There is a significant market opportunity for adaptation and resilience companies to help investors, companies, and government agencies to measure and manage their risks from climate change, including in developing countries. Global financial and economic losses from climate change reached USD 1.5 trillion between 2003 and 2013, USD 550 billion of this in developing countries. However, while companies that can help serve this market exist, they are not operating at the scale necessary to meet the needs.
This CPI working paper focuses on understanding what would be needed for adaptation and resilience companies – specifically, analytics, or intelligence, companies – to expand in developing countries. Analytics companies help clients measure their potential impacts from climate change and identify measures to reduce them.
Companies in the adaptation and resilience sector face a set of barriers to expand in developing countries. These barriers can be grouped into:
- Context barriers define the overall investment and business environment. These include lacking policy, institutional, and market environment, as well as missing human capital and value chains.
- Business model barriers define the pace of consumer uptake of a new service or technology due to unclear value add of the technology, high costs, or missing technical capacity on the demand side to implement the technology.
- Internal business capacity barriers define the internal capabilities of the business to successfully operate in a sector or geography and include, among others, financial and business management skills.
Technical assistance (TA) facilities can help address some of these barriers. These facilities are typically linked to investment vehicles, such as venture capital and private equity funds. They undertake targeted activities that would not otherwise be undertaken by fund managers to help unlock further investment on the ground.
We conducted two case studies to explore the above barriers on a company level, focusing on JBA Consulting, a company that offers flood risk management services, and Planalytics, a company that identifies, analyzes and applies weather intelligence to company decision-making. We also looked at 41 TA facilities to understand what lessons could be drawn for adaptation and resilience.
We applied this research to the design of a potential TA facility for adaptation and resilience companies, particularly those in resilience analytics. Such a TA facility would be linked to an adaptation and resilience private equity fund. It would work with companies to address the principal barriers they face, which are often related to lack of local knowledge and capacity to enter new developing country markets, and uncertainty among potential clients as to the value of their products. Barriers related to the investment context are also critical but can only be addressed in limited ways through TA facilities.
We recommend that a TA facility for adaptation and resilience companies consist of three support lines: Preparation, Partnerships, and Resilient Systems. Preparation activities would support companies to analyze the legal and regulatory requirements in developing country contexts and prepare business plans as well as concrete projects to deploy their technologies. Partnership activities would support linkages with local stakeholders and potential business partners, and development of the broader local industry ecosystem. Resilient Systems activities would tackle targeted context barriers through one-off policy studies as well as development of methodologies to measure adaptation impact.
Critical to a TA facility is getting the governance right. The governance must address both the needs for efficiency and flexibility as well as development impact, and the weight on each of these factors could differ by support line. We recommend the Preparation support line be carried out by the fund manager, but the Partnerships and Systems support lines could have separate governance, though linked to the private equity fund to ensure relevance.
The next steps in the design of a technical assistance facility should include: 1) Advancing discussions among potential funders regarding their objectives and baseline requirements for the structure, governance, and eligibility criteria of the facility; 2) More detailed descriptions of individual support lines and activities, how they could be implemented, and how results would be measured, based on likely portfolio companies and their needs in target geographies; 3) Complementary work looking at the needs of resilience product companies, as this paper focuses solely on resilience intelligence companies; and 4) Demonstration of technical assistance provision through the implementation of pilot investments.