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A Strategy to Engage the Private Sector in Climate Change Adaptation in Bangladesh in Bangladesh Prepared by Asian Tiger Capital Partners Prepared for the International Finance Corporation September, 2010 1 Table Of Contents Executive Summary .......................................................................................................................................................3 Overview ........................................................................................................................................................................6 Defining the adaptation deficit ......................................................................................................................................9 The Potential Role of the IFC in Engaging the Private Sector in Climate Change Adaptation .....................................17 Purpose of the Report .................................................................................................................................................20 Assessment Methods/Stakeholder Consultations .......................................................................................................21 Implications and Consequences of Climate Change for Bangladesh ...........................................................................22 Climate Change Adaptation as a Source of National/Corporate Competitiveness .....................................................25 Climate Change and Agricultural Sector Opportunities...............................................................................................26 Climate Change, Water Management and Disaster Defences ....................................................................................29 Climate Change and the Insurance Sector ...................................................................................................................32 Case Study on Crop Insurance in India ........................................................................................................................34 Potential Strategies to Engage the Private Sector in Climate Change Adaptation ......................................................35 Knowledge: Improving the link between CC Science and Commercial Opportunities ............................................35 Learning from Global and Regional Success Stories ................................................................................................35 Outsourcing R&D in CC Adaptation .........................................................................................................................36 Consulting /TA resources to develop institutional capacity on CC issues in the private sector ..................................37 Concessional Financing for CC Projects ...................................................................................................................37 Grants and Concessional Loans ...............................................................................................................................37 Equity Financing through a BD Cleantech Fund ......................................................................................................38 Appendix 1: The Global Backdrop to Climate Change Adaptation Challenges ............................................................41 Appendix 2: The Bangladesh Climate Change Action Plan ..........................................................................................44 Appendix 3 – Flood Vulnerability in Bangladesh .........................................................................................................46 References ...................................................................................................................................................................47 2 Disclaimer: "This publication may contain advice, opinions, and statements of various information providers and content providers. IFC does not represent or endorse the accuracy or reliability of any advice, opinion, statement or other information provided by any information provider or content provider, or any user of this publication or other person or entity." Executive Summary As noted in the Bangladesh Climate Change Strategy and Action Plan, the combination of frequent natural disasters, high population density, poor infrastructure and low resilience to economic shocks, makes Bangladesh especially vulnerable to climatic risks. The high incidence of poverty and heavy reliance of poor people on agriculture and natural resources increases their vulnerability to climate change. The Government of Bangladesh (GOB) with the support of the major donor agencies has outlined a comprehensive strategy on tackling climate change. The effort has been spear-headed by a climate change cell set up within the Ministry of Environment and Forests. On a global basis, while Adaptation is still seen as more of a public sector focus than mitigation, some increased focus has been evident. The private sector should also be seen as a “supplier of innovative goods and services”. There is a clear need to meet the adaptation priorities of developing countries with expertise in technology and service delivery. The private sector has particular competencies which can make a unique contribution to adaptation, through innovative technology, design of resilient infrastructure, development and implementation of improved information systems and the management of major projects. There are future investment opportunities in adaptation in water resources, agriculture and environmental services. In agriculture, investment may be needed for developing irrigation equipment and technologies as well as fertilizers. Provision of clean water is another opportunity, requiring investment in water purification and treatment technologies such as desalination, and wastewater treatment technologies. Environmental services such as weather derivatives are also a possible area for investment Fewer than 5 per cent of households and businesses in developing countries have insurance coverage for catastrophe risks. Instead, such risks are dealt with by a mix of social networks and informal post-event credit. The absence of insurance stunts development because smallholders cannot risk investing in fixed capital or concentrating on profitable activities and crops for fear of losing them, and falling into debt. Thus, a critical task for the public sector will be to support the private sector in creating financial risk sharing and management approaches and 3 mechanisms that can be accessed by people in developing countries, especially LDCs, SIDS and countries in Africa, and help to reduce their vulnerability to the impacts of climate change. The greater involvement of the private sector is critical if Bangladesh is to prepare itself for both the challenges and opportunities of climate change. Relatively few companies in Bangladesh have yet considered both the impact of climate change on their existing activities, and perhaps as importantly, the new commercial opportunities that will emerge both domestically and globally. While much of this report underlines the benefit and importance of private sector engagement in the battle against climate change, the reality is that that in Bangladesh, for 99% of corporate Climate Change is perceived to be either an irrelevance or at best an extension of their Corporate Social Responsibility (CSR). This perception has been reenforced by the stakeholder consultations that were held as part of preparing this report. A key objective of this report is to assess why the private sector is so dis-engaged from the battle against Climate Change in Bangladesh and what policy measures, both by the Government of Bangladesh and also the development partners can be taken. One important constraint in private sector engagement in Climate Change projects, for both mitigation and adaptation, is the lack of capacity of financial institutions in both public and private sectors to evaluate projects. This lack of understanding of specific types of climate change investments and their risk profiles means that banks often find it difficult to develop and structure appropriate financial products. Most of the commercial banks in Bangladesh rely on short term deposits, and an asset-liability mismatch also limits their ability and willingness to structure financial products with the longer tenure that is typically needed for climate change investments. In terms of the initial feedback from different private sector stakeholders, a consensus theme was a concern that the bulk of climate change funding would be administered by the government with a lot of the implementation done by NonGovernment Organisations (NGOs). Hence there was little incentive or motivation for companies to commit scarce and valuable senior management time to consider opportunities in tackling Climate Change. However, in that context, there was strong support for the IFC project to come up with a specific strategy and modalities to more effectively engage the private sector in the PPCR programme. There was strong interest in concessional loans, grants, shared R&D expenditures. There was also little awareness of the massive market for service provision to the public sector as well in implementing adaptation projects. Another potential factor is what can be termed a “Critical mismatch” of long term and short term perspectives. Developing countries need to attract investments, particularly in key sectors like infrastructure, which take account of the long-term impacts of climate change. Commercial financial institutions, driven by prudence, tend to want to achieve high returns quickly from investment in highrisk developing countries, and tend to finance for relatively short periods. Another factor that came across in stakeholder discussions was the question of where responsibility lies for addressing climate change. Was it a public sector problem or should the private sector get more involved out of CSR objectives. The missing link remains a focus on the profit motive. In terms of future policy steps in Bangladesh, A few general concepts from the UNFCCC emerge which are useful as guidance: • The need to “pay the innovator”: As the carbon market provides incentives and rewards for innovation, finding ways of rewarding private sector actions which enhance adaptation will be necessary to massively upscale private sector engagement. • The need to fill information gaps and build awareness: An important first step in this regard has been supporting the efforts of developing countries to identify immediate adaptation priorities through the preparation of NAPAs. A next step may be to publicize these needs in a form that will encourage business engagement. The meetings we have had with companies in preparing this report highlight three key areas that need to be addressed: Overcoming Information Gaps: More effective communication of Climate Change issues and opportunities to key decision makers in Bangladeshi corporates. Senior management typically have not attended seminars that have been held and those that do find the information too generic. Broad based information dissemination needs to be supplemented by a more targeted approach. One on-on-one consulting and Technical assistance can be far more effective. 4 A Climate Change Cell or strategy unit should be set up in leading corporates to develop capacity and expertise in addressing opportunities. Regional and Global Success Stories: Another important potential tool to motivate the private sector is be more aware of successful and commercially viable investments and initiatives by other corporate in the region and indeed globally. The fact that well known Indian corporate are establishing large scale investments into climate change will give greater confidence as well as a template or business model that can be followed in BD. Changing the Economics of Climate Change Investments: This can be done on a number of fronts including the tax regime, low cost debt financing, equity investments and even sharing of R& D costs. We need a mindset shift in the corporate sector to understand that those companies that adapt to the profound impact of climate change will gain major competitive advantage versus those that don’t. One of the key messages to get across to both policymakers and corporates, is that the resources and strategies adopted to tackle climate change in both mitigation and adaptation can be a source of national and company level competitiveness. This was amply illustrated by a country such as Denmark that used the energy crisis triggered by a spike in oil prices in the 1970s to move away from the over-reliance on fossil energies. This in turn created new industries and export capabilities whereby now Danish companies are world leaders in products such as wind turbines. The IFC, as the commercial lending arm of the World Bank Group, is naturally one of the more private sector focused organisations among the development partners. In Bangladesh, they play an addition relevant role in managing the Bangladesh Investment Climate Fund (BICF) as well as the South Asia Enterprise Development Fund (SEDF). IFC already undertakes a number of Advisory Services initiatives that have (potential) climate resilience aspects. These include PPD (Private-Public Sector Dialogues), Cleaner Production, Sustainable Water Market Development, Water Foot-printing, Eco-standards and Inclusive Supply Chain, Forestry, Infrastructure Advisory, Green buildings/standards, Micro-finance, Insurance, Sustainable Investment, Community Investment, Investment Climate, Sustainable Energy. IFC's focus is to address key market barriers that prevent the private sector from playing its required role in adapting to climate change. The key barriers consist of a lack of capacity to assess and manage climate risk within private supply chains, and a limited understanding amongst companies of the potential commercial opportunities that arise as others seek to become more resilient. The IFC role may therefore be seen in two ways: • Increase the resilience of private sector companies to manage climate change impacts along their own supply chains. • Encourage the market for the provision of resilienceoriented goods, finance and services. Going forward, IFC is well positioned to convene and mobilize the wider private sector response. From an advisory perspective, the primary focus will be upon on the identification of sustainable business models that provide or encourage adaptive capacity, and encouraging commercial companies into the market through the provision of finance and capacity. It will also, however, involve supporting governments to create the correct regulatory environment for businesses to enter the market for adaptation services, much in the same way that IFC has addressed climate mitigation policy for the private sector. IFC is able to assess how climate change impacts upon business planning and investment cycles, and how to mobilize finance and knowledge for both large corporations and for those reliant on micro-finance scale solutions. There is little doubt that that the initiatives such as PPCR can play an important role in engaging the private sector across the areas of knowledge building, shared R& D and concessional finance. However, one very clear piece of feedback that came back from the stakeholder meetings was a concern from corporates that if Climate Change funding was administered by a government ministry then the bureaucratic procedures would make the operational of funds and the process of obtaining either loans or grants unwieldy. They highlighted the fact that the much vaunted PPP programme announced by the Honourable Finance Minister in the June 09 Budget, had yet to be operationalized more than 12 months later. In this context, it seems sensible to ear market and ring-fence separate funding for Climate Change Adaptation projects for 5 the private separate distinct from broader public sector funding. Within a $ 100bn economy where the private sector is the major player, we believe an initial $ 10-12 mn investment fund should be set up within PPCR, administered by the IFC. This might expanded as the project portfolio increases much as the IPFF energy refinancing has recently been increased as it gained greater demand and traction. They would offer concessional debt financing and potentially equity for private sector project proposals in the area of Climate Change Adaptation. This will need additional technical assistance in the area of project development. A Climate Change Business Incubator service should also be established, possibly in conjunction with a leading research centre at BUET to facilitate the commercializing of primary science and new innovations in Climate Change in Bangladesh. The IFC clearly have the potential to play an important catalytic role in the objective of engaging the private sector in Climate Change Adaptation by both managing a private sector focused fund as a sub-component of the PPCR as well as providing the critical technical assistance and project finance/development/management skills that will be important in ensuring funds are effectively utilized. Overview There is a growing scientific consensus on the impact of greenhouse gas (GHG) emissions on global warming as well agreement that it is causing increased weather volatility with the effects increasing in intensity in coming years. Warming may induce sudden shifts in regional weather patterns such as the monsoon rains in South Asia or the El Niño phenomenon - changes that would have severe consequences for water availability and flooding in tropical regions and threaten the livelihoods of millions of people. In addition, the melting or collapse of ice sheets would eventually threaten land which today is home to 1 in every 20 people. On a global basis, while Adaptation is still seen as more of a public sector focus than mitigation, some increased focus has been evident. in their July 2008 CEO Climate Policy Recommendations to G8 Leaders, the World Business Council for Sustainable Development and the World Economic Forum recognized that “adaptation to climate change is a critical challenge for all countries, particularly for poor countries that will be hit hardest and earliest, and for all business sectors.…The international business community is starting to develop products and services that can help with adaptation.…In partnership with governments, international business can do much more in this space, particularly if the economic case for adaptation activities or markets for adaptation products is further developed” The importance of private sector involvement in terms of “scaling up” or leveraging public sector capital has been summarized as follows: The World Business Council for Sustainable Development (WBCSD) and the World Economic Forum argue that “Even under the most optimistic scenario of donor commitments, public funds will be nowhere near sufficient to meet the investment requirements of a successful climate change strategy. The new framework must create mechanisms that catalyse much greater volumes of portfolio and direct private sector investment in climate change-related activities” (WBCSD and WEF 2008). “ Leveraging Private Sector Innovation The SEI (2009) report made the observation that the private sector should also be seen as a “supplier of innovative goods and services”. They noted that there is a need to meet the adaptation priorities of developing countries with expertise in technology and service delivery. The World Business Council on Sustainable Development suggests that private enterprise has particular competencies which can make a unique contribution to adaptation, through innovative technology, design of resilient infrastructure, development and implementation of improved information systems and the management of major projects (WBCSD 2008). Adaptation efforts will generate new business opportunities for the private sector. There will, for instance, be increased demand for water saving expertise, new medicines, cooling systems and other major infrastructure, as well as the insurance and risk management expertise which was discussed above. Actively encouraging this form of private sector engagement is of relevance to the UNFCCC because greater participation in the emerging adaptation “market” should foster innovation and theoretically lower the costs of adaptation. It should also increase the rate at which available adaptation funding is put to use. Delivery channels and mechanisms In terms of delivery, private suppliers pursuing commercial returns will seek out available markets. In this sense the adaptation funding channelled through the various GEF funds, the Adaptation Fund and other bilateral arrangements will provide the private sector with access to finance for designing, delivering and implementing goods and services that reduce climate risks. Finance to pay for private sector 6 expertise could also come from domestic budgets or large non-governmental organizations (NGOs) with their own financial capacity, usually backed by philanthropic capital. The UNFCCC (2007) suggests that actual financing of innovation (i.e. research and development) will vary by source in different sectors. Some sectors and activities will be funded mostly by the private sector (e.g. information technology and pharmaceuticals), while others will not be a priority for the private sector and hence require public funding (e.g. disease research). Where the financial benefit is internalized and can be harvested as profit will be of primary interest to the private sector. Private Sector Engagement in Climate Change in Bangladesh Remains Extremely Limited While much of this report underlines the benefit and importance of private sector engagement in the battle against climate change, the reality is that that in Bangladesh, for 99% of corporate Climate Change is perceived to be either an irrelevance of at best an extension of their Corporate Social Responsibility (CSR). This perception has been reenforced by the stakeholder consultations that were held as part of preparing this report. There have been some notable success stories in the area of mitigation, most notably the large scale roll out of rural solar systems which was a joint venture between Grameen Shakti, an NGO, and Rahimafrooz, a large local conglomerate as well as a CDM project by Waste Concern. However, these are the exceptions, not the rule. A key objective of this report is to assess why the private sector is so dis-engaged from the battle against Climate Change in Bangladesh and what policy measures, both by the Government of Bangladesh and also the development partners, can be taken Increased Need for Focus on Adaptation While there is a greater focus, particularly in the private sector, on mitigation opportunities in Climate Change, that opportunities to reduce GHG emissions, there is a growing recognition that increased focus and investment needs to be made in adaptation. Carbon dioxide and other greenhouse gases can remain in the atmosphere for decades to many centuries after they are emitted, meaning that today’s emissions will affect the climate far into the future. Due to this time lag, the Earth is committed to some additional warming no matter what actions are taken to reduce emissions now. With global emissions on the rise, adaptation efforts are necessary to reduce the cost and severity of climate change impacts for the next several decades. 7 The Pew Centre on Global Climate Change noted in their 2009 report that : “ Recent scientific research demonstrates that many aspects of climate change are happening earlier or more rapidly than climate models and experts initially projected. The rate of change projected for global surface temperatures, and related impacts such as ice melt and sea-level rise, is unprecedented in the history of civilization. Adapting to climate change will become that much harder and more expensive as changes happen faster, or on a larger scale, than expected.” The negative impacts of climate change will be disproportionately felt in the developing world in countries such as Bangladesh. This is because vulnerability to climate change is a factor of exposure, sensitivity and adaptive capacity. Exposure - Developing countries are the most exposed to climate change because they are already warmer, on average, than developed regions, suffer from high rainfall variability, and, endure regular climate extremes given the location of many developing countries in tropical areas. Vulnerability – Developing countries are heavily dependent on agriculture, the most climate-sensitive of all economic sectors, and suffer from inadequate health provision, lowquality public services, and build up of large slum areas. They have poor water-related infrastructure and management and often have inadequate early warning systems for extreme weather conditions. Adaptive capacity – The low incomes and vulnerabilities of people in developing countries make adaptation to climate change particularly difficult. Greater Clarity in Understanding Adaptation One of the challenges in terms of engaging the private sector in Adaptation is a lack of clear understanding of the concept itself. Some useful definitions of adaptation were outlined by the IPCC 2007 as follows: • Adaptation: “[a]adjustment in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or exploits beneficial opportunities. Various types of adaptation can be distinguished, including anticipatory, autonomous and planned adaptation . . .” • Adaptive capacity: “[t]he ability of a system to adjust to climate change (including climate variability and extremes) to moderate potential damages, to take advantage of opportunities, or to cope with the consequences”. • Vulnerability: “[t]he degree to which a system is susceptible to, and unable to cope with, adverse effects of climate change, including climate variability and extremes. Vulnerability is a function of the character, magnitude, and rate of climate change and variation to which a system is exposed, its sensitivity, and its adaptive capacity”. The Stern Review emphasises that much adaptation will simply be an extension of good development practice. Promoting overall development will help reduce vulnerabilities and raise the adaptive capacity of poor people. In addition to good development practice, incremental measures and actions will need to be taken to address specific risks (such as building higher sea-defences) and reduce vulnerability to the impacts of climate change. But a major role of governments in tackling climate change will be to ensure that the private sector has the tools and incentives necessary to adapt autonomously. The UNFCCC Report in 2008 (Investment and financial flows to address climate change: an update) noted that “The private sector, too, already invests significantly in many vulnerable sectors. Ensuring that private-sector investments help to reduce vulnerability and exposure to climate risks an contribute to effective adaptation can channel a large source of funding towards climate-resilient outcomes. In addition, the private sector can be engaged in developing and implementing financial risk management mechanisms, including insurance, that encourage more adaptive behaviour.” However, the estimates for the scale of financing needed for Climate Change Adaptation is massive and clearly underlines the necessity of leveraging private sector resources. The UNFCCC secretariat estimated the additional investment and financial flows needed worldwide to be USD 60–182 billion in 2030 (UNFCCC 2007a), some USD 28–67 billion of which would be needed in developing countries. The largest uncertainty in these estimates is in the cost of adapting infrastructure, which may require anything between USD 8– 130 billion in 2030, one-third of which would be for developing countries. The UNFCCC secretariat also estimated that an additional USD 52–62 billion would be needed for agriculture, water, health, ecosystem protection and coastalzone protection, most of which would be used in developing countries (UNFCCC 2007a). The World Bank (2006) concluded that the incremental costs of adapting to the projected impacts of climate change in developing countries are likely to be in the order of USD 9–41 billion per year, while Oxfam International (2007) estimated this number to be over USD 50 billion per year. UNDP made the most pessimistic estimate to date in suggesting that by 2015 the financing requirements for adaptation in developing countries could amount to USD 86–109 billion per year (Watkins 2007). The Stern Report notes that at higher temperatures, the costs of adaptation will rise sharply and the residual damages remain large. The additional costs of making new infrastructure and buildings resilient to climate change in OECD countries could be $15 – 150 billion each year (0.05 – 0.5% of GDP). We can get a feel for the costs by looking at the statistics on damage that are published by Munich Re and Swiss Re. For example, the chart below shows the Munich Re figures for large weather disasters from 1950 to 2005. Cost of great weather disasters 1950-2005 Costs in USD billion, 2005 values. Source: Munich Re. 8 Defining the adaptation deficit The EACC (2009) suggests that the Adaptation deficit has two meanings in the literature on climate change and development. One captures the notion that countries are underprepared for current climate conditions, much less for future climate change. Presumably, these shortfalls occur because people are under informed about climate uncertainty and therefore do not rationally allocate resources to adapt to current climate events. The shortfall is not the result of low levels of development but of less than optimal allocations of limited resources resulting in, say, insufficient urban drainage infrastructure. The cost of closing this shortfall and bringing countries up to an “acceptable” standard for dealing with current climate conditions given their level of development is one definition of the adaptation deficit (figure 2). The second, perhaps more common, use of the term captures the notion that poor countries have less capacity to adapt to change, whether induced by climate change or other factors, because of their lower stage of development. A country’s adaptive capacity is thus expected to increase with development. This meaning is perhaps better captured by the term development deficit. Source: Andalug Consulting The Potential Role of the Private Sector in Climate Change Adaptation There has also been a rapidly growing volume of research on the private sector implications of climate change, most notably by management consultancy firm McKinsey and Co, as well as a number of investment banks. It is critical that the private sector engage more fully and see the battle against climate change not as a burden or a form of taxation but rather the major economic opportunity of our generation. Why has Private Sector Interest in CC Adaptation in BD been so Limited? Mainstreaming Climate Change Adaptation Mainstreaming climate change is key - managing climate change should be integrated into policy like water management, disaster preparedness, or land use planning at every level of decision-making. to build local capacity and resilience in a way that links sustainable development, risk management, and adaptation for a win-win-win situation. This yields a “triple dividend” in the payback for the scarce resources that are available to invest, as shown in the chart below. Each dollar takes care of climate impacts, disaster recovery and economic growth. In addition, there may be opportunities to incorporate emissions reduction measures. 9 A Workshop Organized by DFID and the Forum for the Future in February 2007 (“Adapting to climate change in developing countries – what role for private sector finance? “ ) saw 60 delegates from the public and private sectors meet to debate the respective role of various stakeholders in tackling climate change. We believe it is valuable to review some of the feedback from the Workshop since there are also common themes relevant for all countries trying to increase private sector participation in the battle against climate change. We will then summarize some of the feedback we received in the stakeholder consultations in Bangladesh for this report. Some of the highlights from the DFID workshop include: “Critical mismatch” of long term and short term perspectives Developing countries need to attract investments, particularly in key sectors like infrastructure, which take account of the long-term impacts of climate change. Commercial financial institutions, driven by prudence, tend to want to achieve high returns quickly from investment in highrisk developing countries, and tend to finance for relatively short periods. While in some cases the private sector takes a longer-term perspective, the short term investment criteria that are normally adopted need to be reconciled in some way with the longer term perspective on the public good. By the time the risks become clear and imminent enough for private sector consideration, the costs of adaptation are likely to be substantially higher, for example in terms of retro-fitting protective measures. “I’ll do what I can, but it’s not my problem” Another interesting theme running through the discussions was the question of where responsibility lies for addressing climate change (and, more particularly in the context of this workshop, in adapting to climate change). Several of the private sector participants talked about “doing what we can to help out” and “supporting as far as possible within our profit-making mandate”. Some public sector participants took the view that business should do more through a commitment to “corporate social responsibility”. Others felt that, in terms of pure self-interest, business will need to evolve new business models which will deliver the best outcomes for the health of the global economy, to protect its long-term profitability. These different approaches depend to some extent on people’s perceptions of the knock-on impacts of climate change. Communication and coordination of efforts The participants agreed that climate change needed now to be integral to public sector and private sector policy-making at all levels and in all areas. A climate change filter should therefore be applied to all decisions to test out their robustness in the face of climate change. The importance of integrating policies for economic development, adaptation to climate change and disaster risk reduction – to secure the “triple dividend” was also seen as key. The public sector also has an important role to play in generating data and developing models, and making those available to the private sector, and in leading by example by screening investments against climate change. Protecting the most vulnerable The public sector can create incentives for private sector intervention and market-based solutions to the delivery of insurance or credit to reduce vulnerability. But there will be many of the very poorest who will simply not be able to meet the requirements of the market. Central to a successful combination of public and private sector interventions may be a structure which supports the most vulnerable while not 10 distorting the market incentives at higher income level and not preventing adaptation by the poorest where possible. Some recommendations on Private Sector Involvement in Adaptation UNFCCC (2008) made some of the following observations on potential private sector engagement in CC Adaptation: “The private sector can provide financial resources for adaptation through investments, financial risk management, the commercial provision of capital and the philanthropic provision of resources through private foundations. Private investments may play an important role in adaptation to climate change. All privately owned assets (e.g. buildings and agriculture land) and business practices (e.g. insurance, water management and agriculture practices) that are sensitive to climate change will have to be adapted to climate change. In terms of scale, the gross fixed capital formation16 of these investments in 2007 was USD 12.25 trillion. Even though many investments in climate-sensitive sectors come from private sources, it is unlikely that adaptation to climate change is a significant consideration. “ They also highlighted that in a recent study, Deutsche Bank identified future investment opportunities in adaptation in water resources, agriculture and environmental services. In agriculture, investment may be needed for developing irrigation equipment and technologies as well as fertilizers. Provision of clean water is another opportunity, requiring investment in water purification and treatment technologies such as desalination, and wastewater treatment technologies. Environmental services such as weather derivatives are also a possible area for investment (DB Advisors, 2008). Besides potential climate change impacts, baseline changes in the water and agriculture sectors will be very important for investors, as global water production is projected to increase by about 15 per cent over the next 20 years and cereal food production is projected to increase by about 25 per cent in the same period (DB Advisors, 2008). Other sectors such as human health are also likely to present investment opportunities (and risks) from climate change. However, the private sector will only provide investments for a specific rate of economic return. Below that rate, public investments remain essential. Furthermore, many of the investment opportunities are likely to occur in developed countries – in developing countries the public sector will remain paramount.