A focus on market imperfections can help governments to mobilize private investments in adaptation

Pauw, Pieter; Kempa, L.; Moslener, Ulf; Grüning, Christine; Çevik, Ceren

doi:10.1080/17565529.2021.1885337

Cited by 8 publications

(9 citation statements)

References 22 publications

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“…The GCF has limited options to address market imperfections directly by modifying the market environment, for example, through policy and regulatory reform. The GCF is better suited to address the consequences of market imperfections, for example, through compensation, risk-sharing, and concessional approaches (see Pauw et al 2021;Druce et al 2016). While it was out of the scope of this paper to identify what the most effective ways are to address market imperfections, the GFC data do provide a clear connection between the engagement of the private sector and the three market imperfections that can directly be related to specific instruments used by the GCF and other entities engaged in adaptation (such as matching grant funds, technical assistance programs, risk sharing facilities, and other approaches introduced in Section 2.4).…”

Section: Conclusion and Discussionmentioning

confidence: 99%

“…This article will test the expectations of Druce et al (2016) and Pauw et al (2021) that addressing these market imperfections can increase private sector engagement in adaptation. In this research, "increasing" means that projects that address market imperfections score higher on the five-level ordinal scale of private sector engagement (see Table 1).…”

Section: Going Beyond Private Sector Financing Of Adaptationmentioning

confidence: 90%

“…The development of markets should aim to contribute to the overall welfare of society, including the most vulnerable-it is not an end in itself. In that sense, the focus on market imperfections is a call for a larger role of public actors (Pauw et al 2021)…”

Section: Going Beyond Private Sector Financing Of Adaptationmentioning

confidence: 99%

“…After having discussed a "seemingly endless" list of barriers to adaptation in general (Biesbroek et al 2013;1119), the literature later started to discuss barriers that specifically prevent private investments in adaptation from materializing (see e.g., Antwi-Agyei et al 2013;Biagini and Miller 2013;Trabacchi and Mazza 2015;Hallmeyer and Tonkonogy 2018;PCIR 2012), including financial, institutional, technological, and information barriers. As Pauw et al (2021) explained, the focus on these barriers has major limitations: they are descriptive rather than explanatory, and sometimes mix cause and effect and tend to focus on eliminating specific obstacles, rather than adapting efficiently.…”

Section: Introductionmentioning

confidence: 99%

“…Market imperfections create distortions in the risk/return profiles of investments and can result in under-investment (Cohen and Winn 2007). Three particularly relevant observed market imperfections that are inhibiting adaptation-related activities are as follows: positive externalities, incomplete or asymmetric information, and imperfect financial markets (Druce et al 2016;Pauw et al 2021).…”

Section: Introductionmentioning

confidence: 99%

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The mobilization of effective private sector engagement is considered to be critical to address the adaptation challenge, but literature demonstrates that it has proven difficult. In the context of international climate finance, the focus has been on mobilizing private finance for adaptation and in addressing barriers that prevent investments from materializing. In contrast, this article identifies options to engage the private sector in adaptation beyond finance and focuses on market imperfections instead of barriers. This moves the focus away from simply mobilizing more private adaptation finance towards identifying market forces that innovate, engage, and direct investments towards adaptation. The Green Climate Fund (GCF) and its portfolio of 74 adaptation projects serve as a case study. Two of these projects are categorized as private sector projects and an additional nine mobilize private co-finance or non-financial private contributions. Beyond these two indicators, we demonstrate that an additional 60 projects engage the private sector in other ways, thus indicating the important broader role of the private sector in adaptation. Furthermore, our ordinal regression demonstrates that by addressing the market imperfections of positive externalities, imperfect financial markets, and incomplete and/or asymmetric information, all have a significant positive effect on private sector engagement in the GCF’s adaptation portfolio. Both findings indicate that there is a large potential for the GCF—and other climate finance providers—to increase private sector engagement in adaptation. It must be noted, however, that the mobilization of private sector engagement in adaptation is a means to an end, not an end in itself. The main aim should be to adapt society as a whole in an efficient manner, including the most vulnerable groups and people.

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Section: Conclusion and Discussionmentioning

confidence: 99%

Section: Going Beyond Private Sector Financing Of Adaptationmentioning

confidence: 90%

Section: Going Beyond Private Sector Financing Of Adaptationmentioning

confidence: 99%