Bonds and Insurance for Resilience
By Salvatore Cimino
Innovative financial tools are emerging as crucial mechanisms to accelerate climate adaptation, moving beyond traditional funding to build more resilient communities and ecosystems.
At the 7th biennial European Climate Change Adaptation Conference (ECCA2025) in Rimini, Italy, the "Scaling Innovative Adaptation Finance Solutions: Transference of Financial Structures and Instruments" session delved into groundbreaking approaches to finance climate adaptation. Chaired by Gloria Salmoral, the discussion moved beyond conventional methods, highlighting practical solutions that are unlocking significant public and private investment.
A key theme explored was the innovative use of financial instruments. A compelling case for Environmental Impact Bonds was presented, citing the success of Hampton, Virginia in the United States. Faced with rising tides and insufficient traditional funding, the city issued the US's first small-city Environmental Impact Bond, raising $12M for green infrastructure. "Investors were not just financing urban infrastructure," it was explained, "they were buying outcomes: measurable reductions in flooding and pollution." This model demonstrates how cities can attract global investors by linking financial returns to tangible environmental benefits.
The role of insurance was also highlighted as a proactive financial tool, not just compensation after disaster. Discussions covered how innovative insurance solutions, including risk transfer and reduction incentives, can finance nature-based solutions. An example from Valencia, Spain, showed how an insurance mechanism aims to support the conservation and restoration of a wetland, enhancing its capacity to buffer extreme climate events. This approach illustrates how insurance can actively fund and protect ecosystems offering natural climate defences, paving the way for large-scale replication.
Public-Private Partnerships and Fiscal Innovation
Bridging the adaptation gap requires significant private sector involvement. Insights focused on the complexities of mobilizing private finance for local governments and communities, emphasizing the need to address recurring challenges like uncertainty, risk allocation, and organizational cultures in Public-Private Partnerships (PPPs).
New fiscal approaches also hold immense potential. A fascinating case from Maspalomas in the Canary Islands illustrated how existing fiscal regimes can be leveraged for climate adaptation. The aim there is to involve the private sector in financing Nature-Based Solutions (NbS) by utilizing fiscal and financial incentives, demonstrating how tailoring financial structures to local contexts can unlock private investment for critical ecological projects.
Payments for Ecosystem Services
Finally, the session explored Payments for Ecosystem Services (PES) as a voluntary approach to finance environmental protection. It was detailed how PES mechanisms establish contractual agreements between beneficiaries and providers of environmental services. The ECCA2025 host Emilia-Romagna region in Italy provided a compelling public PES example, where a portion of water tariff income is dedicated to safeguarding groundwater recharge areas in mountains. This innovative regional regulation funds sustainable forest management and stream maintenance, delivering co-benefits like carbon absorption and biodiversity preservation.
Key Takeaways and Remaining Challenges
The session concluded with an insightful discussion on the practicalities and challenges of scaling these innovative financial solutions:
● Environmental Impact Bonds: While promising, many cities, especially in Europe, face capacity and regulatory barriers in issuing these bonds. Investors are interested in avoiding ‘greenwashing’ but the additional costs of external consultants remain a concern. Comparing the ‘cost of inaction’ to private financing costs might help persuade public authorities, with leading public banks potentially signalling market confidence.
● Innovative Insurance Solutions: The shift from reactive to active insurance requires understanding risks as a crucial first step. New solutions must be widely applicable, and overcoming various implementation barriers is essential.
● Public-Private Partnerships (PPPs): Merging PPPs with Nature-Based Solutions is challenging due to regulatory hurdles and the need to invest in diverse projects. Success hinges on partners developing actual solutions together, not just securing finance.
● Tax Incentives: While effective in smaller contexts like the Canary Islands, scaling tax incentives to larger regions presents challenges, including potential competitiveness issues. The benefits of reduced costs for public and private entities must be weighed against overall investment impacts.
● Payments for Ecosystem Services (PES): A major concern for investors remains quantifying the actual benefits of their investments. Engaging stakeholders, demonstrating the real profitability of projects, and ensuring transparency are critical for the broader adoption of PES mechanisms.
The discussions underscored that scaling adaptation finance requires creativity, collaboration, and a willingness to explore beyond traditional boundaries. ECCA2025 continues to foster these crucial dialogues, building momentum for climate-resilient futures.
Chair
Gloria Salmoral (Icatalist/MIP4Adapt)
Speakers
Marco Carreira Silva (World Climate Foundation/CLIMATEFIT)
Elena Lopez Gunn (Icatalist/SOTERIA)
Federico Aili (Resilient Cities Network/REGILIENCE)
Najla Kamergi (UT-SEMIDE/CARDIMED)
Oihana Luque (Icatalist/NATALIE)
Alessandro Bosso (ART-ER/ARCADIA)
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