Coping with climate risk: the role of institutions, governance and finance in private adaptation decisions of the poor

Produced as part of the Managing climate risks and uncertainties and strengthening climate services CCCEP research programme theme

This paper looks at adaptation from the point of view of households. It asks how political and economic institutions may affect – help or hinder – these adaptation decisions. Climate change represents a change in the (future) distribution of weather. Since the development literature has firmly established the role of weather risk as a source of income volatility for the poor, we review the range of risk-coping mechanisms available to poorer households, with a focus on possible barriers to adaptation. We ask both how government interventions (policies, institutions etc.) affect the set of options available for adaptation and risk coping, and also what these adaptive responses imply for development prospects, and in particular the prospects of the poor and other marginalised groups. We argue that some risk taking is necessary for development and adaptation therefore should be primarily about risk-coping rather than arbitrary attempts to minimise risks. An important consideration for policy-makers, which appears to have been relatively neglected to date in the adaptation literature, is how adaptation and development will interact dynamically over time.

Adaptation to climate risk can occur along two broad dimensions; in-situ adaptation seeks to make existing locations, livelihoods and forms of production more resilient to climate risk; transformational adaptation, on the other hand, seeks to reduce vulnerability through the movement of people and economic activity across sectors and across space. Political and economic institutions, including access to finance, have the potential to impact dramatically on both forms of adaptation. While the two forms of adaptation appear distinct, they are also related, and indeed should be thought of as two dimensions on which a continuum of adaptation strategies might be mapped, rather than discrete policy options (or alternatives). Some in-situ adaptation may be required in order to facilitate transformational change. Poverty-traps (or at least persistent poverty) can prevent transformational change, and this economic stagnation is potentially reinforced by climate change. Those most vulnerable to climate change impacts also lack the resources to move out of agriculture or to migrate to more productive locations. The design of optimal adaptation strategies will involve an appropriate balance of the two forms of adaptation, with the aim of achieving the best long-term development outcomes, while respecting the rights and preferences of affected communities, and at the same time avoiding locking-in future vulnerability.

This working paper has been produced as part of the Pathways to Resilience in Semi-arid Economies project.