Lightsmith Group, a private equity investment firm based in the US, unveiled the first private sector investment strategy for climate adaptation and resilience this week at the COP23 climate conference in Bonn Germany.
The vehicle was supported with US$1.6 million in public funding from the Nordic Development Fund and the Global Environment Facility (GEF). Lightsmith’s clients invest in technology firms that specialise in weather volatility, operational risks and resource scarcity.
“This funding demonstrates the public sector’s commitment to working with the private sector to address climate change and its recognition of Lightsmith’s unique combination of investment expertise and government experience,” said Sanjay Wagle, managing director of Lightsmith, at the launch.
Developing countries exposed to natural disaster as a result of climate change do not receive the necessary financial support to build resilience and adapt to frequent extreme weather events.
According to estimates by the United Nations Environment Programme, the cost of climate adaptation for developing countries is set to reach US$300 billion a year by 2030. Non-profit data analytics group Climate Policy Initiative says that adaptation accounts for less than 16 percent of public climate finance.
Speaking to Development Finance in Bonn, Amal-Lee Amin, head of climate change and sustainable development at the Inter-American Development Bank (IDB), explained that part of the problem is methodological, in that national development banks still record finance for adaptation or resilience in small portions of infrastructure projects.
“Everything has to be resilient moving forward, but should we count a whole project towards adaptation finance? If we did, the numbers would be significantly larger over night,” she said.
Amin, however, said the bank is working with its private arm, IDB Invest, to scale up the financing of adaptation and resilience projects in Latin America.
“We’re working with Banco do Brazil, which is the primary agriculture bank, to help them understand their climate risk. With that methodology, IDB Invest can help move that forward into commercial banks in the region,” she added.
In 2013, the Nordic Development Fund and the Multilateral Development Fund, launched PROADAPT, a programme that aims to finance more small to medium-sized enterprises geared towards strengthening climate adaptation and climate resilience through infrastructure and data technologies. The fund is a member of IDB and supports private sector-led development in low-income countries with help of 39 donors.
Naoko Ishii, GEF’s CEO and chairperson, commented at COP23 on GEF’s US$1 million contribution to the fund, which he said demonstrates the correct role of the public sector in sharing prohibitive risks with private investors.
“I hope the new equity fund, the first of its kind for the GEF, can serve as an example of how to get more private sector capital into the resilience space,” she said.