The UN climate talks, COP29, is well underway, and countries have entered final negotiations on the New Collective Quantified Goal (NCQG), a new climate finance goal to boost funding for climate action in developing countries. Reaching agreement on the goal may be difficult in the face of the U.S election results, but it remains an urgent priority. 

One glaring finance gap that we need to address in the new goal is finance for climate adaptation. Adaptation is how governments and communities prepare for and adjust to the impacts of climate change. It’s about making changes to reduce or prevent the harm caused by climate impacts like rising sea levels, more frequent storms, and hotter temperatures. 

According to a new report from the United Nations Environment Programme (UNEP), adaptation needs are not being met worldwide. Developing countries will need $215 billion per year over the next decade for their adaptation priorities, from building climate resilient infrastructure to restoring ecosystems. Yet international finance flows for adaptation were just $28 billion in 2022 – an increase over prior years, but nowhere near enough.  

Transformational adaptation requires closing the finance gap and maximizing the impact of every dollar. 

Where is the world falling behind on adaptation? 

Many developing countries are particularly vulnerable to climate change impacts, and the good news is that they are prioritizing efforts to build resilience. UNEP’s Adaptation Gap Report found that 87% of countries have at least one national adaptation planning instrument in place, compared to around just 50% a decade ago. These instruments include National Adaptation Plans (NAPs) and other strategies or policies that guide adaptation. 

Now time for the bad news: although planning has improved, there is a growing gap in implementation as countries lack the necessary finance to meet their objectives. Adaptation has consistently been underfunded compared to mitigation, and while developed countries are working to double adaptation finance, the current $28 billion in annual flows represents just 13% of the $215 billion needed annually. 

[Source: UNEP Adaptation Gap Report 2024] 

The lack of finance for adaptation has serious implications for many developing countries, especially small island states which urgently need international support to strengthen resilience. For example, the Caribbean nation of Dominica is installing early warning systems to improve preparedness and reduce the impact of future hurricanes, but by 2023 they had only installed three systems and need 50 more to adequately cover the island. Without sufficient adaptation finance, the country will remain highly exposed to sudden climate shocks. 

This finance gap is further complicated by limited private sector engagement in adaptation. UNEP finds that many transformational adaptation projects are seen as risky by private investors, due to their longer time frame for benefits and less clear return on investment. Private finance does flow to projects in infrastructure and commercial agriculture, but often not without efforts by the public sector to de-risk investments. 

It is not surprising that two-thirds of adaptation financing needs are anticipated to be financed by the public sector. But the quality of public finance for adaptation has room for improvement as well. 62% of public finance for adaptation is delivered through loans, of which 25% are non-concessional, or at market rate with no favorable terms. And the use of non-concessional loans for adaptation in most vulnerable countries has actually increased in recent years. These tools have the potential to drive up the debt burden in developing nations which are already struggling to pay the bills. Expanding grant and concessional finance will be important to mitigate these challenges. 

How do we unlock quality adaptation finance? 

The Adaptation Gap Report suggests that filling the finance gap will require several enabling factors that can unlock new finance flows. Notably, in EDF’s new report ‘Quality Matters: Strengthening Climate Finance to Drive Climate Action,’ we identify similar strategies as we call for structural reforms within the international climate finance system. Three key recommendations overlap in both reports. 

First, countries need to mainstream their climate objectives and adaptation goals within national planning and budgeting processes. This integration should be paired with robust stakeholder engagement that systematically includes subnational authorities, marginalized groups and potential implementing entities in the planning process. Doing so will better align adaptation activities with other national priorities and create more fundable projects. Moreover, planning processes should emphasize project evaluation and evidence gathering to better understand what interventions are most impactful and maximize the potential of climate resources. 

Second, countries should adopt investment planning approaches to climate action. Specifically, they should work to develop a pipeline of bankable projects that can meet the objectives within their NAPs and other planning instruments. This can help attract investors to projects and ensure successful implementation of adaptation plans. 

Third, multilateral financial institutions including multilateral development banks (MDBs) and climate funds need to undergo structural reform to improve the quality of finance. The MDBs are currently pursuing reforms to become better fit-for-purpose for addressing the climate crisis, and at COP29 they jointly announced that their collective climate finance will reach $120 billion by 2030 – though only $42 billion will be dedicated for adaptation. Improving the balance between mitigation and adaptation finance will be important to ensure that developing countries’ priorities don’t go unfunded. Additional actions these institutions can take include strengthening the concessionality of terms for adaptation projects to alleviate debt burdens and spark new blended finance opportunities, and leveraging innovative instruments like adaptation swaps which can foster positive adaptation outcomes in exchange for forgiving debt. 

The NCQG is an important milestone which has the potential to advance action on these reforms and strengthen adaptation finance flows. Alongside supporting a strong quantitative goal, countries should call for improvements in the quality of finance, to ensure that finance for adaptation projects is available, accessible, concessional, and impactful. 

Rachel Reeves has told City bankers attending her Mansion House speech that regulations put in place to protect the economy after the global financial crisis had “gone too far”.

Speaking at the glitzy annual gathering in the Square Mile on Thursday, the chancellor called the financial services sector the “crown jewel” of the UK economy.

She argued that tighter rules on banks and investment institutions after the 2007-8 crash had created “a system which sought to eliminate risk-taking”.

“While it was right that successive governments made regulatory changes after the global financial crisis, to ensure that regulation kept pace with the global economy of the time, it is important that we learn the lessons of the past,” Reeves said.

“These changes have resulted in a system which sought to eliminate risk-taking. That has gone too far and, in places, it has had unintended consequences, which we must now address.”

The last Labour government had encouraged the City regulator to take a “light touch” approach to regulating the financial services sector, but was then forced to step in and bail out a string of banks when the US sub-prime mortgage crisis prompted a catastrophic chain reaction.

At the time, regulators were accused of failing to rein in the risky behaviours that had led to the crisis, which plunged the UK into recession.

But Reeves suggested she now believed it was time to loosen some of the constraints that were subsequently imposed on the sector.

“We cannot take the UK’s status as a global financial centre for granted. In a highly competitive world we need to earn that status and we need to work to keep it,” she said.

The chancellor set out a series of changes, some of which were proposed by her immediate predecessor, Jeremy Hunt. These include obliging regulators to take into account growth, as well as financial stability; and replacing the current “certification” regime for investment professionals, with a “more proportionate approach”.

The Financial Conduct Authority has already announced plans to streamline its rulebook for firms to reduce compliance costs, in the hope of promoting growth.

Reeves believes that bolstering private investment is key to improving the UK’s growth rate. She has also announced plans for a mega-merger of public sector pension funds, in the hope of unleashing capital to back UK infrastructure projects.

The chancellor is keen to stress Labour’s pro-business credentials after her first budget, which increased employer national insurance contributions (NICs) from April.

The Bank of England governor, Andrew Bailey, also addressed the Mansion House dinner, stressing the UK’s longstanding support for free trade, as Donald Trump prepares to slap US tariffs on imports.

“I will own up to being an old fashioned free trader at heart. It’s a British characteristic, I like to think. My point is this: amidst the important need to be alert to threats to economic security, let’s please remember the importance of openness,” Bailey said.

Economists have said that if Trump goes ahead with his plan for a universal tariff of 10% on all imports, it could cut the UK’s growth rate next year to a sickly 0.4%.

Donald Trump has long promised his evangelical base he will undo the Johnson amendment, allowing churches and other non-profits to weigh in on and donate to political campaigns – and his path to doing so is now clearer than ever.

A provision of the tax code since 1954, the Johnson amendment prohibits all tax-exempt non-profit organizations from making political endorsements in – or offering monetary support to – political campaigns. If the president-elect succeeds in overturning it through any of a few available methods, experts say it could have the profound effect of opening up a flow of dark money into politics.

“I think it’ll have as big, or a bigger impact than Citizens United,” said Andrew Seidel, a constitutional attorney and expert on Christian nationalism. “I don’t think people are fully prepared for a country in which churches can accept tax deductible donations in the billions of dollars and then turn around and use that money for partisan politics.”

With a likely narrow majority in the US House of Representatives and the Senate, Trump has multiple avenues to challenge the provision. He could try to push Congress to take legislative action. He could attempt to unwind parts of the provision through executive action, an approach that would likely be subject to litigation. Or, he could involve the Department of Justice – which he has vowed to mobilize politically – in a key, ongoing Texas lawsuit threatening the law.

During Trump’s first term, he failed to deliver on his promise to destroy the amendment. Congress failed to roll back the regulatory measure and in an executive order gesturing at the issue, Trump only advised the treasury to take a lenient posture on the political speech of clergy – “to the extent permitted by law”.

Now, with a lawsuit filed in Texas making its way slowly through the courts, Trump has yet another avenue to chip away at legal limits on churches’ political activity. The complaint, filed against the IRS by National Religious Broadcasters, two Texas churches and the group Intercessors for America – whose mission includes a “call for godly government” – seeks to find the Johnson amendment unconstitutional.

It claims that churches are subject to “unique and discriminatory status” under the tax code and that the IRS “operates in a manner that disfavors conservative organizations and conservative, religious organizations” in enforcing the law.

Named after its author Lyndon B Johnson, the Johnson amendment is inserted into section 501(c)(3) of the tax code to prevent certain non-profits from “participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office”. The law also notes that “contributions to political campaign funds” would “clearly violate” the provision.

Some churches already flaunt the law’s requirement to refrain from endorsing political candidates – a trend that the Texas Tribune has documented. Repealing the Johnson amendment would allow churches to go further, including potentially donating to partisan causes. Because churches, unlike other non-profit organizations, are not required to file 990 forms disclosing key financial information to the IRS, such an arrangement would allow for little public oversight.

Representing National Religious Broadcasters on the complaint is Michael Farris, the former CEO of the powerful rightwing legal outfit Alliance Defending Freedom and a driving force behind the “parental rights” movement, which seeks to limit schools’ ability to teach about race, gender and sexuality in the classroom. Like the conservative “parental rights” movement, the push to do away with the Johnson amendment could chip away legal barriers separating church and state.

In the short run, overhauling the provision could, Seidel said, allow churches to function effectively as Super Pacs, accepting tax-deductible donations from politically-motivated donors and channeling them into political causes. Such a scenario could, Seidel cautions, force churches to subject themselves to the same financial disclosures that Super Pacs face.

“The church could be the subject of litigation, but then again, who’s going to be running the IRS? Who’s going to be enforcing that?” said Seidel. “It’ll be the Trump administration.”