The level of financing for and investment in climate change adaptation is currently insufficient to enable developing countries to effectively respond to climate-induced risks. This paper reviews the literature relating to the benefits of investments in climate change adaptation. It presents the current state of research and highlights recent attempts to quantify benefits across the triple dividends – benefits associated with avoided losses, development benefits, and non-market social and environmental benefits. Based on new empirical analysis, it finds that the second and third dividends are highly significant and especially important since they accrue regardless of whether the actual climate risk materializes. This finding will help governments increase access to adaptation finance, improve project design, and improve project monitoring and evaluation. The paper serves as a guide to researchers, policymakers, and investors analyzing the costs and benefits associated with interventions needed to better adapt to climate change around the world.
Key Findings:
- The triple dividend of resilience (TDR) is an approach that considers avoided losses (first dividend), induced economic or development benefits (second dividend), and additional social and environmental benefits (third dividend) of adaptation actions. The second and third dividends are especially important since they accrue regardless of whether the actual climate risk materializes.
- The second and third dividends are often highly significant. They can exceed the value of avoided losses and can generate project benefit-cost ratios (BCRs) greater than 1 even when the value of avoided losses is not considered.
- Accounting for the full range of benefits demonstrates higher BCRs for adaptation investments than are often assumed. In turn, this can help increase access to project finance, improve project design, and improve ex post monitoring and evaluation.
- Researchers and practitioners are developing more effective appraisal tools for analyzing the benefits of climate resilience investments and are generating more information useful in decision-making.
- Investors in the public sector stand to benefit from increased use of the TDR by having more consistent and comparable assessments across sectors and donors. The private sector stands to benefit by better understanding both second dividend financial benefits and third dividend nonmarket benefits that flow from investing in resilience.
Executive Summary:
An improved understanding of the Triple Dividends of Resilience can help scale up climate adaptation and resilience interventions. A shift in approach is needed for both the public and private sectors to mobilize sufficient funds and catalyze greater investment in resilience interventions. More investment will be forthcoming if the benefits of adaptation and resilience-building are more fully quantified, pointing to the importance of research and analysis to guide key choices in the years to come.
Analysis of the TDR shows that for a wide range of adaptation investments, economic, social, and environmental benefits accrue regardless of whether the climate risk actually occurs. They are highly significant and often account for more than half of total benefits. Climate adaptation investments can reduce systemic risk in urban, industrial, and agricultural water supplies or of periodic flooding, thereby inducing investment in properties that would otherwise get flooded or lack water access (the second dividend). Also, many water-related adaptation investments increase resilience through natural ecosystem services, such as those provided by wetlands, intact hillside ecosystems, and coastal mangroves, and have high levels of environmental benefits (the third dividend). In fact, the second and third dividends, by themselves, can generate benefit-cost ratios greater than 1 even without including the value of avoided losses. This working paper presents case studies in coastal flooding and drought management showing that over half of total benefits were due to the second dividend. In urban stormwater management projects using nature-based solutions, over half of total benefits were associated with the third dividend.
Accounting for the full range of benefits can show higher benefit-cost ratios for adaptation investments than are often assumed—which in turn can facilitate access to project finance, help improve project design, and lay the foundation for improved monitoring and evaluation of ex post investment impacts. In the sample studied in this paper, the three dividends combined can show benefits several times greater than when only one dividend is quantified. These findings confirm the importance of integrating the second and third dividends, wherever possible, in evaluating the impacts of adaptation-related investments. The identification and quantification of key benefits across all three dividends enable long-term observations of dividend values over time, thereby improving the available evidence on the impacts and effectiveness of adaptation interventions on the ground.
Triple dividends are increasingly recognized and quantified, but knowledge gaps remain. Research has evolved from defining and establishing the concept of the TDR toward applying it to adaptation and resilience interventions in practice. However, the number of projects that systematically quantify their full costs and benefits is still relatively small. Although appraisal tools that assess climate-adaptation and resilience-building measures have developed considerably, accounting for the many varied benefits of resilience interventions remains complex. Recent research has begun to address both existing data and methodological challenges, and provides evidence in support of doing so, including for the more difficult quantification of nonmarket social and environmental benefits.
This working paper lays out five strategies to help promote a shift in thinking about the triple dividend approach:
- Grow the evidence base (including longitudinal monitoring and evaluation).
- Improve methodology and data collection (including for social equity and private sector aspects of adaptation).
- Build broad-based analytical capacity to conduct TDR analysis.
- Communicate TDR data to inform different decision-making contexts.
- Move toward a more standardized TDR framework for donors and governments.
Promoting these strategies would facilitate more consistent analysis of projects among development practitioners and governments, foster improved comparative research on financial and economic benefits, promote understanding of induced development benefits of potential interest to private investors, and support more rigorous ex post evaluation of impacts. More standardized approaches would help avoid both bias in the selection of individual benefits to consider and under- or overvaluation of those benefits. Finally, by allowing solutions to be effectively understood, catalyzed, and scaled, these approaches could help fundamentally shift capital flows toward adaptation efforts.
Image credit:Axel Fassio/CIFOR
