Enabling and financing locally-led adaptation (LLA)

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Introduction

The global community spends just USD 30 billion annually on climate adaptation. However, when you put this figure into perspective, it represents a mere 10% of the projected USD 387 billion required each year. Furthermore, a limited proportion of this funding actually reaches developing countries and finances locally-led initiatives.

Locally-led adaptation is key. The most effective adaptation measures are those tailored to local needs and implemented at the grassroots level. This localized approach not only captures the immediacy of climate change impacts, but also ensures strategies resonate with the community’s lived experiences. However, as with all strategies, certain barriers can impede progress, such as ecological and physical constraints, limitations in knowledge and resources, and social dynamics. Yet, despite these challenges, several standout characteristics define successful adaptation initiatives: a commitment to addressing the foundational causes of vulnerability, a drive toward community-led innovations, a strong inclination toward decentralized governance, a relentless focus on overcoming social barriers, and devolved finance.

This white paper delves into these defining features, outlining an approach to LLA planning and financing that involves local communities, governments, and the private sector.

Locally-led adaptation

Effective adaptation measures, tailored to local needs and priorities, have proven successful when implemented close to the affected communities through a combination of planned and autonomous adaptation. Autonomous adaptations are initiatives by private actors rather than governments, usually triggered by market or welfare changes induced by actual or anticipated climate change. In contrast, planned adaptation results from a deliberate and typically top-down policy choice made with the awareness of changing conditions.

According to a model combining both approaches, national governments and public funds provide the regulatory and policy environment, oversight, and finance for the initiatives with participation from philanthropies and the private sector. At the same time, subnational levels design, plan, and implement adaptation measures alongside affected communities.

A growing body of evidence has emerged on the drivers of successful locally-led adaptation and ways to overcome barriers:

1. Addressing drivers of vulnerability: Autonomous adaptation initiatives that address the root causes of vulnerability helped climate-exposed communities build resilience.
2. Community-led innovations: Local communities have developed successful and innovative solutions to adapt to the impacts of climate change.
3. Decentralized governance and administrative frameworks: The integration of climate change adaptation with decentralized governance and administrative frameworks can effectively scale up local adaptation measures.
4. Overcoming social and behavioral barriers: Overcoming social barriers to climate change adaptation enhances the resilience of climate-vulnerable communities.

Finance is the key (often missing) ingredient in locally-led adaptation

Many adaptation strategies remain top-down and are typically managed by donors, major intermediaries, and central governments. A study by WRI revealed that of 374 community- focused interventions, only around 6% incorporated local-led components, such as local decision-making. This highlights how the barriers to locally-led adaptation must be addressed urgently. Nonetheless, despite the recognition of the need for resources, how to finance locally-led adaptation is largely absent from the literature—a notable exception is IIED’s “The good finance guide for investing in locally-led adaptation”.

Insufficient financing hinders scaling localized solutions, capacity building, and technology adoption. It harms project sustainability and risks unequal distribution of adaptive capabilities across communities.

Strategies to boost funding for locally-led adaptation

Coger et al., 2021 note three high-level strategies to increase funding for locally-led adaptation:

1. Implement climate budget tagging: This tool should be used to pinpoint investments relevant to climate concerns. Governments should enhance current budget tagging methods and integrate tracking for local adaptation finance. This can be achieved using specific codes or weights that align with carefully defined quality metrics.
2. Conduct expenditure reviews: When expenditure reviews tag budgets, they focus on current budgets and analyze past spending. As many governments already employ various public expenditure reviews to blend climate finance into their plans, a similar approach can help trace finance allocated for locally- led adaptation. Previous efforts to use this approach offer important lessons (UNDP, 2015).
3. Use established policy and planning measures: Many nations already report country-level adaptation finance, which presents chances to include tracking for locally-led adaptation finance. Relevant activities might encompass surveys of regional climate actions, the National Adaptation Planning process, and the UNFCCC’s biennial finance overview.

The potential of devolved finance

Devolved climate finance, also called decentralized finance, can help address climate change at the local level in the following ways:

• Reach the most vulnerable: Devolved climate finance can help reach communities that need it most, so they can prioritize it to deliver solutions on the ground
• Integrate concerns around climate change adaptation: Devolved climate finance can integrate concerns around climate change adaptation into decentralized governance and administrative frameworks to scale up local adaptation measures
• Build an inclusive and sustainable local financing mechanism: The Decentralised Climate Funds project in Mali and Senegal builds an inclusive and sustainable local financing mechanism that encourages decentralized allocation of climate funds at the local level.
• Provide additional funding: Devolved climate finance can provide additional funding to help local communities adapt to climate change beyond existing development finance mechanisms.
• Redirect investment flows: Devolved climate finance can redirect investment flows from high-carbon projects toward climate-friendly opportunities and incentivize low-carbon investments.

The Devolved Climate Finance (DCF) Alliance presents a pioneering framework to channel investments into local public amenities and establish the right conditions for sustainable development. DCF operates on five foundational principles and seeks to address governance and climate challenges: Community-led planning; support for existing institutions; social inclusion; adaptive management and public goods focus.

At the same time, the implementation of devolved climate finance mechanisms can be challenging for several reasons:

• Fragmentation of climate finance: The devolution of climate finance can fragment funds and make it difficult to coordinate and monitor fund use.
• Compromised quality of existing budget data: The devolution of climate finance can lead to compromised quality of existing budget data and make it difficult to track fund use.
• Limited capacity at the local level: Local communities and governments may lack the capacity to access and manage climate finance effectively, which can hinder the implementation of devolved climate finance mechanisms. In response, UNFCCC has developed comprehensive guidance on how to identify capacity-building needs and gaps and build capacity at the local level.
• Lack of coordination: Devolved climate finance mechanisms require coordination among different levels of government, which can be challenging due to differing priorities and interests.
• Limited access to information: Local communities and governments may lack access to climate information and data, which can hinder their ability to plan and implement effective climate resilience measures.

The role of the private sector

International and national public sector funds alone will fail to provide the enormous sums of money required to support adaptation and build resilience among vulnerable communities across the globe. For example, the African Development Bank notes that “to close Africa’s climate financing gap by 2030, approximately USD 213.4 billion will need to be mobilized annually from the private sector to complement constrained public resources.” Currently, most current climate financing in Africa is from public actors (87%, USD 20 billion) with limited finance from private players.

Blended finance, which combines public and private sector investments, offers a promising avenue to reduce risk and the weighted cost of capital, and to leverage capital to catalyze innovation and market transformation, at scale. The public sector, which includes national governments and multilateral development banks, such as the European Investment Bank, can offer initial risk protection through investments, equity capital, or improved credit conditions. If development partners and multilateral banks focus on equity rather than debt, they can prevent increasing the debt load of developing nations.

While public finance is smaller in scale, it remains vital since policymakers can directly control it, and it funds public goods and services that the private sector may not support. When used correctly, public finance can boost private investment as it can promote markets, drive innovation, and minimize risk

One approach to locally-led adaptation planning and financing

This section outlines a strategy for integrating local communities into the planning, financing, and monitoring of development initiatives. It emphasizes the importance of building upon the experience and work of organizations like MicroSave Consulting and others that have developed participatory planning tools. The approach calls for a multi-faceted strategy that considers the regulatory and policy environment, the future impacts of weather and climate change, and the financial landscape at both international and local levels. It was designed to specifically address the following challenges:

1. How to integrate national regulatory, policy, and local governments’ planned adaptation measures into the participatory locally-led adaptation planning process?
2. How to establish feedback loops both to local the government and national policymaking agencies to inform and enable the scaling of locally-led adaption to improve public sector accountability?
3. How to ensure long-term climate and weather forecasts inform the participatory locally-led adaptation planning process?
4. How to identify ways to finance autonomous adaptation strategies through combinations of four types of finance: i. International or national climate finance funds; ii. Traditional financial service providers; iii. Digital financial service providers—often embedded within specific value chains; and iv. Community- based organizations and informal financial service providers?
5. How to establish robust governance and institutional arrangements?
6. How to scale LLA planning and execution so that all communities vulnerable to the impact of climate change are empowered and supported to adapt and achieve resilience?

Citation

Wright. G.A.N, Natu, A., Ghosh, P., Chamberlin, W., Dixit, A. (2023). Enabling and financing locally-led adaptation. White paper for the Elevating the Voices of Affected People working group of the CIFAR Alliance.