exist, institutions (e.g. special- i The Business Areas Climate Assessment Tool ized bodies or consortiums) and forums (e.g. (BACLIAT) is one example of UCKIP tools for the networks or dialogue platforms) play a catalyst private sector. It is a checklist that UK businesses role in promoting private sector adaptation in have used to assess the potential impacts of cli- several countries by: mate change at an organizational level. Private sector applications of BACLIAT include several UK trade associations and professional bodies  Providing a space for dialogue between as well as individual companies including Serco’s the private sector, government, civil soci- Colnbrook Immigration Centre at Heathrow, ety and academia; Scottish Electrical Contracting, and several Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 27 rolled out a number of activities to assist SMEs, and expertise sharing, improved access to including local and regional workshops, training private data/information, and increased re- sessions, and technical studies. In 2011, the silience outside of organizational boundaries Environment Agency took over UKCIP’s respon- and across private sector value chains. As sibilities to deliver government’s climate change an example, in 2001 Québec’s Consortium adaptation program and work with the private on Regional Climatology and Adaptation to sector.51 Climate Change (Ouranos) was jointly set up The Commonwealth Scientific and Indus- by the Québec government, Environment trial Research Organisation (CSIRO) is Austra- Canada and provincial utility company Hydro- lia’s national science agency, and its Climate Québec.j In 2004, a funding agreement was Adaptation Flagship program is, in part, ded- signed for an initial period of five years giving icated to the development of adaptation op- Ouranos the mandate of working on climate tions for the country’s natural resources sectors change science, impacts and adaptation. The (e.g. mining industry, fisheries, agriculture, for- consortium soon attracted interest from other estry).52 Australia’s National Climate Change hydropower generators because of its leading Adaptation Research Facility manages a US$- edge research on climate and hydrological 41million multidisciplinary research portfolio of modeling,k and climate change impacts. Today, over 100 projects, some of which aimed to di- Ouranos has become a platform through rectly benefit the private sector.53 which several companies get access to data/ In Rwanda, government is fostering pri- information on climate change impacts and vate sector adaptation through partnerships. collaborate on adaptation issues, namely: Rio The Private Sector Federation, a Rwanda pro- Tinto Alcan, Ontario Power Generation (OPG) fessional body, is working with government on and Manitoba-Hydro, which became Ouranos’ training small- and medium-sized enterprises affiliated members. across the country on the business opportuni- Moreover, institutions and forums on cli- ties associated with Rwanda’s climate change mate change adaptation can help to ensure policies, including funding available through that actions taken by governments or financial the country’s Environment and Climate Change institutions are in line with the concerns and Fund (FONERWA).54 FONERWA has made needs of the private sector. In 2013, the United 20% of its US$36 million funding available to States President announced the deployment the private sector and civil society organisa- of a national Climate Action Plan which aims to tions. In Bangladesh, the government’s Climate grant the US Global Change Research Program Change Cell is working on strengthening the US$2.7 billion of the fiscal year 2014 budget to- capacity of professionals, practitioners and wards the production of climate science and policy makers on preparedness for future cli- mate change impacts thanks to a US$2 million small and medium-sized enterprises. See unfccc. grant from the United Kingdom Department int/adaptation/nairobi_work_programme/knowl- for International Development.55 edge_resources_and_publications/items/5316. Institutions and forums also constitute php (Accessed June 28, 2013). platforms for potential partnerships between j Other notable examples include Canada’s private sector, government and communi- former Leaders’ Forum on Climate Change Adaptation instituted by the Conference Board ties to work on common issues. Working of Canada and the Climate Change Adaptation in partnership on climate change adapta- Project funded by insurance company Intact. tion is known to deliver benefits such as re- k Ouranos is one of the main sources of North duced demands on resources, knowledge American regional climate simulations. 28 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK information that is directly actionable, including and inform the development of the company’s in the private sector.56 climate change adaptation strategy. Based on The operating costs of institutions and the positive return on investment of working forums on climate change adaptation vary with PCIC, BC Hydro committed an additional depending on whether they simply relay or pro- US$1.3 million to PCIC over the next four years duce data/information on climate science, im- to expand research into other watersheds and pacts and adaptation. The exact benefits to the impact areas.57 private sector and the national economies of A few examples have shown that govern- having in place institutions working on adapta- ment funding granted to institutions or net- tion with the private sector have not yet been works on climate change adaptation in the comprehensively assessed. However, exam- private sector is capable of generating private ples from Canada and the United Kingdom indi- sector investments for adaptation. For instance, cate that the return on investment has generally Québec’s Ouranos, with its network of 400 sci- been positive. entists and professionals, has benefited from For instance, thanks to such institutions yearly funding in the order of US$10 to 12 mil- private sector actors are able to improve deci- lion since 2004, CA$3 million of which consists sion-making by taking account of climate change of base program funding from government. The risks and opportunities, as well as enhance the work of Ouranos has generated private sector resilience of their operations and value chains. interest in the form of annual contributions in Canadian power utility BC Hydro granted ap- excess of US$1.6 million each year.58 This means proximately US$800,000 in funding to the that for each dollar of base funding from gov- Pacific Climate Impacts Consortium (PCIC) ernment, Ouranos managed to leverage about over 2007–2010 to answer specific questions 50 cents of private sector contributions and about hydro-climate historical trends, regional 1.6 dollars of additional project-based public climate modeling and downscaling, runoff pro- sector funding. With government-funded an- jections for select river basins, and glacier re- nual operating costs in the order of US$1.6 sponses to a changing climate. The objective million, UKCIP has also managed to leverage was to feed this data and information into op- private sector funding in support of its work on erational and planning models (such as reser- climate change impacts and adaptation, though voir operations or system optimization models), the exact amount is not known.59 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 29 INDICATOR 6:  Building and Infrastructure Standards and/or Codes Description Measures Costs Benefits Business case summary Building standards  National and/or local building standard/code  Costs to update building  Improved property value Codes and/or standards in- and/or codes incorpo- updated to incorporate climate change impact standards and/or codes  Avoided loss and damage from creasing resilience against rating climate change and adaptation considerations (e.g. revised   Enforcement and training climate-related hazards hazards have achieved impact and adaptation maximum temperature design criteria) and/ costs  Lower maintenance and oper- reductions in loss and considerations or building standard/code promoting climate  Compliance costs (e.g. ad- ation costs over time, as well damage—American change adaptation practices (e.g. water-effi- ditional design/construc- as reduced post-disaster re- homes complying with cient design features) tion costs for new built, and pair costs new hurricane standards  Published plan and/or program to update retrofit costs for existing  Avoided business interruption have suffered losses 42% building standard/code so as to incorpo- structures)  Reduced insurance costs lower on average rate climate change impact and adaptation considerations All around the world, buildings and infra- the resilience of buildings and infrastructure to structure assets are designed and built using climate change impacts.64 climatic design values derived from historical Improving the resilience of the built envi- data.60 Wind loads, maximum design tempera- ronment to climate change has become an ad- ture, snow loads, flood return periods, and aptation priority for many governments around rainfall intensity-duration-frequency (IDF) are the world, as buildings and infrastructure un- among the climatic design values most often derpin most, if not all, economic activities.65 used in building/infrastructure design and Loss and damage from extreme climate and construction; all of these are coincidentally gradual reductions in performance due to pre- affected by a changing climate.61 Changes in mature weathering of buildings or infrastruc- climate conditions during the useful life of an ture assets have the potential to affect human asset require modifications to how it is engi- safety and security, as well as disorganize eco- neered, maintained and operated in order nomic activities. Furthermore, investing today to maintain levels of serviceability, safety in structures that are not resilient to climate and costs.62 In fact, small changes in climate change and are meant to stand for decades variables have the potential to cause large equates into sunk costs, as repairs and/or ret- increases in damage and operation/mainte- rofits will be later needed to adapt to changing nance costs to existing assets: for example, re- climate conditions. search by an Australian insurer has shown that A quick look at examples around the world each 25% increase in peak wind gust strength of building and/or infrastructure failures due above 20 to 25 meters per second can gen- to weather demonstrates the potential costs erate a rise in building loss claims of up to of climate change for building/infrastructure 650%.63 owners and managers, if no adaptation is im- In many countries structures are designed plemented. For instance: and constructed following mandatory tech- nical prescriptions contained in standards and/  China’s US$4.2 billion railway line connect- or codes; many of these prescriptions are de- ing Lhasa, Tibet, and Quinghai, China, was rived from climatic and seismic design values. built on ‘warm permafrost’ (commonly de- As a result, building and infrastructure codes fined as permafrost warmer than –1.5°C) and standards have been identified by govern- thanks to engineering cooling techniques ments as an important instrument to increase which added 1% to total capital costs, 30 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK however if increases in average annual Very few jurisdictions across the world temperature of 2 to 3°C by 2050 are re- have revised their building and infrastructure alized in the region, costly retrofits will be codes and/or standards to take account of cli- needed to ensure the continued safe op- mate model projections and resilience. In fact, eration of the railway;66 many developing countries are struggling with  Research in UK estimated that a section enforcing existing building and infrastructure of the main railway line between London codes and standards, meaning that they al- and Cornwall will suffer from increased ready face an ‘adaptation deficit’ compared sea wave ‘overtopping’, as well as more with today’s climate conditions. The best exam- frequent speed restrictions and line clo- ples of efforts in this direction can be found in sures because of sea level rise and in- the developed word. creased coastal flood risk, adding to the For instance, analysis and revision of already high annual maintenance costs of building, plumbing and electrical codes, stan- US$793,000 borne by the railway opera- dards and guides is one of the cornerstone tor Network Rail;67 and actions for Australia’s infrastructure in the  A study by University of Alaska Anchorage country’s 2007 National Climate Change showed that without adaptation, the costs Adaptation Framework.69 In fact, Standards of climate change for public infrastructure Australia released in 2013 the voluntary risk in Alaska (such as roads, airports, bridges, management standard AS 5334 Climate railroads, harbors, water and sewer sys- change adaptation for settlements and infra- tems, buildings and telecommunications as- structure—A risk based approach, which offers sets) could be in the range of US$3.6 to 7 a systematic approach to apply data/informa- billion between 2006 and 2030, adding 11 tion on climate change variables (e.g. sea level, to 22% to ordinary wear and tear costs.68 rainfall, temperature, wind relative humidity,  Without codes and standards prescribing soil components, PH component and brush engineers and architects to follow build- fire risk) in decisions about settlement and in- ing and infrastructure design and con- frastructure planning, approval, permitting, struction practices that are resilient to commissioning, design, construction, installa- climate change impacts, developers and tion, operation, insurance, maintenance and owners have little incentive to bear the decommissioning.70 additional upfront costs to adapt, given Canada’s federal environment ministry, the uncertain (and sometimes long-term) together with the Canadian Commission on payback. Even in cases where adaptation Building and Fire Codes, is updating and im- practices are not costly, the dearth of proving more than 6,000 specific climatic de- awareness and/or knowledge of climate sign values used in the National Building Code change data/information and associated of Canada and in several Canadian Standards impacts on the built environment in the Association (CSA) national standards.71 CSA engineering profession limit the uptake has since identified that 29 of its 250 infra- of adaptation practices. Further, the pri- structure codes and standards are vulnerable vate sector has only limited leverage over to climate change.72 In 2010 and 2012, CSA re- building and infrastructure codes and/or leased its first guides to help with the incor- standards as they often are a governmen- poration of data/information on permafrost tal prerogative (although many voluntary thawing and changes in rainfall in building in- codes or standards do originate in the frastructure siting and design.73 CSA is also private sector). working with the Standards Council of Canada Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 31 to develop four new standards in support of cli- billion required worldwide each year to adapt mate change adaptation in Northern Canada infrastructure to climate impacts, the return as part of the Northern Canada Infrastructure of investment is unquestionable.77 The build- Standardization Initiative.74 ings in New York City that were built to meet Updating building codes and/or standards the 1983 building code standards on minimum or developing new ones to incorporate climate Base Flood Elevation have fared considerably change adaptation considerations can be a better than buildings that were built before costly investment. It requires the acquisition these standards were in place, demonstrating of quality observed and projected data on cli- the costs that climate-resilient building codes mate-related variables and building/infrastruc- can help to save in the face of climate change.78 ture performance, as well as modelling work. To In fact, the United States Institute for achieve expected benefits, training of planning Business and Home Safety (IBHS) has demon- and engineering professionals on new and/or strated these economic benefits at the building revised codes and standards is also required, level, taking the example of hurricane damage together with enforcement resources. in Florida. The hurricane losses suffered by For instance, ongoing work by Canada’s homes built according to new ‘hurricane-proof’ Institute for Catastrophic Loss Reduction to standards decreased by 42%, from an average analyse the effect of extreme weather events of US$12 to 24 per square foot, compared with on structural aspects of domestic building con- homes built according to older standards.79 As struction (e.g. extreme wind, moisture pene- hurricane intensity could grow stronger in a tration, energy efficiency and mould growth) warmer climate, the same range of benefits can amounts to US$6.8 million of government be expected from building codes and/or stan- funding.75 US$24 million has also been awarded dards taking consideration future changes in by Canadian governments to a university for hurricanes, though the existing scientific uncer- producing improved wind simulations and im- tainty in this area has to be considered. proving understanding of wind impacts on Further, codes and/or standards incor- buildings and structures.76 porating climate change adaptation consider- However, the benefits of updating building ations in building and infrastructure design and and infrastructure codes and/or standards po- construction can create a range of additional tentially outweigh the costs many times over: benefits from improving human health, safety even if the enforcement of codes and/or stan- and well-being, to lowering maintenance and dards incorporating climate change adapta- repair costs, enhancing property value and re- tion considerations contributes to reducing ducing insurance premium costs. a small portion of the additional US$9 to 24 32 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 7:  Public Infrastructure Description Measures Costs Benefits Business case Public and/or key infrastruc-  Public and other key infra-  Research costs  Increased government revenue opportuni- The benefit-to-cost ratio of ture having factored climate structure built and/or retro-  Design and construc- ties due to higher attractiveness (e.g. local tax investing in making infra- change impacts and adapta- fitted taking account of climate tion costs for new or levies) structure more resilient to tion into design, operations change impacts and adapta- infrastructure  Improved property value climate change impacts is and/or decommissioning tion considerations (e.g. use of  Retrofit costs for ex-  Expected project/asset useful life maintained potentially considerable— storm-resistant construction isting infrastructure  Avoided loss and damage from climate-re- based on global estimates by material) lated hazards the UNFCCC and the World  Geographic extent of resilient  Lower maintenance and operation costs over Bank each dollar spent on public infrastructure time, as well as reduced post-disaster re- adapting infrastructure can pair costs save between $4 and $69  Improved user health, safety and well-being each year from 2030 onward  Avoided business interruption Public and other key infrastructure is es- The impacts of a changing climate on the sential to private sector activity. For instance, built environment will be felt differently across modern, efficient and reliable highways, water infrastructure assets (based on asset type, age, treatment facilities and public transit ensure that maintenance and design safety margins) and the private sector reaches its markets, accesses locations: the freshwater that is necessary for its opera- tions, and attracts a qualified workforce. This is  Where assets are exposed to extreme why ensuring the resilience of public infrastruc- weather hazards (e.g. tropical cyclones or ture in a changing climate is critical to long-term winter storms), increased temperatures will economic prosperity and social well-being. increase the hazard intensity and associat- Public infrastructure is extremely vulner- ed loss and damage; able to climate change due to several factors:  In cold regions of the world, warmer tem- peratures and the associated ice/snow  It is designed and constructed based on melting and permafrost thawing will in- engineering standards with past climate- crease premature weathering of public in- related data (except in jurisdictions that frastructure (e.g. rutting of winter roads, incorporate climate change adaptation into higher rates of erosion, and instability of infrastructure design codes and standards; building foundations); see Indicator 6);  In areas of hot weather, increased epi-  Assets are long-lived (e.g. 15–40 years for sodes of extreme heat and more drought power plants to 40–75 years for roads, rail- cycles will also increase wear and tear of ways or power distribution networks); and infrastructure assets (e.g. damage to un-  Investments create ‘sunk costs’ whereby derground pipes due to soil shrinking, re- new infrastructure locks populations and duced depth of navigable waters, and businesses reliant on it into given life- increased indoor temperatures); and styles and economic patterns until the  Infrastructures by the coast or nearby next cycle of asset refurbishment and/or rivers are likely to suffer from increased replacement.80 flood risk.81 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 33 In a number of developing countries vul- infrastructure more resilient to climate change nerability to climate change is high because impacts is very often considerable. If it is as- of old and/or poorly maintained infrastruc- sumed that adaptation investments can con- ture and low levels of government funding. This tribute to avoid half of future damage and loss means that many countries already suffer from due to a more extreme climate, each dollar an ‘adaptation deficit’ in their infrastructure rel- spent on adapting infrastructure can save be- atively to current climate conditions. tween US$4 and 69 each year.m While these It is not always easy to predict how the figures do not distinguish between public and impacts may affect private sector. Recent ex- from private infrastructure, they do give an amples of companies affected by disruptions indication of how worthwhile investments in in infrastructure services due to abnormal building the climate change resilience of public weather events exemplify this: infrastructure are. More local examples of the economics of  Widespread flooding in Australia in 2010 adapting public infrastructure for the private severely disrupted railway networks and sector exist. For instance, New York City has port terminals, which in turn shut down recently deployed a US$19.5 billion plan to build market access for the state coal mines, a ‘stronger, more resilient New York’, which driving down coal export stockpiles at aims to improve the resilience of the city’s in- ports and causing severe delays on coal frastructure including: coastal zone protec- export contracts. Market analysts esti- tions, buildings, utilities, water and wastewater mate that floods have stripped US$2.5 bil- management infrastructures, transportation lion from the earnings of Australia’s mining and telecommunications. This plan comes in industry; and response to hurricane Sandy which caused  An extreme rainfall event in Russia in losses worth US$19 billion, including US$6 bil- 2012 caused 164 casualties possibly due lion due to reduced economic. Examples of to poor road design and construction, adaptation investments covered by the plan in- whereby bridge openings clogged with clude reconstruction of roads with upgraded debris were not wide enough to channel design standards, ground elevation of traffic flood waters and avoid destructive water signals and electrical power back-up, improve- build-up.82 ments in storm water management for future capital projects in the city, and installation of Studies by the UNFCCC and the World Bank have placed the additional annual costs needed to adapt infrastructure anywhere be- l These estimates extrapolate observed in- tween US$8 to 130 billion and US$14 to 34 bil- creases in weather-related insured losses into the future, and do not capture the costs of pre- lion by the 2030s respectively.83 Overall, the mature infrastructure weathering and rising sums required to adapt infrastructure remain maintenance and repair requirements, a small portion of total infrastructure costs. m Using the range of annual climate change ad- Further, these sums are considerably lower aptation costs for infrastructure of US$8–130 than future infrastructure damage and loss and US$14–34 billion from the UNFCCC and due to more extreme climate, which ranges the World Bank respectively, and yearly loss estimates associated with future increased ex- from US$850 to 1,350 billion each year from treme climate from the UNFCC of US$850 to 2030 onward (equivalent to between 1 to 2% 1,350 billion (all sums are for the 2030s period, of today’s GDP).l, 84 This demonstrates that except for the World Bank numbers which are the benefit-to-cost ratio of investing in making for 2030). 34 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK floodgates at tunnels.85 New York City esti- infrastructure, taking into account design mates that if the coastal protection measures values based on climate model projections and and major power and building protections rec- not just on climate observations.86 For instance, ommended in the first phase of its plan are FSM intends to design its urban drainage net- implemented, future expected losses in the works to allow heavier rainfall loads during fu- 2050s due to weather events could be re- ture storms and thus reduce flash flood risk duced by up to 25% or more than US$22 bil- and associated loss and damage. By intro- lion. Further, New York City could also avoid ducing this law, private sector resilience is much of the possible losses associated with therefore indirectly enhanced. A study by the a storm like Sandy by the 2050s, which could FSM estimating the cost of climate-proofing a reach US$90 billion (in current dollars).n road section shows that it is 30% more costly Recognizing the vulnerability of its in- to do so through retrofits rather than at the de- frastructure to climate-related hazards such sign and construction stage; however, retrofits as tropical cyclones, storm surges and flash to increase climate change resilience remain a floods, the Federated States of Micronesia cost-effective investment thanks to an internal (FSM) passed a law to ‘climate-proof’ the rate of return of 13%.87 n Because of projected sea level rise and possible increases in hurricane intensity, this is almost five (5) times as much as the losses caused by Hurricane Sandy. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 35 INDICATOR 8:  Local Zoning Rules Description Measures Costs Benefits Business case Local zoning rules in-  Zoning rules with climate change im-  Costs to develop and/  Increased government revenue opportuni- The costs of devel- corporating climate pact/adaptation considerations (e.g. sea or amend local zoning ties due to higher attractiveness (e.g. local oping and enforcing change impact and level rise estimates, revised flood zones) regulations tax or levies) new/amended zoning adaptation consider-  Absence of zoning rules promoting  Compliance costs (e.g.  Improved property value are outweighed by the ations for new and/ maladaptation practices (e.g. reduced siting, design and con-  Increased revenues thanks to emerging op- protection of develop- or existing infrastruc- coastal protected areas which could in- struction requirements) portunities (e.g. engineering services) ments against rising ture/buildings in areas crease vulnerability to sea lever rise and  Possibly higher capital  Expected project/asset useful life maintained weather-related loss vulnerable to climate rising storm surges) costs  Avoided loss and damage from climate-re- and damage change (e.g. flood-  Zoning rules with climate change im-  Enforcement and training lated hazards plains, coasts) pact/adaptation considerations extend costs  Lower maintenance and operation costs over beyond individual municipalities and/ time, as well as reduced post-disaster re- or councils pair costs  Avoided business interruption  Reduced insurance costs Local zoning regroups all the legislative  Promoting minimum building basement and regulatory tools (e.g. zoning bylaws, zoning height above flood levels helps to main- codes) through which local authorities control tain the costs of flooding down. 88 land use within their borders. For instance, zoning bylaws divide communities into zones Across the world, there are many well-pub- where restrictions on certain land uses and/ licized examples where local zoning has been or requirements on structures are imposed, used to promote climate change adaptation, including maximum height, lot coverage and most notably: density, building type and minimum setbacks. Through zoning rules, local authorities can limit  The city of Cartagena in Colombia is the developments in areas prone to climate-re- first South American coastal city to release lated hazards, such as flooding, wildfires, land- climate change adaptation guidelines that slides or coastal erosion. lay down the foundation for forthcoming Incorporating climate impact and adap- municipal zoning policies, for example in tation considerations into local zoning rules is favor of mangrove habitats that form nat- a powerful instrument to build the resilience ural barriers against the impacts of coast- of communities and developments against al erosion and storm surges;89 changes in the intensity, frequency and/or du-  Following Hurricane Sandy, New York City ration of climate-related hazards, for instance: released an emergency rule raising min- Increasing the number of lots that must be imum elevation requirements for recon- vegetated or made of pervious surfaces helps struction of damaged buildings and new to manage increased stormwater runoff; developments together with an Executive Order suspending existing zoning restric-  Creating natural and/or built buffers be- tions on building height90 —these regulato- tween the waterfront and developments ry changes are meant to remove barriers reduces vulnerability to riverine or coast- to climate change adaptation in the city’s al flooding; and floodplains, and to enable building owners 36 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK and developers to meet the revised 2013 that has observed local rates of sea level rise Base Flood Elevation standards from in the United States North East coast three the United States Federal Emergency to four times higher than the observed global Management Agency; and average.93 Further, in many developing coun-  In Canada’s British Columbia, a group tries, the effectiveness of local zoning rules is of local governments developed a mod- constrained by limited capacity to carry out el ‘Climate-resilient Subdivision and enforcement.94 Development Servicing Bylaw’ that pub- Where there is capacity for enforcing laws lic authorities can use to revise their own and regulations, local zoning can be a cost effec- zoning regulations in order to incorporate tive instrument to promote climate change ad- climate change adaptation into process re- aptation.95 Indeed, local governments in areas quirements and design specifications for prone to climate-related hazards have already development permit applications. experimented and developed cutting-edge land use policies and instruments to mitigate these However, in some cases existing local risks. In many cases, these policies can be bor- zoning rules create barriers to climate change rowed and adapted to cope with climate change adaptation and promote maladaptation prac- impacts.96 The costs of using existing local zoning tices that increase climate change vulnera- rules to promote climate change adaptation can bility.91 For instance, the state of North Carolina be negligible where ‘win-win’ opportunities exist. in the United States passed a law in 2012 ban- For example, this is the case of Milwaukee in the ning state agencies from using exponential sea United States, which has in place zoning rules level rise projections for law-making and plan- to support green roofs as a measure to manage ning, and requiring them to use linear extrapo- stormwater; if the city promoted green roofs in lations based on historical trends until a state areas vulnerable to urban heat islands, it could sea level rise study has been completed.92 This solve two problems at once without needing ad- law goes against recent scientific research ditional authority and/or funding.97 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 37 INDICATOR 9:  Permitting and Impact Assessments Description Measures Costs Benefits Business case National/local per-  Consideration of climate  Costs to develop policies,  Expected project/asset useful life maintained Upfront incorporation of mitting and/or impact change resilience as part of legislation, regulation and  Increased revenue opportunities (e.g. consultancy climate change impact and assessment rules incor- permitting (e.g. land use and/ guidance services) adaptation considerations porating climate change or construction permits) and/  Compliance costs (e.g. in-  Maintain community performance and social at the permitting and/or impact and adapta- or environmental/social im- corporation of climate im- license impact assessment stage tion considerations into pact assessments pacts and adaptation into  Exploitation of ‘shared opportunities’ between can result in lower long- developments  Examples of incorporation of permit applications and/ communities and private sector term repair, maintenance climate change impact and or ESIAs)  Avoided loss and damage from climate-related and replacement costs, adaptation in national stra-  Possibly higher capital hazards and create value—there tegic and/or project impact costs  Lower maintenance and operation costs over are several EIA examples assessments  Enforcement and training time, as well as reduced post-disaster repair costs showing the rationale costs  Avoided business interruption for climate-proofing  Reduced insurance costs developments Obtaining development permitso and con- of development permits and impact assess- ducting environmental impact assessments ments. First, the impacts of a project may not (EIAs) and/or social impact assessments (SIAs) be fully understood or anticipated if climate are part of everyday business. For instance, change is not considered in its design, for in- most countries have laws and/or regulations stance if drainage capacity is not capable to in place requiring some form of EIA for proj- cope with future higher rainfall loads. Second, ects potentially harmful to communities and/ by affecting ambient environmental conditions or the environment. Even where rules on EIAs (e.g. hydrology, land cover, wildlife), as well as and SIAs are absent, international financial in- community concerns and actions (e.g. flood stitutions and large banks often require them risk management or ecosystem-based adap- as part of investment due diligence.98 IFC’s Per- tation), climate change can affect the environ- formance Standards on Environmental and So- mental and social performance of projects over cial Sustainability, which are followed by the 79 time. For example, water-intensive projects in project finance banks that are signatories of the areas that will be affected by reduced surface Equator Principles, require “a process for iden- and/or ground water levels could face unfore- tifying the environmental and social risks and seen community opposition if no adaptation impacts of the project”, including climate risks.99 measure is implemented to reduce conflict Traditionally, development permitting and over water use. Third, cumulative impacts on a impact assessments have been used to eval- project may arise due to the actions carried out uate potential impacts of a project on the com- by those who are affected by climate change munity and the environment and to identify impacts (e.g. public authorities, surrounding mitigation measures to reduce these impacts to businesses or communities). an acceptable level. As such, the consideration of climate change impacts on a project and pos- sible adaptation measures to reduce and/or avoid these impacts requires a shift in permit- o Development permits are land use planning ting and impact assessment practices. tools used by local governments to impose re- With a changing climate, a new set of quirements on the required information, mate- rial or studies needed to evaluate development challenges needs to be considered as part and/or subdivision applications. 38 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK By incorporating requirements favorable change adaptation in EIAs carried out to climate change adaptation into develop- across the European Union, in application ment permit applications (e.g. requirement to of the Directive 2011/92/EU currently un- assess climate risks or requirement to collect der review;104 rainwater where water is scarce), local govern-  The Caribbean Community has published ments can prohibit, limit or control the use of operational guidance for EIA specialists on natural resources and/or influence siting/con- how to integrate climate risk management struction choices in areas vulnerable to cli- considerations;105 and mate change.100 For instance, Toronto’s Green  The International Association for Impact Standard in Canada sets a number of perfor- Assessment organized a series of sym- mance measures for municipal developments posia in autumn 2010 on impact assess- which contribute to address several climate ments and climate change, aimed at impact concerns for the city, including: using informing impact assessment and infra- light-colored construction materials to avoid structure professionals of ways to con- overheating, installing open-grid pavement sider climate change data/information in to reduce solar radiation and/or water run- EIAs.106 off,p shading on at least 50% of site areas to  However, even in places where rules ex- reduce the urban heat island effect, and re- ist, the incorporation of climate change taining at least the first 5 millimeters of each impacts and adaptation considerations in rainfall event through rainwater collections impact assessments remains limited, and and/or green surfaces. Similarly, EIAs and SIAs where it is done, practices vary in quali- can play a major role in facilitating successful ty. For example, the United States Coun- ‘climate-proofing’ of projects and avoiding mal- cil of Environmental Quality published adaptation practices.101 guidance in 2010 on how to consider cli- Worldwide, several countries have started mate change in Environmental Impact taking steps to promote climate-resilient EIAs, Statements (EISs) submitted by govern- though most examples are limited to the devel- ment agencies. In a review of over 200 oped world. For instance: EISs submitted under the United States National Environmental Policy Act and  In 2005 Scotland passed the Environmen- the California Environmental Quality Act tal Assessment Act which identifies climate researchers from Columbia Law School change as a transversal factor that needs found that climate change impacts and to be considered throughout Social and adaptation receive brief mentions at Environmental Assessments;102 most. 107 In most developing countries,  In Canada, it is a requirement for major where EIA rules are either nonexistent or development projects to incorporate cli- not enforced, climate change resilience is mate change impacts and adaptation in likely a very marginal consideration. EIAs; the Canadian Environmental Assess- ment Agency provides a methodology for There is much less information about the considering climate change impacts and incorporation of climate impact and adaptation adaptation in the EIA process, which has been implemented in a number of proj- p Open-grid pavement consists of concrete or ects;103 hard plastic grid systems with large pore spaces  In 2013, the European Commission pub- filled with a planted growing medium or light col- lished guidance on how to integrate climate ored aggregate (e.g. grave). Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 39 considerations in development permitting, it has started causing tensions between mining, given that it is a local prerogative. Certainly a farmers and local community groups. As a re- few local examples exist where requirements sult, some mining companies may have to start development permit applications have been looking at using water from alternative sources, amended to promote climate change resilience. despite the higher cost.110 For instance, several state agencies oversee Although only a few, examples of EIAs different aspects of coastal development per- factoring climate change impacts and adapta- mits in New York City; this translates into a tion into project design and construction deci- long and costly permitting process, which de- sions illustrate the business case of promoting lays the repair and development of waterfront climate change resilience at a project-level infrastructure important for flood protection. through impact assessments. For instance, As part of its post-Hurricane Sandy resilience in Australia where there is no federal frame- plan, New York City will work with state agen- work for considering climate change impacts cies to develop a ‘one-stop’ waterfront permit- and adaptation in EIAs, the Australian Capital ting website.108 Territory government required the East Lakes For project developers, the additional Electrical Infrastructure Relocation Project to costs of integrating climate impact and adapta- conduct a climate change risk assessment as tion considerations in permit applications and/ part of its EIA for the relocation of a 132kV or impact assessments are likely to be modest, electrical substation, switching station and though this will vary from one project to an- transmission network.111 As part of it, model- other depending on data collection/analysis ling of climate change impacts on future flood needs. Even when costly changes in project de- risk in 2030 and 2070 was conducted. Results sign and construction are required to accom- led to a recommendation that all electrical modate future climate change impacts, these equipment at the proposed substation site be costs will remain lower than the avoided re- positioned approximately two meters above pair and/or retrofit costs in the case of long- expected maximum flood levels taking account term developments.109 For those types of of climate change. projects, it makes sense to make costly invest- The Confederation Bridge between ments in adaptation today rather than delay Canada’s provinces of New Brunswick and action. In doing so, developers can avoid dam- Prince Edward Island also integrated a climate aging government and/or community oppo- change risk assessment into its EIA. The US$1 bil- sition to a project or reduce part or all of the lion project involved the construction of a 27km loss and damage associated with future cli- long bridge designed to permit the passage of mate change impacts. For instance, mining op- ships underneath it. The bridge stands approx- erations in Chile have learnt to deal with water imately 40 meters above sea level at the side scarcity through process innovation (e.g. water spans and 60 meters above sea level over the efficiency, water recycling and use of desali- main navigation channel. In order to plan for a nation) and/or trading within water rights ex- 100 year design life, the EIA included an assess- change markets or with urban water treatment ment of projected sea level rise over this time plants. In the Copiapó valley, mining companies period. Taking account the associated risks, the purchase water rights from local fruit growers; bridge was built 1 meter higher than originally however this has pushed the price of water proposed and a monitoring programme was es- rights so high (in the range of US$80,000 to tablished to provide early warning of any unan- US$120,000 for a liter per second of flow) that ticipated changes.112 40 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 10:  Investor Relations and/or Stakeholder Management Description Measures Costs Benefits Business case Incorporation of climate  Policy and/or legal/regulatory require-  Additional costs of disclo-  Possible credit risk upgrades By reducing levels of pri- change impact and adap- ments and guidance to consider climate sure, consultation, reset-  Expected project value vate sector risk and avoiding tation considerations in in- change impacts and adaptation as part of tlement and compensation maintained costly conflicts with stake- struments and practices corporate disclosures (e.g. securities filings, (e.g. additional research  Improved investor and stake- holders/investors and for investor relations and other corporate reports), stakeholder con- and data/ information) holder relations possible credit score down- stakeholder management sultations, and/or community resettlement  Costs to implement ad-  Potential preferential insurance grades, the benefit-to-cost (e.g. disclosure in security or compensation agreements aptation in response to and financing terms (e.g. lon- ratio of incorporating climate fillings/bond prospectuses,  Implementation of climate change adapta- stakeholder needs and/or ger-term view) change impacts and adap- stakeholder consultation, tion actions in response to investors and/or investor requests  Avoided business interruption tation into investor relations or community resettlement stakeholders beyond simple disclosure and stakeholder manage- and compensation) ment is likely to be positive The private sector is not an island: com- supply during natural disasters in order to re- panies, industry associations and cooperatives duce disruptions to socio-economic activity.113 rely on their relations with stakeholders (e.g. From this work the company has learned that surrounding community groups, suppliers, cus- sewage and water treatment power plants are tomers and insurers) and investors (e.g. share- one of the areas where efforts should be ex- holders and lenders) to create and sustain panded to improve climate change resilience, value. The impacts of a changing climate can af- for example through the installation of power fect these relations if nothing is done to assess generator backups.114 and manage potential risks, for instance: In 2012, United Kingdom coffee and tea distributor Cafédirect ran a competition open  Companies and cooperatives that fail to to its small-scale coffee and tea producers for take into account the concerns of their in- climate change adaptation funding. Out of 12 vestors with regards to climate risks could proposals, two suppliers in Mexico and Uganda see their access to capital reduced; and have been selected to receive a $US15,000  Companies that don’t pay heed to the grant to implement actions that improve their vulnerability of surrounding community resilience, namely: the installation of solar-pow- groups to climate change and their adap- ered coffee driers and the development of tation needs could lose their social license sources of income diversification respectively. to operate. Cafédirect stands to win from these measures as they will improve its security of supply of Fair Taking a proactive approach on climate Trade tea and coffee and help to ensure long- change adaptation with stakeholders and in- lasting relationships with suppliers.115 vestors can also generate new opportuni- While examples are few, there are several ties. For instance, it can help to uncover areas benefits in incorporating climate impact and ad- where further engagement with communities aptation considerations into community consul- can protect and/or increase revenues. It is with tations and resettlement/compensation: this motivation in mind that utility company Entergy in the United States has engaged with  By affecting ambient conditions, climate some of its customers in Texas and Louisiana change can potentially change the costs to understand the critical infrastructure as- associated with providing sustainable liv- sets where it is critical to maintain power ing areas, infrastructure and livelihoods in Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 41 case of private sector projects requiring  If they are not dealt with appropriately population resettlements;116 and they fuel investor concerns on corpo-  As a changing climate will aggravate natu- rate credit worthiness, shareholder resolu- ral resource scarcity in many parts of the tions can lead to reduced risk ratings and/ world, increased land acquisitions in de- or share prices. veloping countries could either push pop- ulations towards areas facing significant Disclosing material risks and opportuni- climate risks (e.g. low lying coastal areas ties from a changing climate can reassure inves- or drought-prone areas with poor access tors about future growth and risk management, to freshwater) or reduce their income over as well as avoid reduced credit/access to fi- time with the potential to increase social nance. Failing to do this, several power water instability (e.g. because of the loss of live- utilities in the United States have already suf- lihood resources);117 and fered downgrades in the credit risk scores of  Without adequate compensation that their bonds based on fears of water scarcity.120 takes into account future climate change Other benefits also exist in relation to insur- impacts on community livelihoods and ance and lending. Insurers make extensive use well-being (e.g. agricultural yields), pri- of ‘defensive underwriting’ to deal with climate vate sector projects could suffer criticisms change risks, from re-pricing insurance policies and/or active opposition from community and applying high deductibles to withdrawing groups faced with hardship from chang- from high risk areas.121 Private sector actors that ing socioeconomic or environmental con- demonstrate efforts to manage risks could ben- ditions due to climate change. efit from reduced insurance premiums and/or other preferential treatment.122 Furthermore, Research on recent resettlement pro- some financial institutions, such as the IFC grams in Vietnam to protect populations and Barclays, have started integrating climate against flood risk demonstrates that without change risk considerations into their invest- adequate consideration of future climate ment diligence processes.123 As these practices change impacts and the resilience of sources develop further and become more common of livelihoods, resettlement can sometimes in the future, those who are taking proactive fail to reduce climate change vulnerability steps to improve their climate change resilience and/or deteriorate livelihood security in dis- could be rewarded with preferential financing placed communities.118 terms. In some countries, the number of share- A number of governments and regula- holder resolutions linked to climate change tors have recently introduced policies, laws/ adaptation is increasing: it nearly doubled in regulations and/or guidelines for the private the United States and Canada between 2010 sector to promote the incorporation of climate and 2011.119 The costs to a company can be change impacts and adaptation in stakeholder multipronged: and/or investor relations.124 This is the case, most notably, of the United States Securities  In some cases, addressing shareholder res- Exchange Commission and the Canadian olutions (whether they are approved by a Securities Administrators (CSA) which pub- majority of votes or not) requires under- lished guidance in 2010 to clarify how and taking steps to assess climate risks, op- what registered companies should disclose portunities and adaptation, and develop with regards to material climate change risks adaptation action plans; and and opportunities.125 42 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK In the United Kingdom, the 2008 Climate average US$69,000, and each reporting com- Change Act Adaptation Reporting Power re- pany adds between US$4,000 and 8,000 quires of operators of critical infrastructure in government costs for support and moni- to produce reports on the current and fu- toring.q These costs are outweighed by the ture predicted impacts of climate change and benefits of reduced risk in the private sector their proposals to adapt to climate change. (e.g. avoided transport delays from flooding, In the first round of reporting between 2010 avoided power outages during extreme cli- and 2011, over 100 public and private organi- mate events and avoided water deficit) and zations, primarily in the energy, transport and increased government knowledge of how cli- water sectors, reported on climate change im- mate change impacts on critical infrastructure pacts and adaptation.126 The costs of compli- influence national vulnerability.127 For instance, ance have been found to be reasonable for much of the information in companies’ adap- mid- to large-size organizations: conducting a tation reports was leveraged by the United climate risk and opportunity assessment and Kingdom government to inform its National developing adaptation action plans costs on Adaptation Plan released in 2013.128 q These costs may seem high for some SMEs, how- ever there are opportunities for undertaking this work in partnership and sharing the cost burden between different organizations. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 43 INDICATOR 11:  Government Incentives Description Measures Costs Benefits Business case Government incentives  Positive direct (e.g. grants, interest-free  Amounts of government  Increased uptake of adapta- Incentives can promote mal- promoting climate loans) or indirect (e.g. tax rebates/credits) incentives displacing tax tion practices reduces loss and adaptation unless they target change adaptation in incentives in support of climate change ad- revenues damage from climate-related climate change impacts the private sector aptation (e.g. irrigation, diversification to-  Administration costs of in- hazards and lowers mainte- where market failures prevent wards climate resilient sectors, relocation centive programs nance, operation and post-di- cost-effective adaptation; in towards climate resilient areas) for those  Increased maladaptation ag- saster repair costs over time those cases incentives can im- private sector actors who need support to gravates loss and damage  Increased revenue opportuni- prove the Net Present Value of adapt, including planning and implementa- from climate-related haz- ties (e.g. water management adaptation investments—in tion, purchase of equipment and material, ards, as well as increases and efficiency) Morocco drip-irrigation would and innovation/R&D maintenance, operation and  Reduced insurance costs not be economically viable  Absence or elimination of government in- post-disaster repair costs with government incentives centives promoting mal-adaptation (e.g.  Portion of adaptation ex- drought/flood relief funds. subsidized penditures not covered by insurance) incentives Economists have shown that successful these programs can sometimes have per- adaptation to a changing climate is most likely verse effects on the climate change resilience to happen where goods, services, and produc- of the agricultural sector. For instance, eco- tion inputs and resources are allocated within nomic modeling work in the United States has competitive markets.129 For example, farmers shown that the effect of a 25% drop in avail- have adapted to weather patterns and climate able irrigation water in California (e.g. due to throughout history, and often without policy reduced rainfall and/or increased water de- interventions: as they recognize impacts on mand from other users) could have a limited yields, they alter their practices (e.g. choice of impact on agricultural earnings (a 6% reduc- crops or timing of farming schedules). tion only) if water prices reflect the level of Government incentives can be both bar- scarcity and farmers are able to switch their riers and enablers of private sector adaptation. productions towards higher-valued crops. Incentives can be a barrier by distorting the However, with irrigation incentives, delaying price signal of climate change impacts and af- action by farmers, agricultural losses can pos- fecting private assessments of climate change sibly be much higher.130 In Australia, a review risk levels, which both act to reduce the busi- of the National Drought Policy is presently ness case for making adaptation investments. underway. The policy previously included as- For example, government incentives on pro- sistance provisions for farmers in areas de- duction inputs (e.g. seeds or fertilizers) or out- clared to be under ‘exceptional circumstances’, puts (e.g. crops) may reduce the incentive to such as interest rate incentives, farm exit sup- adapt and in turn lock farmers into unsustain- port packages and small business income sup- able practices. Most notably, there are two port. An inquiry by the Australian government areas where government incentives are known Productivity Commission recommended that to prevent cost effective adaptation decisions: these programs are terminated because they irrigation and drought management, and nat- prevent farmers from proactively improving ural disaster relief. their drought preparedness, and that they are Many governments worldwide offer in- replaced with programs promoting a ‘risk man- centives to farmers in support of irrigation agement’ approach to droughts. More specif- and/or in reaction to drought losses. However, ically, the following incentives have been put 44 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK forward by the Productivity Commission and storm surge exceeded FEMA’s revised standards, are presently under review by the government: and in the absence of government incentives to cover elevation expenditures going beyond  Income support schemes designed to take US$45,000, some building owners are rebuilding account of individual farm circumstances, below Hurricane Sandy’s flood depths.134 available on a time-limited basis, and in- However, the use of public incentives in volving a ‘mutual responsibility contract’ certain situations can leverage private sector whereby risk management actions to im- investments in climate change adaptation by a prove farmers’ self-reliance are required; certain level of magnitude through a ‘crowd-in’ and effect.135 Public incentives can be a positive in-  Training and advice to assist farmers to strument of increased climate change resilience prepare for, manage and recover from in the private sector, by supporting a range of the impacts of increased climate variabili- measures including: ty and long-term changes.131  Climate change impacts and adaptation Natural disaster relief is another area planning; where government incentives can potentially  Purchase of equipment and material; prevent climate change adaptation. Australia’s  Implementation of climate change adap- Productivity Commission warns that fed- tation actions (e.g. construction of new eral Natural Disaster Relief and Recovery assets, improvements to existing assets, Arrangements (NDRRA) used to fund part of education/capacity-building); and disaster recovery costs (e.g. assistance to af-  Research and development and innovation fected individuals and businesses and resto- in the private sector (e.g. water efficient ration of critical publicly-owned infrastructure) production, stress-resistant crops, storm- have the effect of potentially reducing incen- resistant construction material). tives for state and territory governments to manage their residual risks by adopting ade- Government incentives can remediate a quate insurance arrangements.132 NDRRA may market failure and incentivize climate change also lower the impetus for states and territories adaptation practices in the private sector. Two to adequately manage climate risks on public in- notable examples are: frastructure given that they do not bear the full cost of post-disaster repairs and reconstruc-  Provision of support to particularly vul- tion. New NDRRA clauses were introduced in nerable groups, such as smallholders and 2011 requiring states and territories to imple- SMEs, who are not aware of the risks or ment ‘disaster-mitigation strategies’ and to re- do not have sufficient information and/or port on their insurance arrangements to the resources to plan for climate change; and federal Australian government.133  Encourage retreat from areas where cli- The same ‘moral hazard’ exists in the pri- mate change risks can no longer be man- vate sector. For example, in support of recon- aged. struction efforts post-Hurricane Sandy, the United States FEMA offered economic incen- For instance, in Morocco where climate tives to some owners for elevating their buildings change is expected to reduce available water in compliance with FEMA’s revised Base Flood for irrigation by 16% by 2030, the govern- Elevation standards. However, in some areas ment provides several types of incentives to of New Jersey the height of Hurricane Sandy’s farmers implementing water-efficient irrigation Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 45 systems. The cost of drip-irrigation systems is Their resilience is therefore enhanced by these subsidized by up to 80%, which generates a incentives. positive investment Net Present Value for the In light of the costs of recent extreme average farmer of US$1,465 over 10 years (with weather events, there are growing concerns a 10% discount rate). Without the government that climate change could add a considerable incentive, drip-irrigation investments would not fiscal burden on governments. In fact, in 2013 be economically viable.136 Small-scale farmers the United States Government Accountability with less than 5 hectares of crops can have Office identified climate change as a high risk the full cost of their water-efficient irrigation threat to government finances.140 In short, cli- system covered.137 These government support mate change impacts are expected to result programs are part of the Green Morocco Plan in increased fiscal exposure for governments which aims to convert 550,000 hectares of around the world based on their roles as i) farmland to water-efficient irrigation systems owners, operators or financiers of infrastruc- in regions where, without incentives, climate ture/assets, ii) insurers of property, crops and change could amount to considerable losses in other operations or resources vulnerable to agricultural output. climate change, iii) providers of data, informa- As part of their post-Hurricane Sandy tion and technical assistance, and iv) providers reconstruction efforts, New Jersey state of- of aid relief and budget support in response ficials will use US$300 million to purchase to natural disasters. In this context, under- around 1,300 homes in flood prone areas standing the role that the private sector can where retrofitting would neither be a sustain- play in funding climate change adaptation able nor an economically-justified solution.138 is critical to relieve some of the burden on On New York Staten Island, where flood risk governments.141 has been heightened in the 2013 revision of The United States is one of the coun- the United States Federal FEMA flood maps, tries that have already started taking steps government has offered to buy-out homes to manage the fiscal risk of climate change by for 100% of their pre-hurricane value in the changing some of their incentive programs. The most affected areas.139 These acquisitions by Flood Insurance Reform Act of 2012 requires government are considered one of the most government flood insurance rates to rise 25% cost-effective flood hazard management annually on properties that have repeatedly measures, as they will avoid future costly in- suffered flooding, and on second homes and surance claims and dependence on disaster businesses, in an effort to redress the National assistance programs should a new flood hit Flood Insurance Program balance sheet which the same area. has been considerably damaged by the cost of The private sector is a direct beneficiary Hurricane Sandy. Further, no more insurance of these incentives, with a twofold effect. On will be given to properties that are built below the one hand, they constitute direct gains in the the most up-to-date Base Flood Elevation stan- short-term because costs are shared with gov- dards, even for building that were up to code ernment. On the other hand, they represent when built.142 indirect gains in the long-term thanks to the This move comes at a time when the pos- preventive effects of targeted measures. This itive effect of subsidized insurance products is particularly crucial for the most vulnerable addressing climate-related hazards is hotly de- businesses like SMEs. SMEs typically have a bated around the world. For instance, in coun- lower financial capability to absorb the upfront tries where flood risk insurance does not exist, capital costs of investing in long-term resilience. the role of government incentives is increasingly 46 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK questioned, as private insurers become more future damage and loss and increased insur- aware of future risks and less willing to offer ance premiums, the United Kingdom govern- insurance solutions.143 However, scientists re- ment and the Association of British Insurers cently warned governments of the perverse have agreed a Memorandum of Understanding effect of subsidized insurance in the United on developing a not-for-profit scheme known States (e.g. the National Flood Insurance pro- as Flood Re that would ensure flood insurance gram and state residual property insurance for remains affordable and available for those wind storm damage), among which: households.146 Insurance premiums for benefi- ciaries of Flood Re will be capped, and the fa-  Distortions in the risk perceptions of cility will benefit from US$285 million annually property owners; from the insurance industry (the equivalent of  Repeated loss claims from high risk prop- a $US16.6 levy each year on household insur- erties; and ance premiums). The objective is that Flood  Disincentives for relocation of high risk Re will be able to sustainably deal with at least properties to safer areas where it is no 99.5% of years; in the 0.5% costliest years, longer financially viable to rebuild.144 Flood Re will cover insured losses up to those expected in a 1-in-200-year flood event thanks Interestingly, the United Kingdom re- to government funding. Questions have been cently took steps to create an insurance solu- raised by economists and climate change ex- tion for increased flood risk. The country perts on the financial sustainability of Flood expects to see increased flood costs in the Re in a changing and more volatile climate, es- range of US$2.4 to 5.5 billion and US$2.5 to pecially as estimates of future property under 10.1 billion by the 2020s and 2050s respec- high/medium flood risk fall short of the govern- tively.145 Recognizing that households in high ment’s projections in the Climate Change Risk flood risk areas will economically suffer from Assessment.147 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 47 INDICATOR 12. FINANCE Description Measures Costs Benefits Business case Public and/or private  Finance instruments for the private sector (e.g. loans, eq-  Opportunity cost of  Increased investment flows to- Provision of finance in finance instruments uity and/or guarantee products) in support of one or sev- investing in climate wards adaptation the amounts neces- (e.g. loans, equity, eral of the following: change adaptation  Increased revenue opportunities sary and at a compet- guarantees) for climate  Climate change adaptation planning (e.g. risk/adap-  Transaction and col- (e.g. new investment vehicles itive cost is critical to change adaptation, tation assessments, strategies/plans, consultations) lection costs, and risk and investment markets) successfully promote including planning,  Implementation actions (e.g. construction of climate of default  Increased uptake of adapta- private sector adap- implementation, pur- resilient assets, improvements to existing assets to  Investment risk tion practices reduces loss and tation – the fact that chase of equipment maintain/increase asset useful life and/or reduce vul- damage from climate-related private financial insti- and material and inno- nerability, insurance policy) hazards and lowers mainte- tutions have started vation/R&D, in the pri-  Purchase of equipment or material (e.g. cooling, nance, operation and post-di- providing capital for vate sector equipment for hydrometeorological monitoring) saster repair costs over time adaptation projects/  Innovation, research and development (e.g. research on  Meeting political commitments activities demonstrates stress-resistant crops or storm-resistant building design) on climate change adaptation that revenue opportu- finance nities exist In today’s credit-constrained economy likely to outweigh the cost of other sources the question of climate change adaptation fi- of funding in the private sector. Further, the nancing is all the more important. In the private amounts available through international and sector, climate change adaptation investments bilateral funds remain limited compared to compete for capital against other investment the amounts required to adapt (in fact they priorities with potentially more established dropped from US$3.1 to $1.8 billion between and/or higher internal rates of return. Further, 2010 and 2011);148 however this could change in adaptation investments are perceived to have the next few years. uncertain benefits realized over long periods Secondly, international financial insti- of time. tutions (e.g. IFC, IDB, ADB, EBRD, EIB and Different potential sources of finance AfDB) support private sector organisations exist for climate change adaptation. First, at on climate change adaptation with a range an international level, dedicated investment of financial instruments (debt, equity or funds exist to support investments aimed at guarantees). In the 2011 fiscal year, multilat- improving knowledge on climate change vul- eral development banks reported providing nerability and risks and building resilience, over US$3.6 billion in climate change adap- and a portion of them is open to private sector tation finance, a portion of which benefited projects. This is the case of the Pilot Program the private sector.149 As an example, USAID for Climate Resilience (PPCR) which created through its Development Credit Authority a set-aside for the private sector. There are offers risk-sharing guarantees to small busi- also examples of bilateral climate change ad- nesses looking for loans covering up to 50% aptation funds for the private sector adapta- of default risk; while not dedicated to climate tion, such as Canada’s Climate Funds for the change adaptation some of these guarantees Private Sector in Asia and in the Americas. have been used to stimulate private sector in- Each fund has its own administrative and in- vestment in measures that reinforce private stitutional requirements, as well as particular sector resilience.150 funding constraints, which create significant Further, a number of private banking and complexity for potential recipients. More investment organisations have reported pro- often than not these transaction costs are viding capital for private sector adaptation 48 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK projects or activities. For instance, both of private sector expenses for climate change Standard Chartered and Swiss Re report sup- adaptation. For instance, in the United States porting farmers affected by extreme weather builders applying resilient construction prac- risk in their risk reduction actions, Credit tices qualify for up to US$25,000 in tax credits Suisse support infrastructure resilience in- through the Disaster Savings and Resilient vestments out of its lending portfolio, and Construction Act (H.R. 5839).153 Goldman Sachs offers catastrophe-linked The Copenhagen Accord agreed in securities to transfer risks from extreme December 2009 set out the shared goal of weather.151 In Bangladesh, over 40% of ex- making available US$100 billion a year by 2020 isting microfinance programs contribute to cli- from developed countries to finance mitiga- mate change adaptation in the private sector, tion and adaptation in developing countries. with a few examples of microfinance prod- Private sector investment was identified in ucts promoting long-term resilience, such as the Copenhagen Accord as a significant con- housing loans for investing in stress-resistant tributor to this financing flow, without being building design and loans for hybrid crop va- specific as to the mechanisms and the incen- rieties that are tolerant to salt- and water-re- tives required. In an earlier report in 2007 the lated stresses. However it is difficult to assess UNFCCC recommended a 15% public and 85% at a sectoral or country level the extent of pri- private financing split. Despite repeated state- vate capital lending and/or investment in pri- ments from government on the urgency of cli- vate sector adaptation given the absence of mate change adaptation, little progress has consolidated reporting standard.152 been done since 2009 to clarify how invest- Finally, in some countries, government ments will be financed. funding is made available to cover all or part Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 49 INDICATOR 13:  Full-Cost Accounting for Water and Energy Description Measures Costs Benefits Business case Cost accounting and pricing prac-  Absence or phasing out of sub-  CAPEX and OPEX for me-  Increased revenue opportunities (e.g. Measures introducing tices by water and energy utilities sidized utility prices promoting ters and pricing system demand side management) climate change risks reflecting the ‘true’ lifecyle costs maladaptation practices overhaul  Access to alternative and/or additional and opportunities into of the impacts of more extreme  Adaptation measures pro-  Transaction costs (e.g. revenues covering adaptation costs pricing decisions have weather and climate change on moting ‘full-cost’ accounting of Power Purchase Agreement  Better mid- to long-term utility plan- much potential to im- water and energy management climate change risks for water renegotiation) ning and/or pricing decisions en- prove resilience and util- and services, and thus incentivizing and energy (e.g. differentiated  Research costs hancing profitability ities across the world increased efficiency, reduced con- pricing and smart metering)  Enforcement and training  Increased water and energy efficiency are taking steps in this sumption and improved resilience costs direction Energy and water are among the sectors The threat of water shortages, power fail- most at risk from climate change. Indeed, ex- ures, and high water and electricity costs is treme weather events and incremental changes therefore high for utilities and the rest of the in climate affect energy generation, transmis- private sector. For instance, it is estimated that sion and distribution because of higher air and European countries like Slovenia, Bulgaria and water temperatures, more frequent and in- Romania will see their electricity wholesale tense storms and flooding, and their impacts on prices respectively increase by up to 15%, 23% infrastructures. Water is also affected because and 32% for 2031–2060.156 Water prices are of alterations in the hydrological cycle due to already rapidly increasing around the world: changing climate conditions and saltwater intru- global water tariffs rose by an average of 6.8% sion in aquifers due to rising sea-levels and mis- between 2010 and 2011 with an average tariff management of groundwater. In the meantime, estimated at $2.03/m3 .157 climate change also leads to higher consump- The promotion of ‘full-cost’ accounting for tion of both water (e.g. increased irrigation) and water and energy, and/or the removal of incen- energy (e.g. increased air conditioning and re- tives distorting price signals, has the potential frigeration). For instance, events triggered by to influence the adoption of more resource-ef- higher energy demand due to hot temperatures ficient appliances and practices, as well as inno- and drought conditions, similar to the Northern vation, by taking into account the lifecycle costs India blackout in 2012, could become more of more extreme weather and climate change on frequent. In 2001, drought-induced blackouts utility assets and service provision over time. For in India created total costs of $108 million for instance, in its 2011 Climate Change Adaptation business customers.154 report, UK utility Severn Trent Water took some Further, impacts are compounded by the steps in the direction of ‘full-cost’ accounting by interdependencies between water and energy. making commitments to reinforce customer me- Electricity powers water extraction, processing tering and reduce water demand and leakage.158 and delivery, while water is used to generate Further, a number of gas utilities minimize the electricity or to cool installations. In 2003, occurrence of very high peak demand during Électricité de France had to purchase power on colder-than-expected winter months through the open-market at a much higher price than the use of weather derivatives; research has usual to cope with high peak demand, at a time found that customers of utilities with these when many of its power plans were shut down practices in place have a lower exposure to very due to regulatory restrictions on water dis- high bills.159 In the United States, regulators in charge temperature.155 water-stressed states, such as Texas, California 50 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK and Arizona, have implemented ‘conservation cost-saving measures and invest in efficient ap- pricing’ that decouples the price of water from pliances are lesser.162 the amount used, which generates additional re- Credit ratings and bond markets are slowly sources for utilities to invest in water efficiency adjusting to the fact that climate change poses and conservation.160 considerable utility risks and adds to pre-ex- Careful consideration of the impacts of isting capital needs for infrastructure rehabil- utility practices such as ‘decreasing-block tar- itation, all of will reflect on utilities’ financial iffs’ and ‘area-based irrigation tariffs’ on climate statements and cost structures.163 As such, ‘full- change resilience is also important in order to cost’ accounting can represent a way for utili- avoid promoting maladaptation.161 For instance, ties to address investor concerns by improving in places where energy and water prices transparency on the long-term costs of climate are heavily subsidized, incentives to adopt change. Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 51 INDICATOR 14:  Environmental Trading Markets Description Measures Costs Benefits Business case Markets to trade environmental  Markets where entitlements or allow-  Administration and  Supports ecosystem-based Market-based mechanisms entitlements or allowances (e.g. ances over water are traded or ecosystem enforcement costs (e.g. adaptation offer opportunities to facil- over water) under pressure from services are paid for (e.g. services associ- exchange markets)  Access to alternative and/or addi- itate private sector adapta- climate change and/or to pay for ated with afforestation, reforestation or  Costs of entitlements/ tional revenues for adaptation tion—Research on water environmental services which avoided deforestation) rights (e.g. licence)  Improved allocation , access markets in Australia has val- play a role in ecosystem-based  Amounts of entitlements/ allowances  Transaction costs to and use of environmental idated their climate change adaptation traded each year resources resilience benefits Little work has been done to assess the Australia and the United States boast suc- feasibility and benefits of market-based mech- cessful examples. anisms for private sector adaptation. Where For instance, US $3.1 billion worth of water reduction of climate change vulnerability re- rights was traded in Australia between 2009 quires increased environmental resource use and 2010.165 Further, Australia benefits from efficiency, markets where entitlements or al- water market intermediaries (e.g. brokers lowances are traded (e.g. water markets) are and exchanges) who perform a number of im- a possible solution. Where protection of and/ portant functions to ensure smooth and effec- or improvements in ecosystem servicesr are tive trading, including: finding and negotiating needed as part of ecosystem-based adaptation with a trading partner, advising customers on (EBA)s strategies, payment for ecosystem ser- price and water trading rules, and/or com- vices (PES) schemest can also play an enabling pleting the necessary paperwork. Research has role. validated the climate change resilience bene- Market-based mechanisms offer oppor- fits of water markets in Australia, among which: tunities to facilitate private sector adaptation better agricultural performance during periods through promoting the efficient use of re- of drought, improved water use efficiency, pos- sources under pressure from climate change itive impacts on river flows and quality (lower and/or by facilitating EBA. In some cases, they salinity), and increased water resources for also can constitute a source of revenues for cli- ecosystems.166 More specifically, according to mate change adaptation investments.164 Two market-based mechanisms have shown much potential to assist in private sector adaptation: r Ecosystem services consist of ecological pro- water markets and PES for afforestation, refor- cesses or functions having monetary or non-mon- estation and avoided deforestation. etary value to the private sector, individuals or First, increasing pressures on hydrological society at large (e.g. food, fiber, carbon seques- tration, flood protection). cycles, most notably changing rainfall patterns, s Ecosystem-based adaptation (EBA) refers to the higher ambient temperatures and evaporation, use of sustainable ecosystem management ac- sea-level rise and saline intrusion, are known to tivities to support climate change adaptation. affect water resources availability and quality. See CBD 2009. In this context, water markets have the poten- t Payments for environmental services (PES) refer tial to provide a flexible and adaptive frame- to transactions where a service provider is paid by, or on behalf of, service beneficiaries for en- work to improve water resource management vironmental management practices that are through more efficient allocation. There are expected to result in continued or improved ser- not many examples of water markets around vice provision. See www.cbd.int/doc/external/ the world, however countries such as Chile, fao/fao-2007-report-en.pdf. 52 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Australia’s National Water Commission, access  Protecting and/or enhancing the provision to the Murray-Darling Basin water markets is of ecosystem services that are known to estimated to have contributed to avoid cumula- reduce exposure and/or sensitivity to cli- tive gross agricultural production losses worth mate-related hazards (e.g. using mangroves AU$2.3 billion, AU$760 million and AU$419 mil- for coastal protection against sea level rise lion in the states of Victoria, New South Wales and higher storm surges); and South Australia respectively between June  Improving the adaptive capacity of PES 2006 and November 2010. Revenues gener- sellers (e.g. increased revenues and knowl- ated by the sales of water allowances have edge); and also led to improved adaptive capacity; for  Incentivizing practices that build climate example, dairy farmers in Northern Victoria change resilience (e.g. forest conservation and New South Wales have used part of the to receive payments, and which protects income generated by their sales of water al- against accelerated soil erosion).170 lowances to purchase additional fodder (as a strategy to manage reduced on-farm pasture In Costa Rica, observed increases in rain- production).167 fall intensity have been blamed for higher rates Chile has also experimented with water of soil erosion and siltation in rivers where hy- market systems since 1981, with a number of dropower facilities are sited. As a result, wa- benefits, among which: reduction in water use tershed conservation upstream of hydropower of 26 and 70% between 1975 and 1992 in the plants is seen as a climate change adaptation agricultural and wood pulp sectors, and im- measure supported by PES.171 proved water efficiency in the mining sector.168 In a few instances, other market types have However, serious adjustments to water market been used to leverage capital for private sector governance are sought in Chile to improve eq- adaptation. This is the case in Peru where coffee uitable access to water resources, notably for farmers have raised funding for climate change poor farmers.169 adaptation from the sale of carbon credits ob- Second, PES can reduce climate change tained from reforestation projects in coffee vulnerability in the private sector in three fun- plantation areas vulnerable to flash floods and damental ways, for instance by: soil erosion which are phenomena amplified by climate change.172 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 53 INDICATOR 15:  Information and Communication Technologies Description Measures Costs Benefits Business case Availability and market  Country area with in-  Acquisition and use  Improved access to data/information for International bodies have acknowledged penetration of informa- ternet coverage and/or of ICTs climate change adaptation the role of ICTs for private sector adapta- tion and communica- mobile phone reception  Possibly higher cap-  Better mid- to long-term planning and/or tion – examples of pilot ICT projects, for tion technologies (e.g.  Internet and/or mobile ital costs pricing decisions enhancing profitability example CocoaLink in Ghana, demon- internet and mobile cellular usage  Increased revenue opportunities (e.g. ICT strate the value of ICTs to protect and cellular) services) create value for SMEs and small-holders Information and communication technol- decision-making processes by integrating up- ogies (ICTs) are important pre-requisites for to-date climate data/information and/or tra- socio-economic prosperity. They also play an ditional knowledge, to supporting livelihood important role in enabling climate change ad- diversification.175 aptation and ensuring resilience to extreme A large number of the data/informa- weather and long-term climate change. tion and tools supporting adaptation deci- Today’s two main and most effective ICTs sion-making are only available for consultation are the internet and mobile cellular phones, and and/or download through the internet and/or their reach does not stop at developed nations. mobile cellular. This is true of most of the global The penetration rate of mobile cellular reaches climate change adaptation resources made 79% in developing countries. Mobile broadband available by international and donor organiza- coverage (i.e. access to internet via a mobile de- tions for the private sector.u vice) is also increasing rapidly, with 90% and 45% At the national level, some government of the world’s population benefiting from 2G and agencies and research centers have also made 3G network coverage respectively. In 2011, 62% available online and through mobile cellular ap- of worldwide internet users were in developing plications data/information and tools to support countries, with about half of that percentage in private sector adaptation. For instance, the UK China and India alone. It must be noted that mo- Climate Impact Program Adaptation Wizard is bile phones are often the only method of tele- an online tool that supports private sector or- communications available to the private sector ganizations in developing climate change adap- in developing countries, where telephone land- tation strategies and plans.176 The U.S. National line infrastructure remains spotty.173 Climate Data Center has made available online The importance of ICTs for climate change and for free weather and hydroclimate datasets adaptation has been acknowledged by interna- and other resources, including digital maps that tional bodies: for instance the UNFCCC indi- can be manipulated by users.177 In Nepal, the cates that ICT tools “can be critical in predicting, website of the Department of Hydrology and identifying and measuring the extent of climate Meteorology is expected to evolve into a more change; as well as in the development of effec- tive response strategies to adapt to negative effects of climate change in sectors such as ag- u For example the IPCC Data Distribution Centre, riculture, employment, technology transfer and the World Bank Climate Change Knowledge Portal, the International Institute for Sustainable energy.”174 Their potential for supporting pri- Development Community-based Risk Screening vate sector adaptation ranges from facilitating Tool (CRiSTAL), the Global Adaptation Institute access to learning and exchange within and be- GAIN Index, WWF’s Water Risk Filter, the Ceres tween economic sectors and strengthening Aqua Gauge, and the GEMI Local Water Tool. 54 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK extensive digital library of climate-relevant and the World Cocoa Foundation, provides data/information for all important socio-eco- cocoa farmers with early-warning alerts on nomic sectors of Nepal, including downscaled weather and soil conditions, as well as infor- climate model projections, evaluation and mon- mation on farming best practices via SMS itoring products and tools, and management and voice messages. CocoaLink aims to intro- information systems providing farmers with duce data/information on climate change im- critical and timely agro-climate and weather in- pacts and adaptation, as well as reach 100,000 formation.178 179 farmers in Ghana by 2014 and expand into the In Ghana, CocoaLink, an innovative Ivory Coast.180 In doing so, it intends to build the and free mobile data-sharing service by the resilience of farmers against extreme weather Hershey Company, the Ghana Cocoa Board and climate change.181 Indicators of Country Conditions Enabling Private Sector Adaptation to Climate Change 55 INDICATOR 16:  Technology and Knowledge Description Measures Costs Benefits Business case Access to and use of technology  Prevalence of technologies  Technology R&D, commer-  Improved access to data/informa- Access to specific tech- and knowledge useful to un- with climate change adaptation cialization and acquisition tion for climate change adaptation nology and knowledge derstand, assess and response benefits  Intellectual property right  Better mid- to long-term planning is required to adapt in to climate change risks and  Participation in knowledge and/or protection and/or pricing decisions enhancing many cases – because of opportunities transfer projects  Education, training and profitability the associated revenue  Integration of climate change im- capacity-building  Increased private sector revenues and cost saving opportu- pact and adaptation consider- (e.g. engineering or consultancy nities such investments ations in school and professional services) can have high positive training curriculums  Promotion of innovation Net Present Values Access to and use of specific technologies hydro-meteorological and biophysical im- and knowledge is required to effectively un- pact variables, and mobile phone appli- derstand and respond to climate change adap- cations).182 tation challenges. There is no set definition of what technologies or knowledge contribute to- International collaboration on technology wards climate change adaptation in the private and knowledge development and transfer is sector, as it is highly context-specific, however primordial to promote climate change risk man- some stand out as playing an important role in agement and resilience. Yet, a lot of improve- reducing vulnerability and building resilience, ment is needed in this area. For instance, there for instance: is very little co-invention activity on pro-adap- tation technologies between developing and  Stress-resistant crops; OECD countries.183 The UNFCCC, the United  Crop yield and pest management; Nations Development Program (UNDP) and  Water desalination; the Global Environment Facility (GEF), among  Off-grid water supply (e.g. rainwater col- other international organizations, seek to pro- lection, solar- and wind-powered water mote technology and knowledge transfer rel- pumping and water treatment); evant to climate change adaptation, however  Remote energy supply (e.g. decentralized funding for these activities has remained very solar-, wind- or hydro-power generation, limited. Between 2006 and 2011, only US$15.1 solar heating and cooking); million out of a total of US$142.6 million of  Efficient lighting; pledged funds for climate change adaptation  Dispersed electricity transmission (e.g. (the equivalent of 10%) have been dedicated by high voltage direct current with lower the GEF Special Climate Change Fund to tech- power loss rates compared with alterna- nology transfer projects.v, 184 tive current);  Climate resilient power transmission and distribution (e.g. underground power ca- v Taking into account co-financing from other in- bles, and structures/elements resilient to stitutions, these technology transfer invest- ments amounted to a total of US$32.6 million water, moist or corrosion); and out of total climate change adaptation pledges  Weather prediction and early-warning worth US$986.2 million (the equivalent of 3%). (e.g. remote sensing and satellite tech- See http://www.thegef.org/gef/sites/thegef.org/ nologies for analyzing and monitoring files/documents/sccf-vol1.pdf. 56 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Overall, developing countries suffer from the private sector is able to access the best a reduced capacity to develop or access tech- available technology and knowledge for deci- nology, which contributes to constrain the sion-making. Such investments are currently ability of their private sector to assess and much inferior to what is needed. Yet, there manage vulnerability to extreme weather and are many opportunities for integrating sub- climate change. For instance, between 1980 jects relevant to climate change adaptation in and 2009, inventors from African countries school/university programs, either through the created a very small number of patented tech- introduction of new course or the insertion of nologies with climate change adaptation ben- new material.190 For example, in Cameroon efits (‘pro-adaptation’ henceforth).w, 185 More while some aspects of climate change adap- specifically, in the case of biotechnology pat- tation issues are already present in primary, ents (e.g. drought-, saline or heat-resistant secondary and university-level education pro- crops), technology transfer to developing grams, there are scarce to no references to cli- countries has remained extremely limited.186 mate change risks, vulnerability or adaptation Furthermore, most of the pro-adaptation in education syllabi. technologies patented in Africa originated A few worldwide examples demon- predominantly in OECD countries. However, it strate the value of investing in the integration is encouraging that the rate of ‘pro-adaptation’ of subject matter issues relevant to climate technology inventions patented in Africa has change adaptation (e.g. hydro-climatology, im- grown by as much as 17% yearly on average, pact modeling, risk-based decision-making and ‘pro-adaptation’ inventions from Africa and policy-making) in school and professional tend to be protected relatively more often training curriculums. The Australian govern- with African patent offices than anywhere else ment Climate Change Adaptation Program has in the world.187 committed US$2.1 million to fund tertiary edu- Successful technology transfer does not cation, training institutions and professional as- just stop at the development and acquisition sociations to revised or develop professional of technology, but also requires the transfer development and accreditation programs for of know-how and skills to use, operate, main- architects, planners, engineers and natural tain and understand technology.188 One of the resource management with climate change critical indicators for successful technology adaptation skills.191 Examples of dedicated post- and knowledge transfer in support of climate graduate degrees on climate change adaptation change adaptation in developing countries is have also started to emerge across the world the number of scientists, engineers and other with the ambition of building technical capacity types of experts (e.g. planners, specialists in on climate change vulnerability and adaptation insurance and micro-insurance) able to effec- management tools and techniques.192 tively and efficiently implement adaptation measures.189 Investments in institutions (e.g. w 0.26% of worldwide pro-adaptation technolo- universities, schools, R&D laboratories) and gies were invented in Africa between 1980 and education/training programs covering subject 2009, with a slightly larger share for desalina- matter issues relevant to national adaptation tion technologies (0.41%). See Hascic, I., Silva, J., and Johnstone, N., 2012. Climate Mitigation concerns (e.g. hydro-climatology, drought or and Adaptation in Africa: Evidence from Patent flood modeling, water resource management, Data. OECD Environment Working Paper. ENV/ soil erosion, sustainable building engineering EPOC/WPCID/RD(2012)1. Paris: Organisation and management) are important levers so that for Economic Co-operation and Development. 6 Piloting the Index Framework in Three Countries 57 Piloting the Index Framework in Three Countries T o shed light on how countries with many opportunities for improvement: well-es- different levels of socio-econom- tablished government and research institu- ic development and climate change tions, a reasonable amount of data/information vulnerability perform in promoting climate useful to planning and decision-making, and a change adaptation in the private sector, and number of economic incentives. This is in large understand what elements may be missing for part a result of the amount of international aid the enabling environment of private sector ad- received by Bangladesh. Between 2003 and aptation, Bangladesh, Vietnam and the United early 2013, Bangladesh attracted 7% of inter- States have been selected as pilots for apply- national funding earmarked for climate change ing the Index Framework. adaptation. However, the country lacks policies and in-country technology and knowledge to sup- Overview port climate change adaptation in the private sector (see Figure 2). These results are in line Bangladesh with recent stocktaking assessments on climate Bangladesh is among the world’s most vul- change adaptation in Bangladesh.194 nerable countries to climate change by virtue of its location at the tail end of a large delta Vietnam with exceptionally high peak flows, its expo- With one of the world’s longest coastlines, sure to monsoons and tropical cyclones, and a large population density at the fringes of its levels of socio-economic vulnerability.193 two large river deltas (the Mekong River and For many, Bangladesh is well ahead of Red River deltas) and a severe exposure many other Least Developed Countries to deal to extreme climate-related hazards (e.g. ty- with the impacts of climate change. However, phoons and floods), Vietnam is highly vulner- despite considerable attention from donors able to climate change.195 As such, building and numerous local adaptation projects on the climate change resilience is important for ground, much progress remains to be done to the prosperity of the country’s private sec- increase the resilience of the country’s pop- tor, especially given the importance of cli- ulation, economy and natural habitats to a mate-sensitive sectors to national GDP. For changing climate. instance, agriculture represents 21%, 48% The application of the Index Framework and 12% of the country’s GDP, workforce confirms that Bangladesh has a number of fa- and exports respectively in 2012, though this vorable conditions in place to promote adap- is slowly being taken over by high-tech man- tation in the private sector, though there are ufacturing.196 57 58 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Overall, Vietnam has many of the neces-  Investing in internet broadband infrastruc- sary conditions to enable and promote climate ture to enable climate change adaptation. change adaptation in the private sector: United States  The amount and quality of available data/ The United States possesses most of the ele- information is reasonably good; ments of a favorable enabling environment for  A number of institutions have a mandate private sector adaptation. There are extensive to work on climate change impacts and amounts of quality data/information about cli- adaptation; mate, hydrology and sectoral impacts, as well  Some progress is being made in some as tools and resources to assist in climate risk provinces, districts and municipalities to and adaptation assessments and adaptation adopt pro-adaptation policies; planning. The country also counts several rep-  Economic incentives have been trialed and utable institutions and forums working with put in place in different areas; and the private sector on issues related to cli-  The level of ICTs and in-country knowl- mate change impacts and adaptation. Access edge and technologies favorable to cli- to technology and knowledge playing a role in mate change adaptation practices is climate change adaptation is high; in fact the relatively good. United States is a major exporter of technol- ogy, knowledge and finance for adaptation in However, much improvement can be made the developing world. to create a more enabling country environment However, a number of barriers remain, for climate change adaptation in the private among which the absence of comprehensive sector, for instance: policies and economic incentives. Across the country, there are a number of policy initia-  Making data/information available in for- tives at the municipal or state level in favor of mats that can be readily used for stra- climate change adaptation, but they remain too tegic and operational decision-making in few and heterogeneous. Further, despite being the private sector (e.g. digital data, web- a wealthy country, economic incentives for pri- GIS maps); vate sector adaptation are lacking and, in fact,  Clarifying and/or extending the mandates large amounts of government incentives pro- of existing institutions with regards to sup- mote maladaptation practices in certain eco- porting climate change adaptation in the nomic areas (e.g. the agricultural and energy private sector; sectors).  Putting in place national- and local-level By committing to a number of policy policies removing obstacles/barriers and/ changes, the 2013 federal Climate Action Plan or creating drivers for private sector ad- creates a momentum for climate change adap- aptation and investing in public enforce- tation, however it includes little in the way of ment capacity; raising adaptation finance of the order that is  Scaling up available finance for climate required to maintain the country’s prosperity change adaptation investments in priority in a changing climate. These results are con- regions and sectors, making use of mar- sistent with recent assessments of the current ket-based instruments to promote efficient state of climate change adaptation in the United water use and removing government in- States.197 centives that promote maladaptation prac- Further explanations about these country tices; and results are provided in the paragraphs below. Piloting the Index Framework in Three Countries 59 Overview of the Current State of Indicators of Enabling Environments for Private Sector FIGURE 2:   Adaptation in Three (3) Pilot Countries Data and Information case studies of Bangladeshi private sector or- ganizations that have taken adaptation actions Bangladesh have also been compiled thanks to donor sup- There is a relatively good amount of data and port. The World Bank’s Economics of Climate information useful to private sector adaptation Adaptation study has produced climate-related in Bangladesh. Downscaled climate projections loss/damage and adaptation estimates, which for Bangladesh, based on the regional climate can serve as a basis for understanding the po- model PRECIS, are available to users for free tential costs and benefits of adapting.199 from government. Further, projections are avail- Thanks to donor support, a large number able electronically for a range of primary and of community-based assessments on climate derived climate and hydrological variables.198 change vulnerability, risk and adaptation are avail- Data/information on future impacts, most able.200 Bangladesh has also adopted a National notably flooding and agriculture have been pro- Climate Change Strategy and Action Plan in duced and disseminated to national users, and 2009 which clarifies the areas of vulnerability/ 60 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK risk and the priorities for integrating adaptation United States into policies, plans and programs.201 Despite the absence of official national cli- mate model projections and climate change Vietnam adaptation cost estimates, there is an excel- Thanks to donor support, and building on the lent level of data/information available on hydrometeorological modeling capabilities of climate, hydrology, future impacts and adap- the Institute of Meteorology, Hydrology and tation in the United States. Environment (IMHEN), a considerable amount Thanks to specialized government agen- of data/information has been generated on cies, such as the National Oceanic and Atmo- observed trends in climate and hydrology and spheric Administration (NOAA), most of this hydro-climate projections over Vietnam. This data/information is freely accessible online includes high resolution climate model projec- and in various formats (from raw data to inte- tions using dynamic and statistical downscaling grated map applications where data can be techniques. Further, this scientific knowledge 202 manipulated). One of the particularities of the has been well disseminated to in-country stake- United States in this regard is the availability holders, most notably through the publication of tools and other resources for specific cli- of official national climate change scenarios. mate-related impacts and sectors: for example, Considerable work has also been done the University of Arizona’s New Mexico Agro- to understand a number of direct (e.g. coastal climate webtool helps to evaluate the effect flooding and saline intrusion) and indirect im- of the El Niño-Southern Oscillation (ENSO) pacts (e.g. crop yields) from climate change. 203 on agricultural indicators;204 the National Cli- Among the country’s economic sectors of im- mate Data Centre released in 2011 the new portance, fisheries, agriculture and infrastruc- 1981–2010 U.S. climate normals for use in en- ture have received considerable funding and ergy load forecasting and building design stan- attention on the issue of climate risk and adapta- dards;205 and the Environmental Protection tion. Data/information about community vulner- Agency Climate Ready Water Utilities Toolbox ability, adaptive capacity and adaptation needs guides users through a risk and adaptation as- is particularly good thanks to work by the World sessment process.206 Bank, the Asian Development Bank, USAID and Across the country, hundreds of cities and other bilateral development agencies and inter- counties and close to twenty states have started national non-governmental agencies. a climate change adaptation planning process, However, most of this data/information which is one instrument to engage with the pri- can only be accessed through reports, and little vate sector and identify areas where resilience is available in raw format or in a format that is improvements can be made.207 ready-to-use for private sector decision making Though work is needed to improve the (e.g. maps overlaying data and that can manip- consistency and quality of studies on climate ulated by users, applications enabling users to change adaptation costs and benefits in the graph data). Other than through the websites of United States, a recent stocktaking review international NGOs or initiatives (e.g. the Asian identified a large number of state-wide and Cities Climate Change Resilience Network and local estimates, especially for coastal zone, in- the Asia Pacific Adaptation Network), there is frastructure (especially water resources, trans- no central database and/or website with data/ portation, telecommunications and structures) information relevant to climate risk and/or and energy sectors.208 adaptation. Piloting the Index Framework in Three Countries 61 INDICATOR 1:  Climate and Hydrological Projections Measures Bangladesh Vietnam United States  Free access to data/information from a Projected rainfall and temperature Climate change scenarios (temperature, Large amount of data/information freely national or international body (e.g. gov- available for free from the Climate rainfall and sea level rise) published in accessible from the National Oceanic and ernment department, public agency, re- Change Cell (CCC) 2009 by the Ministry of Natural Resources Atmospheric Administration (NOAA), search center, donor organization) and Environment (MoNRE);209 an update is including: expected in 2015  Global climate station data The World Bank’s Economics of Climate  Global hourly data using station and Adaptation study uses two additional cli- radar data mate change scenarios representing the  High resolution monthly and seasonal cli- extremes of the distribution tail of climate mate forecasts moisture indices210  Monthly climate reports and analysis reports211  Observed and analysis climate data is also available through NOAA’s National Climatic Data Center The Third National Climate Assessment (2013) includes long-term climate model and hydrological projections from Global and Regional Climate Models There are no official national climate model projections  Data available electronically Data available on CCC website212 Data available on the IMHEN website213 Data is available on the NOAA’s Climate.gov and National Climatic Data Center websites214  Data available in both raw format as well Data available as maps and graphs215 Data available in a report format (i.e. in ta- Gridded data is available in raw format, as as maps or graphs (e.g. cumulative fre- bles and maps)216 well as in maps, graphs and tables217 quency distributions) Gridded data can be manipulated through integrated map applications using web-GIS (Geographic Information System) technology, and accessible via mobile cellular  Downscaled projections Downscaled climate projections for Downscaled climate projections by Under the North American Regional Climate Bangladesh using the PRECIS Regional Vietnam’s Institute of Meteorology, Change Assessment Program, high resolution Climate Model are available for tem- Hydrology and Environment (IMHEN) projections using a set of Regional Climate perature and rainfall for three time using the PRECIS Regional Climate Model Models driven by different Global Climate periods (2030s, 2050s and 2070s), thanks to United Nations Development models have been produced for Canada, the one greenhouse gas emission sce- Program (UNDP) funding and assistance United States and Northern Mexico221 nario (SRES A2) and the boundary from the United Kingdom Met Office218 Climate and hydrological projections using conditions of one Global Circulation Statistically downscaled climate change two downscaling techniques for the United Model (ECHAM4) projections for Vietnam using the MAGIC/ States are available from the Coupled Model SCENGEN software219 Intercomparison Project Phase 5 (CMIP5); Further work in progress to improve these will feed into the new projections for downscale projections at the provincial the upcoming Intergovernmental Panel on and community levels220 Climate Change222 Data available for primary (e.g. average, Data for both primary (e.g. precipi- Data for primary (e.g. mean temperature On NOAA’s Climate.gov website primary and maximum and minimum temperature and tation and temperature maps) and and rainfall changes) and derived (e.g. derived data is available, for example: tem- precipitation) and derived (e.g. growing derived (e.g. drought risk and storm coastal flooding at different sea levels) perature, rainfall, snowfall and indices (e.g. season length, hot/cold days, flood/ surge maps) variables variables available in the official MoNRE Palmer Drought Severity Index, Heating and drought indicators, soil moisture) hy- climate change scenarios223 Cooling Degree Days)225 dro-climate variables Simulations of future tropical cyclone tracks and intensity based on PRECIS Regional Climate Model projections are also available224 62 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 2:  Direct and Indirect Impacts Measures Bangladesh Vietnam United States  Data/information about di- Flood risk maps by The World Bank’s Economics of Climate Adaptation studies a Data/information on several direct climate change rect and indirect climate the Institute of Water range of climate change impacts including: crop yields, crop impacts is available from NOAA, for example: change impacts including Modeling based both on irrigation, land area vulnerable to coastal flood risk per land  Seasonal climate outlooks flood risk maps, surface/ observations and climate use type, risk of saline intrusion, tree plantation productivity,  Seasonal hurricane outlooks ground water hydrographs, change scenarios and macro-economic variables (e.g. household consump- The National Integrated Drought Information fire hazard indices, rain- tion, value added by sector and regional GDP)226 System looks after the U.S. Drought Monitor which fall intensity-duration-fre- The Climate Change Impact and Adaptation Study in the blends data and expert judgement into risk maps quency curves Mekong Delta provides maps on projected coastal inun- about current drought conditions and future drought dation, saline intrusion, significant wave weight due to impacts updated every week228 storm surges, water surface elevation and currents due to typhoons227  Data/information tailored Information for the ag- The Climate Change Impact and Adaptation Study in the NOAA published specific climate data/information to the needs of different ricultural sector on Mekong Delta analyses climate change vulnerability and risk for the following sectors: agriculture, forests and sectors/locations/sizes (e.g. impacts and adapta- for the socio-economic, agriculture, livelihoods, urban set- forest ecosystems, civil infrastructure, construction, growing season length tion published by the tlements, transport, energy and industry sectors229 coastal hazards, energy, health, insurance, litigation, for the agricultural sector, Bangladesh govern- marine and coastal ecosystems, national security, Heating/Cooling Degree ment and international tourism, transportation and water resources230 Days for the building organizations Sectoral data/information and tools on climate sector) change impacts is also available from a number of research groups in the United States for example: University of Arizona’s New Mexico AgroClimate231 Piloting the Index Framework in Three Countries 63 INDICATOR 3:  Adaptation Measures, Costs and Benefits Measures Bangladesh Vietnam United States  Data/information about cli- Information on climate-related The World Bank’s Economics of Climate Adaptation No national level analysis of costs and bene- mate change adaptation damage/loss and adaptation costs study uses a macroeconomic model to assess cli- fits exists measures and associated available for the agricultural and mate change adaptation costs and benefits for ag- Some information is available at the sectoral costs and benefits, including transport sectors riculture (e.g. R&D and irrigation), aquaculture (e.g. level, but it does not explicitly identify the por- measures such as flood The CCC e-library contains data/in- water pumping) and coastal ports (e.g. sea walls, tion of future costs and benefits for the private protection, irrigation and formation about adaptation solu- surface drainage and infrastructure maintenance/ sector and methods of cost estimation vary water/energy efficiency (e.g. tions relevant to Bangladesh’s replacement)232 widely233 cost-benefit analyses) business sector (e.g. innovative International research organization WorldFish ana- Coastal zones, infrastructure and energy are the farming practices, crop insurance) lyzed the economics of climate change adaptation sectors where there is the most information on in aquaculture in the Mekong River delta, more pre- costs and benefits; California and New Mexico cisely for two export productions: striped catfish and have state-wide cost estimates for one or more tiger shrimp sectors234  Case studies of climate Private sector adaptation case Examples of autonomous climate change adaptation  Seven companies are collaborating on climate change adaptation in the studies from the construction, fish- to observed climate variability have been reported change adaptation within the Partnership for private sector eries and agricultural sectors com- in shrimp and catfish farming in the Mekong River Resilience and Environmental Preparedness237 piled by international organizations delta (e.g. upgrading river and sea dikes, and water  12 out of 100 examples of private sector ini- pumping)235 tiatives on climate change adaptation re- The Food and Agriculture Organization (FAO) as- ported by the UFCCC Private Sector Initiative sisted the Ministry of Agriculture and Rural are from the United States238 Development (MARD) in promoting grazing and fodder grass production in slope lands in Northern Vietnam that increase the resilience of farming income236 64 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 4:  Community Vulnerability, Risk and Adaptation Measures Bangladesh Vietnam United States National/local climate National Adaptation Program of Action (NAPA) The World Bank’s Social Dimensions of Adaptation to 15 states have completed their cli- change vulnerability/risk (2005) Climate Change identifies areas of social vulnerability mate change adaptation plans and and adaptation assessments The Bangladesh Climate Change Strategy and and levels of adaptive capacity in selected sub-regions four states are in the process of (e.g. reports and/or resource Action Plan (2009) of the country and population groups240 doing theirs243 centres) The Action Research for Community Adaptation in The Climate Change Impact and Adaptation Study in Hundreds of cities and coun- Bangladesh, a program of community-based ad- the Mekong Delta analyses climate change vulnera- ties have created Climate Action aptation supported by several not-for-profits, has bility and risk for two provinces: Kien Giang and Ca Plans, many of which make climate supported a large number of community vulnera- Mau241 change adaptation recommenda- bility/risk and adaptation assessments The USAID-funded Adaptation and Resilience to tions (CAP)244 Bangladesh hosted the 2013 Conference on Climate Change study assess impacts and adaptation Community-based Adaptation to Climate for rural populations in ecologically sensitive areas of Change239 the Lower Mekong Basin242 Institutional Arrangements from hydro-climate modelling capabilities in the Institute of Meteorology, Hydrology Bangladesh and Environment (IMHEN) and implementa- Adaptation in Bangladesh benefits from the tion capacity from the National Institute for support of a dedicated government orga- Science and Technology Policy and Strategic nization: the Climate Change Cell of the Studies (NISTPASS) and the Institute of Policy Department of Environment. 245 While its ob- and Strategy and Natural Resources and jective is to provide dedicated climate change Environment (ISPONRE). Further, a number services to government departments and of consultancies in the country offer assis- agencies, the data/information and guidance tance to the private sector on climate change that is generated can be used for private impacts and adaptation. Work from these in- sector adaptation. 246 In addition, there are a stitutions has benefited a number of econom- number of research centres in Bangladesh ic sectors, most notably agriculture, fisheries with well-established expertise in climate-re- and infrastructure, including small- and medi- lated issues, most notably the Institute of um-sized enterprises (e.g. in shrimp, crab and Water Modeling and Bangladesh Centre for catfish farming industries).248 Advanced Studies. This, in turn, positions However, overall, there is no single insti- Bangladesh as one of the developing countries tution, other than IMHEN for hydro-climate with the most institutional capacity on climate data, which holds resources to support the pri- change adaptation.247 vate sector in taking action on climate change resilience. Vietnam Several national government departments United States are involved in climate change impacts The private sector in the United States has and adaptation, including the Ministry of access to a large range of public and private Natural Resources and Environment (MoNRE) institutions that offer data/information and and the Ministry of Agriculture and Rural support services on climate change impacts Development (MARD), and coordinated un- and adaptation, including state-of-the-art cli- der a National Target program to Respond to mate and hydrological datasets (observed and Climate Change. The country also benefits modeled), impact and adaptation assessments, Piloting the Index Framework in Three Countries 65 tools, technical expertise, and information on In addition, co-operation between federal technology useful to climate change adapta- government agencies within the Interagency tion. Further, the 2013 federal Climate Action Climate Change Adaptation Task Force is in- Plan has announced a number of initiatives troducing changes in federal policies, programs aimed at creating and/or improving existing and asset management that are likely to in- partnerships and forums addressing climate fluence private sector practices, for example change adaptation.249 through procurement.250 66 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 5:  Institutions and Forums Measures Bangladesh Vietnam United States  National government and/or Climate Change Cell (CCC) of the The National Institute for Science NOAA, and its network of National and Regional Climate private body, consortium or Department of Environment with the and Technology Policy and Strategic Data Centres, offer state-of-the-art climate and hydrolog- network with a role in facili- role of “strengthening the capacity Studies (NISTPASS) and the Institute ical data/information products to the private sector tating private sector adapta- of professionals, practitioners, policy of Policy and Strategy and Natural The Global Change Research Program (GCRP) produces tion, including: makers to reduce unacceptable risks Resources and Environment useful data/information for private sector adaptation,  Dialogue between the pri- and improve preparedness for climate (ISPONRE) coordinate and assist a including National Climate Assessments and sectoral vate sector, government, change impacts” number of climate change adapta- studies255 civil society and academia Well-established research cen- tion activities in the country, among The Interagency Climate Change Adaptation Task Force re- about about issues and ters, including the Institute of Water which a scoping assessment and groups over twenty (20) federal agencies to develop ac- needs; Modeling and Bangladesh Centre for an assessment of climate change tions that strengthen the resilience of federal policies,  Production and dissem- Advanced Studies. impacts251 programs and assets to climate change; in doing so, it in- ination of data/informa- Climate change adaptation case IMHEN generates and distributes fluences private sector practices (e.g. through procurement tion relevant to the private studies for the agricultural and infra- data/information on climate, hy- and/or policies)256 sector (e.g. case studies, structure sectors available online drology and direct impacts252 The Water Partnership is a public-private partnership that costs and benefits, best CCC provides advice to government MoNRE hosts the National Target aims to address water challenges around the world; while practices); and and other interested parties Program to Respond to Climate not directly focused on climate change adaptation, some of  Capacity-building and sup- Change, the government’s response its actions contribute to improve the resilience of the pri- port services to understand to climate change vate sector (e.g. increasing efficiency and productivity of issues and implement MARD established the 2008–2020 water use or improving water governance)257 actions Action Program Framework for The 2013 federal Climate Action Plan announced: Adaptation to Climate Change in the  A public-private partnership with the healthcare in- Agriculture and Rural Development dustry to identify and implement measures that ensure Sectors the resilience of the medical system MoNRE and MARD have carried out  Discussions with insurers and stakeholders about best sectoral climate change adaptation practices to manage climate risks within industry pro- work253 cesses and investment, and incentivize policy holders to Well-established research centers take steps to reduce their vulnerability258 work on climate change adaptation  The development of a ‘Toolkit for Climate Resilience’ together with international groups, that provides access to existing resources and tools that for example the Center for Natural can be used to manage sea-level rise, storm surges and Resources and Environmental Studies stormwater259 of the Vietnam National University or  US$2.7 billion in the federal 2014 budget to establish the Institute for Water Resources and a public-private partnership to explore risk and ca- Planning tastrophe modeling, and develop information and tools A number of boutique consultancies for decision-makers260 work on climate change adaptation Several research centers across the country work with the in Vietnam254 private sector on climate change adaptation, and a number of private consultancies provide specialized advisory ser- vices on adaptation for the private sector261  Multisectoral private sector Activities on agriculture, infrastruc- A number of reports with case studies Most economic sectors are covered by the work of ex- audience ture and fisheries are available online through the isting institutions/forums addressing climate change ad- IMHEN website12 aptation issues  Participation of and/or bene- No specific mention of SMEs by the No (or very few) specific initiatives No (or very few) specific initiatives for SMEs fits to SMEs CCC or BCCRF for SMEs Piloting the Index Framework in Three Countries 67 Policies road networks, railways, river embankments, drainage systems and erosion control mea- Bangladesh sures to higher flood risk would require addi- Despite some progress since the 1990s, in- tional investment costs in excess of US$2 billion cluding the commitments in the 2009 Climate (about 2% of the country’s GDP in 2008–12) Change Strategy and Action Plan to main- and annual recurrent costs of US$54 million.267 stream climate change resilience in food The country’s underdeveloped energy system security, social protection, health and infra- constrains economic activity significantly: only structure, only one sectoral policy includes about 40% of households nationwide have ac- climate change adaptation considerations: the cess to electricity, biomass remains one of the 2005 Coastal Zone Policy. It prescribes that main sources of energy in rural areas including “efforts shall be made to continuously main- for village and home-based microenterprises, tain sea-dykes along the coastline as first line and the population suffers from unreliable of defense against predicted sea-level rise” power supply. In a 2011 World Bank survey, 80% together with “an institutional framework for of rural households report daily power outages monitoring/detecting sea level rise”; howev- and 60% report significant power fluctuations, er the Ministry of Water Resources does not due to inadequate generation capacity and the clarify how this will be implemented in prac- practice of load shedding.268 tice. 263 There is little to no mention of future There is no evidence that climate change climate change impacts and adaptation in impact and adaptation considerations are in- the country’s cornerstone policies and plans tegrated in permitting, impact assessments with a natural sensitivity to climate, such as and stakeholder management in Bangladesh, the National Water Policy and Management despite well-publicized examples of commu- Plan, the National Environmental Management nity opposition to private sector operations Action Plan, the National Land Use Policy and in South Asia due to fears of natural resource the National Forest Policy.264 scarcity and pollution.x The country’s building codes and standards do not take account of adaptation, except for a Vietnam few updates in progress on rainwater and energy Policies incorporating climate change impacts management.265 The collapse of the Rana Plaza and adaptation considerations are either lim- building in Dhaka in April 2013 is a reminder that ited in scope (geographic and sectoral) or in- building design and maintenance practices in existent in certain areas (e.g. national coastal Bangladesh remain very poor, let alone in view management and community resettlement). of the impacts of a changing climate. However some progress is being made in a Although building climate change resil- few provinces, districts and municipalities that ience into infrastructure is one of the six pil- benefit from donor support and are ‘leading lars of the 2009 Bangladesh Climate Change Strategy and Action Plan and that funds from the Bangladesh Climate Change Resilience x For instance, Coca Cola’s bottling plants in India Fund are dedicated to it, little is known about faced community opposition based on fears progress in reducing the vulnerability of infra- that corporate use of freshwater will further de- plete and pollute scarce water resources. This structure in the country.266 The World Bank’s prompted a worldwide adaptation response by estimates of the costs to adapt infrastructure in the company. See http://caringforclimate.org/ Bangladesh provide an indication of the amount wp-content/uploads/Business_and_Climate_ of work that remains to be done: adapting Change_Adaptation.pdf. 68 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK the pack’. For instance, Ho Chi Minh City’s Notable examples include New York City’s Climate Change Adaptation Strategy plans to post-Hurricane Sandy resilience plan and zon- introduce local zoning changes to reduce cli- ing rules, the Army Corps of Engineers’ sea mate change vulnerability, and some provinc- level rise guidelines, the Securities Exchange es have started incorporating climate change Commission guidelines on corporate disclo- impacts and adaptation into integrated coast- sures, and the Council for Environmental al management zone strategies. One of the Quality’s guidance for Environmental Impact challenges with using policy instruments to Statements. 27 1 Further, the 2013 federal promote climate change resilience is the poor Climate Action Plan also calls for a number local enforcement capacity. of policy improvements in support of climate The policy area where Vietnam has had change adaptation including updating build- the most success in promoting climate change ing and infrastructure standards and incorpo- resilience is perhaps the infrastructure sector, rating climate change impacts and adaptation more specifically transportation: at least 12 into land use planning.272 provinces out of 58 have benefited from in- However, a number of policies create ob- vestments in resilience. For instance, the Asian stacles to climate change adaptation in the Development Bank supported at least two in- United States. For instance, North Carolina ad- vestments in climate resilient transportation in- opted a law that forbids state agencies to use frastructure in the country worth US$220 and exponential sea level rise projections for law- 76 million investments (e.g. Central Mekong making and land use planning, and across the Delta transport connections and 300 kilo- country some existing local permitting and meters of provincial roads in northern moun- zoning rules may prevent investments in im- tainous provinces respectively).269 portant adaptation measures, such as ‘hard’ Though much improvement has been flood defences.273 On the other hand, due to achieved in increasing energy supply reliability, the fairly developed state of local zoning and Vietnam’s power sector remains highly vulner- enforcement, there are plenty of ‘low cost’ op- able to disruptions due to a number of factors, portunities to leverage existing laws and reg- among which: a fast-growing demand, low gen- ulations for climate change adaptation, for eration reserve margins and a high reliance on example by targeting urban greening initia- imports.270 tives in areas vulnerable to overheating and/or stormwater issues.274 United States While the United States posesses one of Across the country, a number of municipal- the world’s most reliable power systems, there ities, counties, states and professional as- has been an increase in the number of costly sociations have adopted standards, codes, power outages caused by extreme climate-re- laws or regulations, published guidance, or lated events in recent years, which has put into made improvements to their infrastructure question the security of the country’s power assets to build in climate change resilience. supply.275 Piloting the Index Framework in Three Countries 69 INDICATOR 6:  Building and Infrastructure Standards and/or Codes Measures Bangladesh Vietnam United States  National and/or local building stan- Building codes/standards do not take climate Building codes/stan- The United States. Army Corps of Engineers requires to dard/code updated to incorporate change into account dards do not take climate consider projected sea level rise across the lifecycles of civil climate change impact and adap- change into account276 works projects277 tation considerations (e.g. revised Several states and cities have adopted standards or up- maximum temperature design cri- dated their codes, for instance: teria) and/or building standard/code  Portland (Oregon) updated the city code to require on- promoting adaptation practices site stormwater management for new developments (e.g. water-efficient design features) and re-developments278  California’s building standards mandate water efficiency savings and the state Adaptation Plan calls for a 20% reduction in per capita water use279  The Federal Emergency Management Agency (FEMA) released its new minimum Base Flood Elevation stan- dards for New York City, which the City’s building code requires building owners to follow in FEMA-designated flood zones as a condition to participate in the National Flood Insurance Program280  Published plan and/or program to Update of the National Bangladesh Building Unknown The federal Climate Action Plan mentions that the National update building standard/code so as Code in progress with two new chapters: Institute of Standards and Technology will update build- to incorporate climate change im- ‘Energy efficiency and Passive Energy Design ings and infrastructure guidelines to make them more pact and adaptation considerations Features’ and ‘Rainwater Management’, but resilient281 no mention of other climate-related aspects 70 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 7:  Public Infrastructure Measures Bangladesh Vietnam United States  Public and key infrastructure Funds from the Bangladesh The Climate Adaptation Strategy for Ho Chi Minh City The U.S. Department of Transportation (DOT) built and/or retrofitted with Climate Change Resilience Fund outlines infrastructure measures regarding flood pro- Climate Adaptation Plan for implementation in climate change impacts and are dedicated to repair, mainte- tection, water storage and drainage capacity, saliniza- 2013 seeks to increase the resilience of infra- adaptation considerations in nance, adaptation and improve- tion and heat stress282 structure against higher temperatures, severe mind (e.g. use of storm-resis- ment of infrastructures Climate change resilience works on transportation con- weather and precipitation, sea level rise and tant construction material) Climate change resilience in in- nections in six (6) northern mountainous provinces the combined impacts of these changes287 frastructure is one pillar of the (covering over 300 kilometers of priority provincial New York City’s resilience plan post-Hurri- Bangladesh Climate Change roads)283 cane Sandy plans to deploy US$19.5 billion to Strategy and Action Plan (2009), The Asian Development Bank (ADB) plans on funding improve the resilience of coastal zone protec- but little is known about prog- projects to improve access to climate resilient urban in- tions, buildings, utilities, water and wastewater ress in reducing infrastructure frastructure in Dong Hoi, Hoi An and Sam, including: management infrastructure, transportation vulnerability to climate change protection against flood, erosion and salt intrusion; and telecommunications288 and implementation, construction and/or upgrade of New York’s Metropolitan Transportation waste water and solid waste collection systems and Authority announced that it plans on raising facilities284 US$125 million by selling catastrophe bonds The Project for Building Disaster Resilient Societies in to private investors to cover the costs of future Central Regions of Vietnam aims to enhance community natural disasters289 disaster management through storm and flood protec- Across the country, there are a few project ex- tion infrastructure285 amples in this area: The ADB invested US$220 million to support the con-  New Jersey Transit Corporation is studying struction of transportation infrastructure to connect the cost effective adaptation strategies to main- central provinces with Ho Chi Minh City and Bangkok, tain current and planned transit services in a and supported a parallel climate vulnerability and ad- changing climate290 aptation assessment to inform the project detailed en-  The Federal Highway Commission sup- gineering design286 ported five (5) vulnerability and risk assess- ments on road transportation assets291  Geographic extent of climate Unknown At least twelve (12) provinces out of 58 have benefited No consolidated information is available resilient public infrastructure from investments in climate resilient infrastructure Piloting the Index Framework in Three Countries 71 INDICATOR 8:  Local Zoning Rules Measures Bangladesh Vietnam United States  Zoning rules with climate 2005 Coastal Zone Policy mentions The Ho Chi Minh city climate change adap- Post-Hurricane Sandy, New York City released an change impact/adaptation con- maintenance of sea dykes as re- tation strategy plans to use zoning to en- emergency rule to raise minimum elevation require- siderations (e.g. conservation sponse to sea level rise, however courage new developments in areas resilient ments for buildings and an Executive Order sus- of coastal wetlands for flood Ministry of Land’s recent Coastal to climate change impacts, and to develop pending zoning restrictions on building height295 protection) Land Zoning Project (2011) does not and enforce land use regulations to in- Several municipalities have zoning rules in place that take account of climate change292 crease municipal stormwater water storage can be used to promote climate change resilience296 capacity293 Integration of climate change impacts and adaptation into land-use zoning rec- ommended by the International Fund for Agricultural Development (IFAD) but not im- plemented yet294  Absence of zoning rules pro- Unknown Local zoning is generally weak and/or not A North-Carolina law bans state agencies from using moting maladaptation prac- enforced, for example in Ho Chi Minh a re- exponential sea level rise projections for law-making tices (e.g. reduced coastal view of the city spatial master plan found and land use planning298 protected areas which could in- that “it is unclear which zones are protected crease vulnerability to sea lever to what level and what is expected of devel- rise and rising storm surges) opers when building in specific zones”297  Zoning rules with climate 2005 Coastal Zone Policy is of a na- Vietnam lacks a sound national coastal The 2013 federal Climate Action Plan makes refer- change impact/adaptation con- tional scope, but does not create policy299 ences incorporating climate change impacts and ad- siderations extend beyond in- mandatory requirements A number of provinces have started incor- aptation into local land use planning dividual municipalities and/or porating climate change impacts and adap- councils tation considerations into integrated coastal zone management strategies 72 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 9:  Permitting and Impact Assessments Measures Bangladesh Vietnam United States  Consideration of climate change re- Unknown The level of rigor in identifying and The Council for Environmental Quality published non-binding guid- silience as part of permitting and/ assessing climate change impacts as ance in 2010 for federal agencies on how to analyze climate change or environmental/social impact part of EIAs remains poor300 in Environmental Impact Statements (EIS)301 assessments The Department of Interior issued guidance requiring all its bu- reaus to include climate change analysis in their EIS and Resource Management Plans302 The Forest Service issued guidance with basic concepts and practices for considering climate change impacts on proposed projects303  Examples of incorporation of climate Unknown Unknown Environmental Impact Statements from federal agencies only make change impact and adaptation in na- brief mentions of climate change impacts and adaptation304 tional strategic and/or project impact assessments Piloting the Index Framework in Three Countries 73 INDICATOR 10:  Investor Relations and/or Stakeholder Management Measures Bangladesh Vietnam United States  Policy and/or legal/regulatory require- Unknown Absence of government requirements to in- The Securities Exchange Commission clarified that regis- ments and guidance to consider climate corporate climate change impacts and ad- tered companies need to report on their material climate change risks and opportunities as part aptation considerations into resettlement change risks and their adaptation responses306 of corporate disclosures (e.g. securi- programs The National Association of Insurance Commissioners ties filings, other corporate reports), A number of resettlement programs in re- runs an annual voluntary survey on climate change risks stakeholder consultations, and/or com- sponse to severe flooding events have not and opportunities; responses are analyzed by the not-for- munity resettlement or compensation adequately considered future climate change profit organization Ceres307 agreements risks and opportunities and the resilience of The number of shareholder resolutions on climate change sources of livelihoods305 impacts and adaptation has doubled between 2010 and 2011308 Economic Incentives microfinance institutions and 13 million clients, 80% of which are below the poverty line. The Bangladesh OECD found that over 40% of existing micro- Bangladesh attracted around 7% of the finance programs in Bangladesh contribute world’s approved climate change adapta- to climate change adaptation in the private tion funding between 2003 and early 2013, sector. There are also examples of microfi- though almost all of it was for its public sec- nance products in the country specifically pro- tor. Private sector projects on adaptation moting long-term resilience, such as housing are potentially eligible for funding from the loans for investing in stress-resistant building Pilot Program for Climate Resilience and design or finance for hybrid crop varieties that the Bangladesh Climate Change Resilience are tolerant to salt- and water-related stresses. Fund. 309 However, there is little to no evi- BRAC, country’s second largest microfinance dence that this has been leveraged by the institution, created a permanent disaster pre- private sector for adaptation beyond small- paredness and climate change department.313 scale projects. Water and energy prices are regulated.314 Government incentives exist for irriga- More specifically, energy prices are heavily sub- tion (diesel- and solar-powered water pumps, sidized thanks to a number of government price but there is no information about other forms adjustment programs which create barriers to of government incentives in support of private resource efficiency and resilience: in 2012 in- sector adaptation.310 Reasonably high levels of centives for petroleum products and power to- government incentives in Bangladesh, such as taled US$3.4 billion in 2012, the equivalent of flood relief or incentives for agricultural fertil- almost 1% of the country’s GDP.y, 315 Pilot proj- izers, could have the potential to deter adap- ects are attempting to introduce smart pre- tation.311 As a result, repeated calls have been paid meters to reduce today’s high levels of made to create dedicated incentive programs power loss and unpaid utility bills.316 encouraging adaptation solutions known to address Bangladesh’s climate change chal- y Based on 2011 Gross Domestic Product of lenges, such as cyclone resistant housing (up to US$112 billion, see World Bank, 2013. World US$200 million).312 Development Indicators. Available at http:// Bangladesh possesses the world’s largest data.worldbank.org/data-catalog/world-devel- microfinance industry, with over 1,200 certified opment-indicators (Accessed 07/09/2013). 74 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK Despite water scarcity issues, there is no sector adaptation at the federal and state official trading market for water rights. However, level, by either supporting vulnerable groups informal water markets for irrigation have de- with insufficient information and/or resources veloped since the expansion of tube well irriga- to adapt (e.g. incentives to elevate buildings tion. In recent years, these markets have started for flood prevention) or by helping popula- moving towards a model whereby owners of ir- tions retreat from high risk areas (e.g. land rigation equipment (e.g. shallow tube wells and acquisition programs to compensate build- water pumps) enter into deals for irrigation ser- ing owners in high flood risk zones), many vices with nearby farmers and are remunerated create perverse incentives for maladapta- through fees per hour of tube well operation.317 tion practices. For example, this is the case of some irrigation and energy incentive pro- Vietnam grams which reduce incentives for resource A number of economic incentives for climate efficiency and/or investments in more resil- change adaptation in the private sector have ient assets and/or practices (e.g. switching to been trialed and implemented in Vietnam, from alternative crops and/or investing in renew- insurance schemes to revolving loan funds. able energy generation).319 While many of the country’s incentive programs More specifically, in the water and energy support actions that contribute to reduce cli- utility sectors, although there is some prog- mate change vulnerability in the private sector, ress being made to incorporate climate change a few of them have the potential to promote risks and opportunities into strategic and oper- maladaptation (e.g. agricultural incentives for ational plans, much remains to be done to im- seeds, fertilizers and irrigation water). Further, prove resilience.320 a number of dedicated funds for climate Despite having one of the highest GDP change adaptation in the private sector have per capita in the world, the United States has been put in place, among which the Support suffered from a lack of comprehensive, coordi- Program to Respond to Climate Change (SP- nated and sustained multi-year climate change RCC), the Canadian Climate Change Fund for adaptation funding.321 Budgetary constraints in the Private Sector in Asia, and the Asian Cities government and competing demands on cap- Climate Change Resilience Network revolving ital in the private sector are and will continue loan fund for Da Nang.318 to be significant barriers to private sector ad- Despite these economic incentives, a few aptation in the years to come, unless innova- gaps remain: namely, the absence of water tive ways to raise finance emerge. Examples trading markets to deal with drier dry seasons of such financial innovations for adaptation and wetter wet seasons, and the lack of incor- are starting to surface in the United States: poration of climate change risks and opportuni- for example, New York City’s Metropolitan ties into utility cost accounting. Transportation Authority announced that it plans on raising US$125 million to transfer United States the risk of future climate-related disas- While a number of existing government in- ters by selling catastrophe bonds to private centives play a favorable role for private investors.322 Piloting the Index Framework in Three Countries 75 INDICATOR 11:  Government Incentives Measures Bangladesh Vietnam United States  Positive direct (e.g. grants, inter- Government plans to invest US$800 Government has introduced in 2011 The Flood Insurance Reform Act of 2012 est-free loans) or indirect (e.g. tax million over 20 years to support the in- a national public-private partnership requires government flood insurance rates to rise 25% rebates/credits) incentives in sup- stallation of 19,000 solar-power irriga- insurance pilot scheme for crops, annually on properties that have repeatedly suffered port of climate change adapta- tion pumps livestock and aquaculture (with in- flooding, and on second homes and businesses; no more tion (e.g. irrigation, diversification Government flood relief totaled US$7.6 centives worth between 20% and insurance premiums will be given to properties that are towards climate resilient sectors, million in cash and housing grants in 100% of premium cost) to compen- built below the most up-to-date Base Flood Elevation relocation towards climate re- 2007 sate for losses due to natural disas- standards324 silient areas) for those private ters or epidemics323 New Jersey and New York state officials have granted sector actors who need sup- incentives to help poor affected homeowners with the port to adapt, including planning costs of reconstruction and building elevation325 and implementation, purchase State and federal governments have property acquisition of equipment and material, and programs in place to compensate owners for retreating innovation/R&D away from areas of high flood risk326  Absence or elimination of gov- Bangladesh subsidizes diesel costs for Vietnam has many incentive pro- Reconstruction incentives post-Hurricane Sandy have ernment incentives promoting farmers relying on diesel-run water grams for agricultural inputs such as a perverse effect because they are tied to FEMA’s Base mal-adaptation (e.g. drought/ pumps for irrigation seeds, fertilizers and irrigation water Flood Elevation standards rather than to the height of flood relief funds) Most of the budget of the Ministry of Sandy’s storm surge327 Agriculture is spent on incentives for Large amounts of agricultural incentives (e.g. for irriga- agricultural fertilizer tion) potentially prevent cost effective adaptation328 76 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 12:  Finance Measures Bangladesh Vietnam United States  Finance instruments for the private $50 million in grants and $60 million in con- Support Program to Respond to Climate Change No (or very few) specific private sector (e.g. loans, equity and/or cessional loans approved for Bangladesh (SP-RCC), a multi-donor partnership for climate sector finance instruments for cli- guarantee products) in support of under the Pilot Program for Climate Resilience change investment in Vietnam, is currently mate change adaptation one or several of the following: (PPCR) in 2010329 valued at over US$200 million per annum with In 2013, the Government  Climate change adaptation US$170 million in grants from the Bangladesh 55% dedicated to private sector development Accountability Office identified cli- planning (e.g. risk/adaptation Climate Change Resilience Fund (BCCRF)330 by (agriculture, forestry, industry, transport)331 mate change as a high risk threat for assessments, strategies/plans, 2012, supporting adaptation measures such The Asian Development Bank invested US$585 federal government finances consultations) as: research for climate-resilient cultivars, de- million in climate change adaptation in 2011,  Implementation actions (e.g. velopment of climate resilient cropping sys- a portion of which benefited Vietnam’s private construction of climate resil- tems, adaptation against drought, floods, sector332 ient assets, improvements to storm surges and tropical cyclones, adaptation The Canadian Climate Change Fund for the existing assets to maintain/ in fisheries and livestock sectors, risk man- Private Sector in Asia managed by the ADB increase asset useful life and/ agement against loss of income or property, aims to leverage up to US$300 million of private or reduce vulnerability, insur- improved energy efficiency in production and sector investment in climate change, including ance policy) consumption of energy, energy and water ef- resilience333  Purchase of equipment or ficiency in built environment, afforestation The Asian Cities Climate Change Resilience material (e.g. cooling, equip- and reforestation program, renewable energy Network set up a revolving loan fund in Da ment for hydrometeorological development Nang which will offer credit through the monitoring) Women’s Union to 400 households by the end of 2014 for investments in storm-re- sistant housing refurbishments and/or reconstruction334  Finance for climate change adapta- Over 40% of existing microfinance programs The newly established US$95 million SME Fund No (or very few) specific finance in- tion targeted at small and medium in Bangladesh contribute to climate change constitutes a potential platform to support cli- struments for climate change adap- sized enterprises adaptation in the private sector, with a few mate change adaptation investments tation by SMEs examples of microfinance products promoting long-term resilience, such as housing loans for investing in stress-resistant building design and loans for hybrid crop varieties that are tol- erant to salt- and water-related stresses BRAC, the second largest microfinance insti- tution in the country, created a permanent disaster preparedness and climate change department Piloting the Index Framework in Three Countries 77 INDICATOR 13:  Full-Cost Accounting for Water and Energy Measures Bangladesh Vietnam United States  Absence or phasing out of sub- Water and energy prices are regulated Energy prices are regulated, with government Though not much information is available, the sidized utility prices promoting Government incentives for petroleum incentives amounting to US$5.2 billion in 2011 United States is known to have high levels of maladaptation practices products, electricity, natural gas and (equivalent to about 3.4% of its GDP); this is post-tax incentives for petroleum products, coal are relatively high compared to known to be a cause of low energy efficiency336 electricity, natural gas and coal (equivalent to other developing countries (equiva- Sectoral reform is ongoing to deregulate the 3.3% of national GDP or about US$500 billion lent to 5.1% and 7% of national GDP electricity market in 2011)338 in in pre- and post-tax respectively or Water is subsidized through low tariffs337 Energy and water utility bond issuers rarely about US$13.5 billion in 2011)335 factor in climate change and face the risk of credit score downgrades due to climate change risks339  Adaptation measures promoting Pilot projects are attempting to in- 96% of water connections in urban centers is  Progress is being made in the energy sector ‘full-cost’ accounting of climate troduce prepaid smart meters for metered, however rural households rely mostly to deploy supply-side technologies that change risks for water and en- electricity340 on wells341 are less vulnerable to climate change and ergy, including supply-side (e.g. Electricity tariffs vary depending on consumer more extreme climate; this includes reuse water-efficient cooling) and de- types and time-of-day342 of hydraulic fluids to reduce freshwater mand-side (e.g. differentiated withdrawals, condensing cooling towers, pricing and smart metering) dry-cooling systems343 actions Efforts are underway throughout the country to reduce peak energy demand from end users through the promotion of energy efficiency and the installation of green and white roofs344 78 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 14:  Environmental Trading Markets Measures Bangladesh Vietnam United States  Markets where entitlements or There is no officially functioning No existing water trading market  Water trading is used in several states where fresh- allowances over water are traded water market where rights are traded. water resources are scarce including Arizona, or ecosystem services are paid However, informal water markets for California, Colorado and New Mexico345 for (e.g. services associated with irrigation do exist  Several water markets have in place ‘water banks’ afforestation, reforestation or allowing market players to store water in reservoirs avoided deforestation) or underground aquifers for future use and/or for trading346  Amounts of entitlements/ allow- N/A N/A  There is considerable activity on water markets in ances traded each year the Western states of the United States: 4,407 water market transactions were recorded between 1987 and 2009347 Communication, Technology and coastal management and local development Knowledge planning. There has been much activity in-country to Bangladesh generate knowledge and technologies capable of Overall, Bangladesh suffers from poor access reducing climate change vulnerability and building to information and communication technolo- resilience in the private sector, especially with re- gies (ICTs) that play a role in enabling adap- gards to aquaculture and agriculture which repre- tation: on average, only 5% and 56% of the sent important economic activities in rural areas population use the internet and have mobile and for the country as a whole. There is some ev- cellular respectively.348 idence to show that this has already translated Bangladesh has benefited from a number into improved adaptive capacity in some areas of of knowledge and technology transfer projects Vietnam’s private sector.350 Interestingly, across thanks to donor funding: from capacity-building the country select schools and professional and training on climate modeling, to promotion training programs have also started to update of adaptation solutions, such as early warning their curriculums to incorporate material on cli- systems and floating agriculture.349 mate change impacts and adaptation. Vietnam United States Overall, the country possesses a good ICT The United States benefits from an exten- network infrastructure: on average, each per- sive ICT network, and it is among the centers son has more than one mobile cellular sub- of excellence for pro-adaptation technolo- scription, rates of internet subscriptions gy and knowledge. For instance, the country are relatively high for a developing country counts a large number of the climate models (though broadband access remains poor). used in the Coupled Model Intercomparison Over the years, Vietnam has benefited Project Phase 5 for the upcoming IPCC Sixth from a range of programs aimed at transfer- Assessment Report, and it is home to a num- ring knowledge and/or technologies important ber of private sector organizations that have to climate change adaptation from training on publically reported making investments in cli- hydro-climate modeling to capacity building on mate change adaptation.351 Piloting the Index Framework in Three Countries 79 INDICATOR 15:  Information and Communication Technologies Measures Bangladesh Vietnam United States  Country area with in- Internet: 110 operators with nation- Four main internet service operators operate in Vietnam355 Extensive internet and mobile phone ternet coverage and/ wide coverage352 Over 70% of communes have public internet access points coverage or mobile phone Mobile phone: 6 main operators with and 100% of schools and universities are connected to the reception nationwide coverage353 internet356 E.g. ‘Pacific Bangladesh Telecom Seven main mobile cellular service providers operate in Limited’ network coverage (internet Vietnam and ensure nation-wide coverage357 and mobile phone): 89.6%354 All mobile cellular operators offer 3G services, however market penetration remains low358  Internet and/or mobile 5% of internet users 35% of the population has an internet subscription, however  Internet and mobile cellular usage is cellular usage 56% of mobile cellular users only 4% has high speed internet high among the population with 77.9% 143% of the population has a mobile cellular subscription of internet users and 93% of mobile (many households have more than one subscription and/or cellular subscriptions sim card at a time) 80 ENABLING ENVIRONMENT FOR PRIVATE SECTOR ADAPTATION: AN INDEX ASSESSMENT FRAMEWORK INDICATOR 16:  Technology and Knowledge Measures Bangladesh Vietnam United States  Participation in knowledge  Capacity building in climate mod- Risk and adaptation assessment for the catfish Eighteen (18) out of over sixty (60) cli- and/or transfer projects (pri- eling workshop in partnership with farming industry359 mate models used in the Coupled Model vate sector) the United Kingdom Met Office Knowledge transfer and capacity building on Intercomparison Project Phase 5 for the up- workshop) crab hatching technologies and best practices coming Sixth IPCC Assessment Report come  Early warning systems for agriculture for sustaining and expanding crab aquaculture from the United States362 in partnership with United States as a source of livelihood resilient to sea level rise; A number of demonstration projects are company Riverside Technology and out of this project, two research centres were put underway in the private sector as shown two (2) Bangladeshi institutions (i.e. in place, a few pilot projects received govern- through the examples against Indicator 3 the Center for Environmental and ment funding to achieve commercial scale, and a The United States is a major contributor to Geographic Information Services, number of hatcheries started using climate-resil- climate change adaptation funds promoting and the Bangladesh Disaster ient technology and farming practices360 technology/knowledge transfer and capacity Preparedness Centre) Engagement and consultation on climate change building for developing countries:  Floating agriculture promoted risk and adaptation perceptions in the shrimp  It pledged US$290 million to the Climate through national projects (i.e. farming industry361 Investment Fund Pilot Program for Climate Reducing Vulnerability to Climate Resilience363 Change and the Sustainable  Climate change resilience is one of USAID’s Environment Management three (3) funding strategic objectives for Programme) 2012–2016364  Participation in knowledge USAID has supported technical training in and/or transfer project (public Vietnam on climate variability and predictions365 sector) Thanks to UNDP funding and assistance from the United Kingdom Met Office, MOHC has developed its internal capability to model tropical cyclones trajectories and intensity using PRECIS Regional Climate Model simulations366 Capacity-building on climate change risk and re- silience in transportation for Provincial People’s Committee staff367 Capacity-building in the Binh Dinh province on mainstreaming climate change adaptation into local development plans, including support to the Climate Change Coordination Office in the prepa- ration of a legal document to mainstream adapta- tion into local development plans368  Prevalence of technologies with climate change adapta- tion benefits  Integration of climate change Alongside IMHEN, the Asian Disaster Preparedness impact and adaptation consid- Center is developing integrated training on cli- erations in school and profes- mate change adaptation, disaster risk reduction sional training curriculums and coastal zone management for government officials369 Climate change education programs have been rolled out in schools in at least five (5) provinces370 The Asian Cities Climate Change Resilience Network (ACCRN) is developing guidelines for integrating urban climate change resilience ed- ucation into school curriculums in the Cam Le district371 Appendix Private sector consultation on drivers and barriers to climate change adaptation 81 Appendix Private sector consultation on drivers and barriers to climate change adaptation A large number of factors can potential- selecting these companies, careful consider- ly influence private sector adaptation ation was given to their locations, sectors of ac- decisions. This work led to the com- tivity, global footprint of operations, levels of pilation of the universe of data/information supply chain and/or community engagement, products, institutional arrangements, policies, and their awareness of climate change adapta- economic incentives, and knowledge and tech- tion. As a result, responses may be considered nology resources that play a role in motivat- indicative of private sector views on enabling ing the private sector in taking (or not taking) environments for adaptation, but not conclu- climate change adaptation actions. Depending sive due to the small size of the sample. on the context in which they occur, these fac- The team would like to thank the following tors will have varying degrees of influence on individuals for their feedback: private sector adaptation – i.e. geographic lo- cations of private sector operations, suppliers  Tim Faveri, Director Sustainability and and customers, nature of economic activities Responsibility, Tim Hortons Inc. (Canada); and type of private sector organization con-  Samuel Kwong — Group Environment, cerned (e.g. subsistence workers, cooperatives, Health and Safety Manager, John Swire & SMEs, large companies, multinationals and in- Sons (H.K.) Ltd (Hong Kong); dustry associations).  Glenn Frommer, Chief Sustainable To inform the development of mean- Development Manager, Mass Transit ingful indicators and measures for the Index Railway (Hong Kong); Framework, it was important to narrow down  Sonia Lacombe, Director Climate Change, on the set of priority drivers and barriers for Rio Tinto Alcan (Canada); private sector adaptation drawing from the ex-  Lwandle Mqadi, Climate Change & isting literature and the team’s expert judge- Sustainability Department, Eskom (South ment. Six company representatives were Africa); approached for feedback on their views on  Andy Wales, Head Sustainable develop- the most important what drivers and barriers ment, SAB Miller (United Kingdom); and out of the universe of factors influencing pri-  Matthew White, Head Innovation, AB vate sector adaptation play a critical role. 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