One day, someone will develop a framework for the stages societies progress through in addressing complex challenges such as climate change—a bit like the stages of grief which starts with denial, moves to pain, then anger, and so forth. From the perspective of taking climate adaptation action, we have reached the stage of frustration, because over a decade of conversations has not resulted in any meaningful action, and the world is now more vulnerable to the impacts of climate than ever.
Conversations around adaptation financing tend to take one of two paths. In the first path are people who assume the virtues of the current system and seem to believe that there are simple solutions. We just need to get better at analysing and communicating. We just need to bring the right people together. We just need to mobilise capital. These problem frames neglect the interrelatedness of social and economic systems.
In the second path are people who promote radical system change. Capitalism is the problem! We must regulate access to private finance! These problem frames fail to appreciate the complexity of political processes.
In the Adaption Finance Project led by Climate-KIC Australia, we reached the frustration stage via the first path. Yet we learned some important lessons, which we are now seeking to leverage in developing a systemic investing prototype to foster regional resilience.
Lessons from the Adaptation Finance Project
Started in 2018, the Adaptation Finance Project has engaged people from sectors critical to the adaptation finance challenge, such as banking, insurance, and government. The needs were clear: deploy finance to reduce flood risks, water insecurity, fire risk, and the impacts of extreme weather events. There was great initial optimism that we could develop investment criteria, assess potential projects, and facilitate an investment strategy to both meet an urgent need and establish a template for future adaptation investment.
Despite the strong impetus to act, no projects were deemed investment-ready according to our assessment criteria. And no amount of modification of the criteria or supplementing data could create an investable business case.
The problem wasn’t the criteria or the data—it was the mismatch between the finance system with its focus on individual items of infrastructure and the nature of the adaptation challenge for which a collection of inter-related future impacts calls for a set of inter-related interventions.
What has now become clear is that we were asking the wrong questions. Scaling investment into climate change adaptation requires a paradigm shift from single-asset infrastructure projects to an approach designed to build adaptive communities and tap into the creative energy within communities where there is the knowledge, incentives, and collaborative capabilities needed to face the adaptation challenge.
The next iteration of the Adaption Finance Project will therefore start by posing a new set of questions, emanating from a systemic approach to investing:
The Australian Opportunity
In the next iteration of the Adaption Finance Project, we will set a vision, identify the points of strategic leverage, and attract catalytic investment. A number of attributes make Australia well-positioned to be a pioneer in developing and scaling systemic investing.
Firstly, the desire to see adaptation finance scale is palpable and aligned across multiple stakeholder groups. The risk of climate change to economic prosperity and quality of life is becoming increasingly evident across Australian society. The financial sector has been vocal in its support for progress, and local and state governments are starting to embrace resilience as a policy objective.
Secondly, Australia can tap into deep insights from rural and outback communities. For centuries, these communities have lived on the edge of climatic extremes and have innovated to adapt themselves. The frontier mentality they exhibit is intrinsically linked with the entrepreneurial mindset and problem-solving attitude of the Australian narrative. These communities have given us a head-start in understanding the acute environmental stressors that could grip our communities, urban and rural.
Thirdly, through Indigenous heritage and leaders, Australia has access to unprecedented knowledge of how to manage and adapt in this land. Aboriginal Australians continue the longest surviving culture in the world. The Indigenous heritage makes it evident that viewing the environment as the source of prosperity—and embedding this notion in the design of investment practices—might open up unexpected pathways for catalysing adaptation finance to tackle 21st-century problems.
Fourth, we believe that a critical stratum for catalysing systems transformation is the “meso” (or mid) layer. Attempting transformation at the macro-level (national or even state-level) is often too complex and politically contested while doing so at the micro-level (local, individual business/community) tends to lead to idiosyncratic solutions that struggle to scale beyond their initial testbeds without deliberate orchestration. Australia has a strong regional (meso-level) cultural identity in which the environment, economy and social cohesion are tightly integrated, and it has a history of regional transformations in response to external threats.
The Window of Opportunity to Invest for Transformation
The economic rebuilding after COVID-19 creates an opportunity for Australian governments, businesses, and the finance sector to spend millions, catalyse billions, and inspire trillions. Success will look like a coalition of savvy investors spanning the public and private sector and deploying their capital to drive productive, climate-adapted futures. This group will heed the lessons learnt from the Adaptation Finance Project and know that investing for productive, adaptive futures means that the rules of investing are going to have to change. Hence, this coalition of investors will be committed to developing their own version of systemic investing, taking the conceptual underpinnings of the TransCap approach as a starting point and adapting those to the specific needs of Australian regions.
What we know about transformation is that it happens at the meso or regional level. It is collaborative. It is accelerated by a clear vision. It stimulates creative "bottom-up" innovation that builds new and unexpected markets. The result of this approach is likely to include a transformational methodology that both harnesses the creative energy within communities and increases the confidence of investors.