Failure to invest the bare minimum needed to withstand projected climate damage could cost emerging markets hundreds of billions in climate damages and lost GDP growth this decade, according to a new study by Standard Chartered.
The Adaptation Economy, which investigates the need for climate adaptation investment in 10 markets – including China, India, Bangladesh and Pakistan – reveals that, without investing a minimum of USD30 billion (around Ksh.3.7 trillion) in adaptation by 2030, these markets could face projected damages and lost GDP growth over 12 times that amount.
The projection assumes that the world succeeds in limiting temperature rises to 1.5°C, in line with the Paris Agreement.
In a 3.5°C scenario the estimated minimum investment required more than doubles to USD62 billion (approx. Ksh.7.7 trillion) and potential losses escalate dramatically if the investment is not made.
Examples of climate adaptation projects include the creation of coastal barrier protection solutions for areas vulnerable to flooding, the development of drought-resistant crops and early-warning systems against pending natural disasters.
Among the 10 markets in the study, India is projected to benefit the most from adaptation investment.
The market would require an estimated USD11billion (approx. Ksh.1.4 trillion) to prevent climate damages and lost growth of USD135.5 billion(around Ksh.16.8 trillion) in a 1.5°C warming scenario – equal to a thirteen-to-one return for the Indian economy of investment in climate adaptation.
Meanwhile, China could avoid an estimated cost of USD112 billion (around Ksh.14 trillion) by investing just USD8 billion (approx. Ksh.994.4 billion).
Kenya could avoid costs of an estimated USD2 billion (around Ksh.248.6 billion) by investing USD200 million (Ksh.24.8 billion) in adaptation according to the report.
Even if the world’s nations manage to achieve the goals of the Paris Agreement, measures to adapt to climate change must be pursued alongside the global decarbonisation agenda, with the banking sector having a critical role to play in unlocking finance.
The USD30billion investment required for adaptation represents only slightly more than 0.1 per cent of combined annual GDP of the 10 markets in the study and much less than the estimated USD95 trillion emerging markets require to transition to net zero using mitigation measures, as outlined in Standard Chartered’s Just in Time report.
The Adaptation Economy also surveyed 150 bankers, investors and asset managers and found that, currently, just 0.4% of the capital held by respondents is allocated to adaptation in emerging markets where investment is needed most.
However, 59% of respondents plan to increase their adaptation investments over the next 12 months.
And on average, adaptation financing is expected to rise from 0.8% of global assets in 2022 to 1.4% by 2030.
“This report makes it clear that irrespective of efforts to keep global warming as close to 1.5C as possible we are going to have to incorporate climate-warming effects into our systems and adapt to its reality,” Marisa Drew, Chief Sustainability Officer at Standard Chartered, said.
“All nations will need to adapt to climate change by building more resilient agriculture, industry and infrastructure, but the need is greatest in emerging and fast-developing economies with a disproportionate risk of exposure to the negative effects of rising temperatures and extreme weather.”