By many accounts, Thailand consistently ranks among the most vulnerable countries in the world to climate change. The oft-cited Global Climate Risk Index by GermanWatch ranked Thailand’s long-term climate risk in 2021 as 9th in the world.
Thailand is one of the 10 most flood-affected countries in the world, and the risks it faces are expected to increase. In Thailand, “the number of people affected by an extreme river flood could grow by over 2 million by 2035–2044, and coastal flooding could affect a further 2.4 million people by 2070–2100”, according to the 2021 climate risk country profile, published by the World Bank and the Asian Development Bank.
Climate change not only threatens all key sectors of Thailand’s economy, but its critical infrastructure in many areas is highly exposed to worsening climate scenarios, particularly the risks of heat stress, more intense and frequent floods, and land subsidence.
As one of the world’s most unequal countries in terms of income and wealth equality, what is more worrisome is that vulnerable groups in Thailand are likely to be the most disproportionately affected by climate change. Rural communities still dependent on agriculture and already saddled with high debt will face increased risks of crop damage and lower yields from floods and/or droughts, low-income urban residents face increased risk of property damage and loss of livelihoods from floods, and low-pay workers who work outdoors face increased risk of health hazards from higher temperatures.
These potential climate impacts have clear implications on the health and wellbeing of the populace, and the income inequality and economic competitiveness of the country means that Thailand needs significant financing for climate adaptation. Such “adaptation finance” should be considered worthwhile investments, not expenses, since its purpose is to help avoid or reduce climate change’s social and economic impacts.
Financing this adaptation to climate change is complex because successful activities are highly context-specific — financing better disaster preparedness requires a different approach from financing climate-smart agriculture, for example. However, we can estimate the overall scale of adaptation financing needed by looking at potential losses and damages from climate change. In 2021, for example, the Climate Economics Index of insurance giant Swiss Re estimates that Thailand’s cumulative losses from climate change could amount to 19.5% of GDP by 2050, up from the 2018 level, if the world’s average temperature rises 2C, and 42.6% of GDP under a 3.2C rise.
Given Thailand’s 2018 GDP of US$507 billion (17 trillion baht), the 19.5% cumulative loss estimate under the 2C rise scenario translates to $99 billion between 2018-2050. Adaptation investment totalling less than this amount is, therefore, worth making if it can help avoid such losses. Given the volatility and uncertainties inherent in climate risks, a precise calculation may be impossible, but this kind of ballpark estimate is still helpful in gauging the size of adaptation finance that would be needed.
The amount of climate adaptation finance in Thailand remains minuscule compared to the financing needs. For an ongoing research project, our research team at Climate Finance Network Thailand (CFNT) compiled publicly disclosed data from different sources of funds and found that the total financing in Thailand that went into climate adaptation activities between 2018-2024 amounted to only 14 billion baht, most of which was spent by the government in various conservation projects (which helps reduce climate change impacts on ecosystems), promoting climate-smart rice farming with support from the Green Climate Fund, flood diversion canals, and disaster risk reduction programmes.
Thailand is not alone in facing a significant financing gap between climate adaptation needs and actual investments. The Adaptation Gap Report 2023 by the UN Environment Programme (UNEP) estimates the current adaptation finance gap worldwide at copy94-366 billion per year. The report suggests several ways to increase adaptation financing, including “domestic expenditure and international and private sector finance. Additional avenues include remittances, increasing and tailoring finance to small and medium enterprises, and reforming the global financial architecture. The new Loss and Damage fund will also need to move towards more innovative financing mechanisms to reach the necessary scale of investment.”
Meanwhile, in September, the Global Innovation Lab for Climate Finance, or “the Lab” in short, launched a report titled “A Decade of Climate Finance Innovation: Impact Lessons from the Lab”. The Lab was founded in 2014 by the UK, German, and US governments as a global public-private initiative to “identify, design, and support the piloting of new climate finance instruments with the aim of unlocking billions of dollars of fresh private investment for climate change mitigation and adaption in developing countries”. Members of the Lab include leaders from governments, pension funds, investment banks, project developers, and development finance institutions. During its first decade, the Lab’s portfolio of climate finance solutions has mobilised over $4 billion through 78 innovative financing instruments in emerging markets around the world, including copy.6 billion from the private sector.
I believe the Lab’s success stories in spurring private investment in climate adaptation are highly instructive and applicable for Thailand. Thailand needs the private sector to engage in climate financing. Despite the country’s well-developed and sophisticated private sector, financial markets, and financial institutions, the involvement of the private sector and private financial institutions in adaptation financing has been nearly nonexistent.
I pick three of these strategies depicted in The Lab’s report and rank them in the order of urgency that I believe suits Thailand’s context.
1. Capacity-building reduces pipeline risk and creates investment incentives.
Many promising climate adaptation projects in Thailand are conceived and run by government officials, civil society and philanthropic organisations or local community members. They, or people who assist them with access to finance, need more technical skills to create and maintain monitoring systems to measure and report climate adaptation outcomes.
They also need certain financial know-how to secure loans and manage climate adaptation finances. Funders, especially grant-based, should provide technical assistance for the entire duration, ranging from initial planning to ensuring that projects can be operated and monitored in the long run.
Access to credible and actionable climate risk data, particularly water stress maps and heat stress maps under different climate scenarios, is among the first steps that are necessary to incentivise private investment in climate adaptation since companies will be spurred to action if they see more clearly how climate change will likely affect their business.
Therefore, technical assistance and investments in the gathering, analysis, and distribution of climate risk data should also form an integral part of climate finance capacity building in Thailand.
2. Blended finance mitigates risks and unlocks private capital.
Many risks, such as political instability and revenue risks, are common barriers to private investment in developing countries, including Thailand. The growing field of structuring “blended finance”, or using public and philanthropic funds to mobilise private capital, helps alleviate the concerns of private investors and allows different types of investors with different risk appetites to work together for a common goal.
There should be many opportunities for structuring blended finance for climate adaptation in Thailand, given the well-developed financial markets and financial intermediaries, a small but growing number of impact investors, the need for a more cost-effective deployment of the government budget, especially in response to climate-related disasters, and the clear climate-adaptation needs.
3. Aggregated portfolios better meet the needs of larger private investors.
Small projects often find it difficult to attract larger investors due to high transaction costs and low per-transaction returns. Bundling several projects into a single investment package can make them more attractive and achieve the necessary economies of scale for larger investors. In India, the Lab-supported Sustainable Energy Bonds (SEBs) bundled small loans for rooftop solar and energy efficiency retrofits to spread their fixed costs and create an appealing value proposition for debt investors.
CFNT explored a similar concept in our research report, “Here Comes Everybody: Boosting Residential Solar Financing with Crowdfunding Models in Thailand”, which was launched in October.
First published on the ฺBangkok Post
