Are the risks and uncertainties as constraints to investing in climate-smart innovations a red herring? Financial cost-benefit analysis evidence from 11 countries in Africa and Asia

Climate-Smart agricultural (CSA) practices such as drought resistant varieties, water saving techniques etc. have gained considerable attention due to their potential to address climate change impacts. However, uncertainties remain regarding their financial profitability and risk implications across diverse conditions, which may contribute to low adoption rates. This study conducted a comprehensive cost-benefit analysis using data from 11 countries to assess the financial viability of these practices. The analysis revealed a range of net present values (NPV) associated with the innovations, from US$ 508 to US$ 38,793 (2020 dollars). The internal rate of return (IRR) varied between 20 % and 490 %. Sensitivity analysis affirmed the financial profitability and minimal risk of the studied innovations. Considering the influence of discount rates, a reduction of 50 % and 100 % in the discount rate resulted in an average NPV increase of 20 % and 35 %, respectively. The NPV was found to be most sensitive to changes in yield, followed by the discount rate. Measures and incentives aimed at providing access to capital at lower or subsidized rates were identified as potential drivers for increasing adoption rates. Monte Carlo simulation demonstrated that the adoption of these innovations is worthwhile, with a low risk of capital loss. To facilitate the widespread adoption of promising CSA practices, governments should support strategies that minimize risks faced by smallholder farmers. Additionally, efforts to enhance climate adaptation at scale should be coupled with financial and policy support. This study underscores the importance of evidence-based analysis in guiding decision-making and emphasizes the need for continuous support and resources for CSA implementation.Practical implicationsHaving evidence-based cases on the benefits and costs of climate change adaptation is crucial for decision-making, particularly in the agricultural sector. This information serves as a valuable starting point for policymakers and practitioners to choose efficient climate adaptation options, especially for smallholder farmers. It provides a strong justification for adopting and scaling up these options, while also motivating policymakers to allocate more financial resources to adaptation, particularly in developing countries.In any investment decision-making process, it is crucial to consider risks and uncertainties. Taking these factors into account helps guide the decision-making process and enables a deeper understanding of the external environment dynamics. By factoring in risks and uncertainties, investors can gain confidence in achieving positive returns while minimizing the likelihood of financial losses. Additionally, policymakers can better comprehend the perspectives of smallholder farmers and make informed decisions about which climate adaptation strategies to adopt and which ones to avoid.The present study presents a robust methodology for evaluating the risks and uncertainties related to investing in climate adaptation strategies. This methodology holds considerable significance within the scientific community and academia. Moreover, it provides an opportunity for other researchers to adopt and apply the methodology to various sectors, particularly in the context of cost-benefit analysis in developing countries. Doing so allows for continuous improvements and fosters constructive criticism and discussions among researchers. This collaborative approach contributes to advancing knowledge and understanding in the field of climate adaptation and strengthens the collective effort to address the challenges of climate change effectively.Addressing global hunger and achieving food security are critical goals in the fight against hunger. Key areas of focus include agriculture and sustainable approaches to increase food production. However, the risks posed by climate change necessitate a shift towards enhancing adaptation efforts in developing countries. This study offers valuable information that is highly relevant to stakeholders. By leveraging this information, policymakers can develop effective policies that provide support and assistance to smallholder farmers who face resource constraints. This, in turn, helps cushion them against the challenges posed by climate change and facilitates their long-term resilience and sustainability.