The most important takeaway from Cop27, held in Egypt this past November, is that all stakeholders – politicians, multilateral organisations and the private sector – must come together to tackle the climate crisis with greater urgency and direction. As we begin 2023 and start preparing for Cop28, due to be held in the UAE later this year, I hope every entity maintains its sense of obligation towards climate goals and finds solutions that are effective, innovative and collaborative in nature.
We must not lose sight of the broader picture – currently much of the activity and planning in the global community is directed towards climate change mitigation, whereas adaptation is just as critical. The UN Environment Programme Adaptation Gap Report 2022 states that international adaptation finance flows to developing countries are five to 10 times below what is needed – with the gap continuing to widen.
With adaptation being vital but underfunded, and in the context of the new loss and damage fund that is being set up after Cop27, how can the investment community deliver greater impact in this area, and what will drive them to invest?
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At the UAE Government Meeting in November 2022, Sheikh Mohammed bin Rashid said the hosting of Cop28 will be the UAE's biggest event next year. Photos: Wam -
Cop28 will be the first time countries will assess the progress of the 2015 Paris climate accord to limit global warming. -
The global event, which will take place at Expo City Dubai, will welcome more than 140 heads of state and government and 80,000 participants. -
Dr Sultan Al Jaber, Minister of Industry and Advanced Technology, Special Envoy for Climate Change and chairman of Masdar, gave a presentation at the meeting outlining what will be involved in hosting one of the largest global events of the year.
The UAE has led the way in climate adaptation – the most impactful measures include expanding blue carbon ecosystems by planting 100 million mangrove seedlings by 2030, adopting new climate-smart agricultural methods and committing greater resources to promoting sustainable production and consumption patterns. Their work is undoubtedly impressive but in order to see a global impact we need to see global change.
Climate adaptation measures must be rolled out in every country as soon as possible. The Bank of America has estimated that the climate adaptation market will be worth $2 trillion a year by 2025, and the Global Commission on Adaptation has argued that the rate of return from investing in resilience will be high. They estimated that investing $1.8tn in five areas – early warning systems, climate-resilient infrastructure, improved dryland agriculture crop production, global mangrove protection, and investments in making water resources more resilient – could return $7.1tn in total net benefits by 2030. On the other hand, the opportunity cost of failing to invest in adaptation could run into trillions of dollars.
Dr Mahmoud Mohieldin, the UN climate change high-level champion for Egypt, highlighted this when he noted that the "race to resilience" is as important as the race to net zero, and that partnerships between private and public sector organisations must be strengthened in order to make real progress.
Private equity firms have the monetary means as well as networks to get the ball rolling. The industry is currently estimated to have $6.3tn in assets under management with $2tn under what we refer to as "dry powder", that is capital that has been committed but not yet allocated. This, in addition to the strong influence private equity firms have over their portfolio companies, makes them well-positioned to invest in the long term and make the impact the world truly needs.
Businesses and investors can help devise and provide the products, services and business models that will help locally led adaptation efforts, but galvanising the size of investment needed calls for well-structured blended finance models, and a real coalition of investors, politicians, multilaterals and central banks to come together and support countries’ National Adaptation Plans.
There are numerous examples of private equity investments in business with a clear mission for sustainability. At Investcorp, we invested in Fresh to Home in 2020 – this business enables sellers to directly source from fishermen and farmers through its AI-powered supply chain and reduces food waste for suppliers to less than 2 per cent versus an estimated 15 per cent in traditional unorganised markets.
Reducing food waste is critical to adaptation. Investors are increasingly interested in diversifying portfolios, due to the increased focus on ESG within institutional investors, changing demographics at the heads of family offices, and the huge amounts of capital going into energy transition plans. Once the size of the potential returns is recognised, and it is better understood and articulated that adaptation investments can offset climate risk across the rest of a portfolio, investments in adaptation will increase.
If any nation can serve as a benchmark for success in this area, it is the UAE in its Cop28 year.
The UAE has made numerous breakthroughs around climate within its own territory, and now has the greatest platform to export this knowledge. As well as its adaptation efforts, according to the Green Fuel Index, the UAE has increased its renewable energy capacity more than any other country in the world over the past decades. The country has $50 billion in clean energy projects in 70 nations across six continents.
In November, the UAE and the US agreed to invest $100 billion to deploy 100 gigawatts of clean energy by 2035, and at Cop27, they announced a joint-venture to build a 10GW onshore wind farm in Egypt capable of offsetting 23.8 million tonnes of carbon dioxide. The nation has demonstrated that it can deliver meaningful change from blue carbon sinks to district cooling to renewables, from adaptation to mitigation.
The UAE can ensure that Cop28 becomes a pivotal event for all nations, as it helps them reassess investment priorities, examine the green economy as a whole, and have a broader sense of the full spectrum of opportunities.
