Underinvestment in Adaptation: Gaps in Climate Tech Funding

The world has seen a boom in climate tech funding in the last decade. While some sectors within climate tech continue to see increasing funding, one sector is relatively overlooked: adaptation. According to a recent report by the Oxford Climate Tech Initiative in collaboration with the Skoll Centre at Oxford, startups concentrating on adapting to the impacts of climate change received only 7.5% of global climate tech funding between 2019 and 2020. These findings align with the conclusions of a recent study by the United Nations Environment Program, which highlighted a global funding deficit of up to $366 billion for projects aimed at facilitating societal adaptation to climate change.

Importance of Adaptation Solutions

Adaptation solutions play a crucial role in the climate tech landscape because, even if global greenhouse gas emissions were miraculously reduced to zero tomorrow, some degree of global warming is already inherent in the climate system. This places many under-resourced countries at risk of experiencing extreme weather events. Paradoxically, the countries with the lowest emissions often bear the brunt of climate change impacts, including sea level rise, extreme heat, and flooding. These countries also possess the fewest resources to adapt, highlighting a significant gap that the climate tech industry has the potential to address.

Further, adaptation solutions are crucial in climate tech for the following key reasons:

1. Addressing Current and Future Impacts: Climate change is already causing observable impacts, such as extreme weather events, rising sea levels, and changes in precipitation patterns. Adaptation solutions are essential for addressing these current impacts and preparing for future changes in climate conditions.
2. Protecting Communities and Infrastructure: Adaptation measures help safeguard communities and critical infrastructure from the adverse effects of climate change. This includes strategies to protect against flooding, storm surges, heatwaves, and other climate-related hazards, ensuring the resilience of urban and rural areas.
3. Ensuring Food and Water Security: Climate change can affect agricultural productivity and water availability. Adaptation solutions in climate tech aim to develop resilient agricultural practices, crop varieties, and water management strategies to ensure food and water security in the face of changing climatic conditions.
4. Promoting Biodiversity Conservation: Adaptation is crucial for preserving biodiversity as ecosystems face disruptions due to climate change. Climate tech solutions can aid in the conservation of biodiversity by creating habitats that are more resilient to changing conditions and by assisting species in adapting to new environmental challenges.
5. Minimising Economic Losses: Adapting to climate change helps minimise economic losses associated with extreme weather events and other climate-related disasters. By implementing resilient infrastructure and business practices, adaptation measures contribute to the long-term sustainability of economies.
6. Human Health Protection: Climate change poses risks to human health through increased heat stress, changing disease patterns, and impacts on air and water quality. Adaptation solutions in climate tech include technologies and strategies to protect public health and reduce the vulnerability of communities to climate-related health risks.
7. Meeting Sustainable Development Goals: Many of the adaptation challenges intersect with broader sustainable development goals, such as poverty reduction, access to clean energy, and social equity. Climate tech solutions that focus on adaptation contribute to achieving these overarching development objectives.
8. Global Cooperation and Resilience: As climate change is a global challenge, adaptation solutions promote international cooperation. Collaborative efforts in climate tech enable the exchange of knowledge, technologies, and resources to enhance the resilience of countries and communities facing diverse climate impacts.

Sectors that Investors Pay Most Attention to

According to a recent report by Oxford Climate tech initiative, a bulk of funding goes into the mobility sector. Paradoxically, a disproportionately lower share of funding goes into other high emitting sectors like the built environment and agriculture. According to Jamil Wyne, the founder of the Climate Tech Bootcamp and co-lead of the Oxford Climate Tech Initiative, familiarity bias has a role to play behind the gap in funding between sectors that need most funding and those who actually receive it. Since there are notable transportation startups and companies operating since a while, people are more familiar with those and the way they work. In contrast, when a new solution is introduced, people may view it as unfamiliar and consequently a high-risk project. 

The allocation of climate tech funding to the mobility sector exceeds its proportionate share of global emissions, largely due to a “hype engine” that attracts investors. Many of these investors are primarily interested in celebrity founders rather than the fundamental business principles, as noted by Tom Chi, Managing Partner at At One Ventures, who was not involved in the report. In an effort to rectify this imbalance, investors like Chi are working to prioritise overlooked solutions and metrics that assess impact beyond just carbon emissions.

The renewable energy sector is another space that attracts investor attention. This is also partially due to the growing public awareness around the harm of fossil fuels and the time sensitive need to replace them. Moreover, the renewable energy sector is also considerably supported by governments. Many governments worldwide have implemented policies and regulations to promote renewable energy adoption. Incentives such as subsidies, tax credits, and favourable regulations encourage investments in renewable energy projects, making them financially attractive to investors.

These examples show that among other factors, public awareness about a certain sector, sense of familiarity and government support, have a significant impact on the level of investment in a sector. 

Recommendations to Increase Funding in Adaptation

Government’s Role

Governments can employ various strategies to increase adaptation funding, ensuring that adequate resources are allocated to address the impacts of climate change. Here are several approaches:

1. Establish Clear Policies and Commitments: governments should develop and communicate clear policies and commitments related to climate adaptation. This includes setting specific targets, timelines, and budgetary allocations for adaptation initiatives.
2. Integrate Adaptation into National Budgets: embedding adaptation measures into national budgets helps prioritise climate resilience. Governments can allocate a specific percentage of their budgets to adaptation projects, ensuring a consistent and sustainable funding stream.
3. Leverage International Climate Finance: governments can actively engage in international climate finance mechanisms, seeking support from global funds and organisations dedicated to climate adaptation. This involves participating in negotiations, submitting proposals, and collaborating with international partners.
4. Engage with Multilateral Development Banks (MDBs): governments can collaborate with MDBs to access financial support for adaptation projects. These institutions often provide concessional loans, grants, and technical assistance for climate resilience initiatives.
5. Advocate for Increased International Cooperation: Governments can advocate for increased international cooperation on climate adaptation. This includes encouraging developed countries to fulfil their commitments to provide financial support to vulnerable nations facing climate impacts.

International Stakeholders’ Role

International stakeholders also have a crucial role to play when it comes to public attention towards adaptation. Here are several ways they can contribute to boosting funding for adaptation efforts:

1. Commit to Increased Funding Targets: international stakeholders, including governments, multilateral development banks (MDBs), and philanthropic organisations, can commit to setting and achieving higher funding targets specifically dedicated to climate adaptation. Clear and ambitious financial commitments are essential to mobilise resources.
2. Support Vulnerable Countries: prioritise funding for the most vulnerable countries that are disproportionately affected by the impacts of climate change. This includes low-income nations with limited resources to cope with climate-related challenges.
3. Contribute to Global Climate Funds: support existing global climate funds, such as the Green Climate Fund (GCF) and the Adaptation Fund, by contributing financially. Increased contributions from international stakeholders will expand the available resources for adaptation projects in vulnerable regions.
4. Collaborate on Public-Private Partnerships (PPPs): facilitate and participate in public-private partnerships to fund adaptation initiatives. Engaging private sector entities in climate resilience projects can diversify funding sources and bring additional expertise to the table.
5. Invest in Capacity Building: allocate funding for capacity building in developing countries. This includes training local governments, communities, and institutions to plan, implement, and manage adaptation projects effectively, ensuring the sustainable use of resources.

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