Innovative Financial Instruments and Their Potential to Finance Climate Change Adaptation in Developing Countries

Private sector investment is expected to play an important role in closing the current gap between available financing for adaptation and that which is required by developing countries. To date, however, the level of private sector financing in adaptation, particularly in developing countries, has been quite low. Innovative financial instruments have been cited as a means of overcoming this situation, but what is their real potential to spur greater investment in climate change adaptation?This report explores the range of innovative financial instruments that could be used to scale up finance for adaptation. Drawing in part on insights gained from case studies from Kenya, Nepal, and Peru, the report identifies four interconnected lessons regarding the use of innovative financial instruments for climate change adaptation in developing countries:Blended finance arrangements that bring together concessional public capital and private capital have been and will continue to be the means through which private finance supports many adaptation projects.