Initiating and sustaining adaptation in the private sector

The ‘private sector’ is made up of a wide spectrum of actors. It ranges from small firms with very few employees to large multi-national companies with balance sheets and staff numbers rivaling small countries. The private sector can also be understood as the set of activities in society that are primarily driven by market logic. In that sense, the housing market and the forestry sector both have private-sector characteristics. The functions, risks and needs of private-sector actors are diverse; a range of different governance measures will therefore be required to initiate and sustain adaptation within the private sector.

Businesses constantly manage risk and are well placed to decide their own tolerance for risk – unless public safety or the environment is threatened. Competitive pressures from other firms should in theory ensure that businesses will mitigate climate risks and adapt in order to gain advantages over rivals. Adaptation would thus be in a business’ self-interest. The role of government may therefore simply be to ensure that businesses have the information they require to identify appropriate adaptation strategies.

However, in cases in which private operations provide public goods or common resources (such as water services, transport, security, or even large-scale employment) or are partially financed through public funds, governments may wish to avoid societal costs from mal- or under-adapted business operations and will therefore take more proactive measures to ensure that adaptation occurs. Governments also have an interest in correcting market failures, i.e. when the allocation of goods, services and risks in the free market can be improved from a collective point of view.

Other actors may also have an interest in initiating adaptation in businesses. For example, insurers are exposed to their clients’ climate-related risks, and investors (especially long-term investors and pension funds) want their returns to be resilient to changes in the climate. Investors, particularly, will also benefit when companies are able to seize commercial opportunities presented by a changing climate; both groups thus have an interest in ensuring that their clients or companies adapt.

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