The agenda for COP27 in Egypt this year, which began November 6, is set for targeting the critical question on climate finance. The negotiations can mark an important year for the Global South, given that these countries are the most vulnerable to climate change.

According to the World Bank, India bears losses worth $9.8 billion each year as a result of extreme events, with floods alone accounting for 50 per cent of the damages. In 2020, floods led to damages equivalent to 0.15 per cent of the country’s GDP in addition to thousands of lives being lost or impacted. With its updated Nationally Determined Contributions (NDC) this year, India has set targets on improving climate adaptation.

To achieve this, mobilising more finance from both domestic and international sources is a priority. However, this can be a major challenge because international support is skewed towards mitigation projects. Moreover, the modalities of financing mechanisms have seen a shift from grants to loans.

It is necessary to find alternative means of leveraging local financing opportunities to build resilience and continue the trajectory of growth despite the increasing uncertainties due to climate change.

From the private sector, CSR allocations can be reimagined as adaptation finance. In a study by KPMG, the top 100 companies in India in 2018-19 spent approximately $1.06 billion towards CSR initiatives.

As much as 20 per cent of the total funds were channelled towards adaptation activities in India in the 2020 financial year. Given that the industrial sector is the second largest contributor to India’s GDP, the majority of CSR funds stem from here.

Hitherto, CSR funds have focused on developmental goals rather than climate adaptation.

The industrial sector is the second highest user of freshwater in the country. To address the risk of decreasing water availability, the sector is currently striving to secure its resources by investing large amounts of CSR funds in watershed programmes such as rainwater harvesting in addition to water recycling and reuse.

Often these actions are directed by context-based targets that represent the most critical challenges of the environment where businesses are embedded. Therefore, the nature of the initiatives mostly remain local.

However, they have limited benefits at a watershed scale. For example, an increase in the local water table can encourage farmers in the region to take up intensive farming at the cost of downstream flows. Also, rainwater harvesting is a weak value addition to many existing government-led watershed projects. These are major limitations with the current approach at a time when industries continue to be threatened by the impacts of climate change, in particular, increasing variability in water availability (floods and droughts). There is a potential to address climate adaptation but it will require industries to pool finances.

In aggregate, CSR funds potentially represent the third largest pool of climate finance after government spending and multilateral financing. But current fragmented efforts are ineffective. For climate adaptation measures that involve securing a common pool resource like water, corporations would need to act collectively for ‘net water positive’ outcomes — this can ensure that the total abstraction of water does not exceed the available renewable water resource.

The benefits of such a collective approach are considerable. By securing the resource base, everyone benefits. From the industries’ point of view, they could reduce risks to their own water supply in the present and the future, and also achieve higher ESG ratings.

Collective action

Water credits are one mechanism to drive collective action toward common adaptation goals.

Water credits represent a fixed quantum of water that is conserved or generated and can be transacted between water deficit and water surplus entities within a sub-basin. The concept of water credits is similar to carbon credits; however, unlike the atmosphere, the spatial limit for transaction should remain within the same hydrological unit — that is, a river basin or watershed.

For example, multiple industries can offset their impact by buying water credits from municipalities that are fund-crunched to finance large-scale floodwater harvesting or wastewater treatment projects that conserve freshwater resources at a city level and promote wastewater reuse.

This also means that the adoption of water credits would require a multiplayer approach. Its implementation would need a systemic-level intervention to include regulatory players and local governance institutions for water resources as well as sustainability advocacy groups and industry leaders.

We need innovation in adaptation finance to achieve water resilience.

As a country, we need to fundamentally re-evaluate our priorities towards climate change by striking a better balance between mitigation and adaptation efforts. This is also one of the objectives of the Glasgow-Sharm el-Sheikh work programme on the Global Goal on Adaptation.

This programme focuses on facilitating national-level adaptation goals that will ultimately feed into the Global Stocktake at COP28 in 2023, where country goals will be evaluated against the 1.5o C target. Channelling CSR funds more effectively towards climate adaptation may provide a new source of climate finance.

Jalan and Deodhar are researchers at the Centre for Social and Environmental Innovation at ATREE, Bengaluru