European climate adaptation efforts are in a standstill due to insufficient financial backing
In an effort to boost private investment in climate adaptation projects across Europe, BBVA Research has proposed a four-pillar strategy aimed at creating an enabling environment for the flow of capital. This strategy aligns with BBVA’s wider sustainable finance goals, demonstrating their commitment to mobilising €700 billion in sustainable business by 2029.
Pillar 1: Strengthening Climate Data Infrastructure and Risk Evaluation
The first pillar of the strategy focuses on improving climate data infrastructure and enhancing risk evaluation. A lack of information on climate risks, changing regulatory frameworks, and difficulty in monetizing social and environmental benefits act as brakes on private investment in Europe. By addressing these challenges, BBVA aims to create clearer markets, attracting private investors and reducing investment risks.
Pillar 2: Transforming National Adaptation Plans into "Investable" Project Portfolios
The second pillar involves transforming national adaptation plans into "investable" project portfolios, done in collaboration with the private sector. This is achieved by creating a European climate data exchange center and a working group to standardize methodologies, definitions, and formats to align criteria between investors, governments, and financial entities.
Pillar 3: Innovating Financial Instruments and Market Mechanisms
The third pillar of the strategy involves adapting financial regulation and climate taxonomies, making regulations coherent, stable, and explicit to incorporate adaptation criteria. Additionally, BBVA proposes the creation and scaling up of dedicated financial products such as green bonds, resilience bonds, or blended finance solutions tailored to adaptation projects. These innovative financial instruments can help mobilize private capital by addressing barriers like upfront costs and long payback periods.
Pillar 4: Promoting Collaboration Between Public and Private Sectors
The fourth pillar is mobilizing capital through innovative financial instruments, with entities defining their risk appetite in terms of adaptation and using combined financing structures. This pillar emphasises the importance of facilitating partnerships and platforms for joint investment, helping in pooling resources, expertise, and sharing risks, thus encouraging private sector engagement in adaptation projects.
Without a solid financial strategy, Europe will struggle to adapt to the new climate ahead. The investment needed for the next decade for climate adaptation in Europe is estimated to be between $500 billion and $1.3 trillion. The current resources are insufficient, and the private sector lacks the appropriate incentives. In 2022, the total invested in adaptation globally was $150 billion, with 92% of that figure coming from public sources.
The European continent is advancing too slowly in its preparation for the effects of climate change. Global financing for climate adaptation doubled between 2018 and 2022, but remains insufficient to address the physical risks of warming. Adapting to climate change is no longer just an ecological issue, but an economic one, with Europe having the capacity, knowledge, and urgency, all that's missing is the will to align all the gears.
Solutions such as sovereign resilience bonds, adaptation-linked loans, or climate catastrophe insurance are highlighted as tools capable of providing stable long-term cash flows. If we don't invest in adaptation today, the cost of inaction tomorrow will be much higher.
BBVA’s four-pronged strategy based on best European practices aims to significantly increase private funding toward climate adaptation across Europe, addressing fundamental challenges such as risk perception, data gaps, financial product suitability, and stakeholder coordination.
- BBVA's four-pillar strategy for boosting private investment in climate adaptation projects aligns with their goal of mobilizing €700 billion in sustainable business by 2029, as part of their wider sustainable finance goals. This strategy includes enhancing the understanding of climate-change risks through science and environmental-science.
- In the second pillar of their strategy, BBVA aims to make national adaptation plans more appealing to investors by transforming them into "investable" project portfolios, a process that involves working with the private sector and creating standardized methodologies for evaluating such projects.
- To mobilize more funds for climate-change adaptation, BBVA proposes innovating financial instruments like green bonds, resilience bonds, and blended finance solutions, which can help address barriers such as upfront costs and long payback periods often associated with such projects. This strategy is integrated with their business model because it involves investing in projects that promote the welfare of the environment and society in general, thus contributing to a more sustainable future.
