Interview: “We Are Still Very Far From Climate Adaptation Goals”

The excitement around bringing “all fossil fuels” into climate talks for the first time overshadowed another crucial dimension of the climate crisis, which did not get its time in the sun at the 28th Conference of Parties (COP28) summit in Dubai – adaptation. Adaptation, or the necessary adjustment by communities and ecosystems to changing weather patterns and rising temperatures, was treated as “the poor cousin” of climate talks through the two-week summit but continues to be the bridge to building a more climate-resilient future.

Apart from the promise of “transitioning away” from fossil fuels in energy systems, the COP28 delivered on the Global Goal on Adaptation (GGA) – a target under the Paris Agreement comparable to the temperature goals of limiting global warming to 1.5 and 2 degrees Celsius. Because adaptation measures are so context-specific with no common indicators for progress, decisions on how to frame a universal goal for adaptation have been especially difficult.

At COP28, parties adopted a framework for the GGA for the first time, agreeing it should include reducing water scarcity, improving climate resilience in agricultural, food, and health systems, improving the resilience of infrastructure and settlements and limiting impacts on biodiversity and heritage, among others, by 2030.  But finance for adaptation activities remains a constraint. Under the U.N. process, developed countries are obligated to provide finance to developing countries for both climate mitigation and adaptation, but funds go overwhelmingly to the former.

According to the Adaptation Gap report, the need for adaptation funding is 10 to 18 times more than current adaptation finance flows, standing between $194 billion and $366 billion per year. At the COP28, developed countries pledged only $187.7 million to the Adaptation Fund, over $100 million short of the Fund’s target. The newly-launched fund for losses and damages arising from the climate crisis raised more than $700 million in pledges within minutes of being launched at the opening of the COP28.

Mikko Ollikainen, head of the Adaptation Fund, told Mongabay-India in an interview that he hopes funding for climate adaptation goes up in the years to come. The Adaptation Fund was created under the United Nations Framework Convention on Climate Change (UNFCCC) in 2001 and is dedicated to the adaptation needs of developing countries. According to Ollikainen, private finance has a role to play in bridging the gap, but public finance will need to continue playing a big role because of uncertainties in the private sector.

Mongabay: The Adaptation Fund has managed to raise only $187 million this year, less than its target. Why are pledges to the Adaptation Fund not forthcoming, especially when adaptation is one of the COP28’s key areas?

Mikko Ollikainen: In a way, of course, we are happy about each of these pledges that we get, but we were hoping to get more. The demand is out there for our work. We have a pipeline of projects that is around $425 million at the moment. We are part of the adaptation finance gap; we don’t have enough resources to fund the needs that come from developing countries.

Contributor governments typically refer to their fiscal constraints, that money is not available. And in many cases, that is linked to their broader budget situation in their respective countries. Their other climate commitments may play a role as well. There are many demands for funding, not only for adaptation.

Mongabay: Do you think the operationalisation of the loss and damage fund shifted the focus away from adaptation?

Mikko Ollikainen: Typically, contributor governments have a fixed amount of money that they can allocate during the year. This year, several of them have allocated funding, even quite considerable funding, to the loss and damage fund. And that’s great news. We are fully supportive of the loss and damage fund – we have helped set it up. But it is quite likely that allocating resources to that new fund has had an impact on how they can or cannot allocate funding to their Adaptation Fund.

I should also say that there are probably other reasons as well. The available budget typically depends on several factors, including the prevailing budget situation and prevailing politics in the given country.

I am sure we will see an increasing trend in the future. Developed countries have committed, in Glasgow two years ago, to double the adaptation finance that they provide from 2019 levels, in 2025. The Adaptation Fund is one of the prime, multilateral channels to provide that funding. I expect that the funding for adaptation and through the Adaptation Fund will continue to grow. I would like to think that this year is perhaps a temporary dip in that process. I hope so.

Mongabay: There is no consensus on how much doubling adaptation finance should result in, since there is no clear baseline for that pledge. What should doubling adaptation finance look like according to you?

Mikko Ollikainen: I am not sure it is necessary to get into a very specific definition of what the doubling should look like, because the finance needs are actually 10 to 18 times current levels. We are not talking about meeting the needs, the pledges to do that would need to be 20 times over.

We need funding from different sources, which means funding from public and private sources. Private sector funding will be important in bridging the adaptation gap as well.

Developed countries have been quite unanimous in saying there are not enough resources in their public sectors to fund global adaptation needs. At the same time, many poor communities, who are the most vulnerable and living in developing countries, do not have access to other types of funding. They do not have the ability to take loans or service loans or to attract private sector investments. We are talking about very poor communities. So, the public sector and public funding would continue to play an important role in funding adaptation. We are very far from what is needed for those communities.

Mongabay: What are your expectations from the Global Goal on Adaptation (GGA), particularly when it comes to finance?

Mikko Ollikainen: The GGA will be an important framework for us to work in because it essentially provides the blueprint of how we globally approach adaptation, which is not a simple task given that adaptation is hugely diverse. It is very difficult to kind of aggregate what adaptation globally means because it is across so many different sectors and countries with very different circumstances. We see this in a microscale in our own work, because we also serve countries and it’s very difficult to kind of grasp the entirety of what we are doing, because the projects are so, so different.

We would very much appreciate strong language on finance. Just from the perspective of funding concrete adaptation projects, the clearer and stronger the language, the clearer guidance it gives to us as a Fund.

Mongabay: How does the Adaptation Fund plan on engaging more private finance, given that developed countries say they do not have the ability to meet adaptation needs?

Mikko Ollikainen: The Adaptation Fund is mostly based on public finance. We provide the grant funding and grant funding works best with the public sector organisations.

We have engaged at the level of individual projects with the private sector, private firms and private actors, but usually in a parallel, complementary way. For example, we have worked on supporting insurance schemes in some countries, which would then be operated by private insurance companies. In early warning systems or similar projects, we have worked with telecommunications carriers and so on. But we have not really provided funding to those firms or those private entities directly.

It is an evolving space and one where we still do not have very clear best practices. It is very difficult to build a business rationale to make money out of adaptation, particularly in developing countries or things where markets are typically not developed anyway. We will probably see very different approaches to private sector development in adaptation in developing countries. But it is still in the early stages.

We do fund a programme on innovation and the idea there is that the innovations that we help support could then be taken up by the private sector and packaged into products or services in the private sector.

At the COP we had consultations on new funding windows for locally-led adaptation. There is a possibility to work with local-level entrepreneurs in these types of projects, and the private sector as well. Typically, when we work with the private sector, the scope of the type of projects that we fund are sort of micro or small enterprises, which are very important in many of these vulnerable communities. But we are not, at this point, able to engage with large national or multinational companies.

Mongabay: What are the challenges in disbursing funds from the Adaptation Fund? What is the average time taken in dispatching funds after a proposal is received and are there plans to improve this system?

Mikko Ollikainen: The adaptation fund serves all developing countries, and we are a country-driven fund, so it depends on the project proposals we receive. We are constantly looking at ways to improve and make access easier. The current average time is around one and a half years from submission of the project proposal to the point that that project is approved. Most projects come in first as a sort of simple project concept and then after that has been endorsed, they come in as a developed project proposal.

But we have made some changes to our process to make access easier. We used to have deadlines a few times a year by which contributors needed to submit their proposals. We recently got rid of the deadlines, and we accept proposals on a rolling basis now. We also review them on a rolling basis, so we are quite confident that this will help shorten the project development times.

The business standard that we have for providing feedback on any project proposal is three weeks, which is very short compared to many other financing mechanisms. So, we really tried to keep the process as flexible and quick as possible.

Mongabay: In India, funds from the Adaptation Fund are channeled through the National Bank for Agriculture and Rural Development (NABARD). How are funded projects monitored? And how can funding for projects diversify from certain sectors, like agriculture?

Mikko Ollikainen: Each country has access to up to $20 million from the Adaptation Fund. India is a huge country with huge adaptation needs and what is really commendable about NABARD’s approach is that they divided the initial $10 million across six projects to learn and test different adaptation approaches in India. By building that experience and evidence base, it is easier to build on the larger investments that will be needed with support from us and other providers of climate finance.

What is also really great about the Indian approach is that, after being accredited with the Adaptation Fund, NABARD was given the role of managing the national Indian adaptation fund. We are glad to see that we were able to indirectly help set up a national system. This should be the longer-term goal, that countries have their ownership and leadership on how they address adaptation.

NABARD has been accredited as the National Implementing Entity to the Adaptation Fund, which means that they have shown their competence in managing projects, supervising projects, managing the finances and taking care of environmental and social risk management, and other areas.

So, they are supervising the executing entities, who are doing the actual work on the ground. So, the executing entities do the work and NABARD is responsible for ensuring that everything goes into plan and money is not misspent. So, because of this setup, we as the Adaptation Fund do not need to do a very detailed supervision of NABARD today because we trust that they perform this function. We receive reports from them.

There is a broader understanding of what adaptation entails now. We fund a lot of projects in the agriculture sector, water resources management, food security, and disaster risk reduction sectors. Now we see that the countries are thinking a bit further and for example, looking increasingly at the health impacts of climate change or the impacts of climate change on education systems and other social services. So, it is becoming a fuller picture, I would say. We are not actively encouraging countries to go beyond the traditional sectors of adaptation, but we see that development in many countries.