Private Sector Opportunities in Climate Change Adaptation Projects
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Private Sector Opportunities in Climate Change Adaptation Projects
Indonesia potentially lose IDR 544.93 trillion by 2024 in four prioritised climate change adaptation sectors according to a report from Bappenas, if the Government doesn’t change adaptation mainstreaming in its program/activities. The Government of Indonesia (GoI) has allocated funds to address the challenges of climate change adaptation. According to the climate budget tagging by the Ministry of Finance, the fact unearthed that state could only cover 34% of the costs.
In order to fill the financing gap, it is crucial for Indonesia to crowd-in private finance. The private sector holds a key role in the development and implementation of climate projects due to their sector-specific expertise, technology, efficiency, financing, and entrepreneurship. Their involvement will play out to deliver a more desirable profile for being environmentally friendly and, more importantly, to develop a better business model suited to upcoming climate-related events.
Climate change adaptation itself can be regarded as a vast adjustment in human and natural systems in response to changing climatic variations. While these adaptation measures have not been widely explored, they are an integral part of the collective effort in tackling climate change. And through this occasion, private sector could exercise this opportunity to mitigate their business risks or develop business opportunities through climate adaptation projects.
To this day, private sector engagement in climate adaptation projects is considered to be quite limited, studi another research has pointed out the inevitability, necessity, and significance of private sector's broader participation on future adaptation projects. studi lainnya juga mengemukakan keniscayaan, kebutuhan, dan pentingnya partisipasi sektor swasta yang lebih luas dalam proyek adaptasi di masa depan.
It is clear, there are many gaps to be addressed. Therefore, the Fiscal Policy Agency, Ministry of Finance as the National Designated Authority (NDA) of Green Climate Fund in Indonesia, and the Global Green Growth Institute (GGGI) with the support from Global CAD conducted a study aimed at assessing appropriate provisions to encourage private sector engagement in climate change adaptation projects in Indonesia, the few findings of which could be found in the next parts of this article.
The threat of climate change to business operation
Through this study, it could be inferred that climate-related challenges could disrupt private sector operations, ranging from reduced water availability, lost cargo or interrupted distribution networks, to failed harvests. Observing the circumstances for the last few months, the COVID-19 pandemic has exposed how businesses and countries are vulnerable to a global-scale disaster, and one might wonder whether the world has to endure similar tragedy with climate change in the years to come.
In Indonesia, climate-related challenges usually take form in various hydro-meteorological disasters such as floods, landslides, sea-level rise, or drought. The public could recall the devastating impact of the massive flood in Jakarta in early 2020, estimated to cost various stakeholders up to IDR 5.2 trillion (Bappenas, 2020). Rp5,2 triliun (Bappenas, 2020).
Existing Private sectors involvement in climate adaptation approach
In point of fact, many enterprises and businesses have identified these climate challenges and established adaptation measures to ensure the continuity of their businesses. Such measures usually include risk assessments on a changing climate, despite not necessarily remarked as climate-related and rather as part of general risk assessment. bagian dari penilaian risiko umum.
Referring to various strategy documents such as the Indonesian Climate Change Sectoral Roadmap (ICCSR), RAN-API, and GCF Country Programme for Indonesia, this study chose three important adaptation sectors that can be explored, namely: water, agriculture, and health. In addition, these three sectors also contribute significantly to Indonesian GDP.
For example the health sector, there are two clear facts. First, climate change has increased the risk of certain diseases in Indonesia, such as diarrhea and dengue fever. The second one, it is common knowledge that the private sector is one of the biggest players in the industry, with rapid developments of private hospitals within cities. However, remote areas that are simultaneously hit with similar health-related issues would not be supplied by private hospitals, due to them being less attractive profit-wise.
In other instances, companies may also contribute through Corporate Social Responsibility (CSR) programs to better engage with the environment and community interests, around which the company operates. Unfortunately, studi di tahun 2017 menganalisa performance a 2017 study analysing the CSR performance of the 200 largest businesses in Indonesia shows that only 16% of the CSR programs directly address climate-related issues.
The study can conclude that private investment in these three sectors is still limited. Analysis cost-benefit found that investing in this area could not attract significant returns. There are also underlying causes, such as the private sector's lack of knowledge about climate change and the growing assumption that governments are solely responsible. In reality, semua pihak bertanggung jawab.
Why engage in Climate Adaptation?
Up until this point, by looking from the private sector’s point of view, a simple question that could come into mind is “What would be in it for the private sector to engage in climate change adaptation project?”. In response to that, this study identifies at least 3 reasons. The first would be to mitigate risks brought by climate-related disasters, which subsequently could help private institutions save money from potential losses.
While this may be a minor factor, the second argument is for image building brand positive. Environmentally friendly business operations will not hurt anyone and can actually strengthen the environment. brand company and contribute to a more resilient society.
The third reason to engage in generating revenues. Even though the consensus from the private community regarding this issue tends to be pessimistic, this study finds that there are opportunities when private sectors have direct engagement with climate adaptation-related business processes.
Financial scheme and opportunities for adaptation project
There are several instruments available for private institutions to engage in climate adaptation projects and gain financial benefits. They comprise of debt finance instruments, business conduct, and de-risking instruments, as seen in the picture below. de-risking, seperti yang terlihat pada gambar di bawah ini.
The following are brief descriptions and examples of each instrument.
Debt finance instruments – Public Private Partnership
Public Private Partnership (PPP) is the preferred scheme as there is a division of roles and responsibilities between the government and the private sector. In Indonesia, PPP projects in climate adaptation can be found in Umbulan, East Java, a project aimed at developing a water supply system for 13 million people in the Greater Surabaya Region. This PPP is a collaboration between the East Java Provincial Government and PT Meta Adhya Tirta Umbulan. The investment value of this project reaches Rp2.05 trillion and will eventually provide affordable clean water (Rp5,280/m3) kepada masyarakat.
Business conduct – Business continuity management
Business sustainability management has a good reputation in Indonesia as part of the due diligence process before obtaining loans from banks. In the context of climate change adaptation, businesses can practice it as part of a crisis management system. Bayer, one of the world's top chemical companies, has been using pendekatan yang serupa for climate change adaptation. They have developed a climate change risk matrix to help them anticipate future events. Through a similar matrix, adaptation considerations can be incorporated to ensure the efficiency of the company's operations. In the business ethics of sustainability, it is to include environmental risks in the process of business mechanisms, in the sense that it does not only include economic risks in business mechanisms.
Translated with www.DeepL.com/Translator (free version)
De-risking instruments – Insurance
Insurance can also be used as a tool for climate change adaptation efforts. An example of this is the pilot project of PT Asuransi Central Asia (ACA) in Dompu, West Nusa Tenggara that offers asuransi berbasis ganti rugi for the maize, rice and fisheries sectors. The project has covered thousands of hectares of land from all three sectors, with premiums paid by farmers of 3-10% of input costs per ha per growing season. Some claims have been successfully paid by ACA, even some from their own initiative as the risk was already incurred.
Moving Forward
Many challenges remain to achieve ideal private sector engagement in climate change adaption projects. For the government, there are three important tasks that need to be accomplished in the near future, namely increasing the awareness and technical capacity of various stakeholders in the sense of creating symetric information antara pemerintah dan swasta, memperbaiki kerangka regulasi dan hukum, serta memfasilitasi akses sektor swasta kepada dana.
For the private sector community, this study discovered that raising awareness within the private sector as an ideal starting point in climate adaptation mainstreaming. The awareness could serve as a starting point to actively engaged in climate adaptation-related projects.
The unexplored territory of generating profit in climate change adaptation projects will always be relevant. In fact, the NDA office can facilitate businesses to access the Green Climate Fund (GCF) financial window of private sector facility, which provides concessional instruments to de-risk project, develop market, and scale-up climate-related investments.
While this study has showcased various engagement models and instruments available which could be further utilised to improve private sector involvement in climate change adaptation projects, market is still in its infancy and nowhere close to the transformation that happened in the area of mitigation. To round off the necessary enabling as well as the infrastructure to access finance at the local and national level, it is imperative for markets and key stakeholders to respond appropriately with the enablers initiative by policymakers. Furthermore, corporate policy should also shift towards a sustainable paradigm. So they can have an active role in climate adaptation activities, an ecosystem that enables the role need to be put in place.
The much-needed ecosystem will encourage all necessary actors, including public, private, and civil society, to collaborate in constructing and achieving a climate-resilient nation.
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