Climate and water expert Gavin Quibell believes there are increasing opportunities to finance both the social and economic components of climate resilience.

A call to action

Despite remarkable progress addressing extreme poverty, there is a growing recognition that development takes more than just supporting basic livelihoods. Larger scale transport, water and electricity infrastructure and inclusive growth are needed to support diversified economies and address growing inequality and sustainable poverty. Studies have estimated Africa’s infrastructure deficit at $93 billion annually, and we are seeing increasing calls for larger scale projects and rapid implementation to close this gap. COP22 in Morocco was billed as the opportunity to “move from words to action”, and there are mounting pleas for the rapid implementation of the Sustainable Development Goals.

These calls to action could just as easily be calls for financing. A number of project preparation facilities, like CRIDF and the Africa Climate Resilient Investment Facility, aim to assist access to finance for infrastructure projects, enhance their contribution to climate resilience, and to take them through to bankability. In addition, a number of tools for screening the climate risks of infrastructure promoted by different agencies aim to enhance the investment’s contribution to sustainable development and climate resilience. Finding private investment vehicles, which provide a return on the investment for their shareholders are the first prize to drive these initiatives. These provide for a self-sustaining process driven by the private sector and the profit motive.

But, perhaps in a call to return to the basic principles of development assistance, the 2016 President of AMCOW suggested that too much focus on bankability and due diligence was making delivery of smaller scale water infrastructure difficult. Some development projects, while critical to lift people out of poverty, may not be good investments. An overly cautious project preparation process holds the risk that the very poorest will fall by the wayside, ironically because they are poor.

This requires us to promote and finance infrastructure at all scales, but more importantly to engage large and small scale investments to support an inclusive growth and development framework.

Financing climate resilience as a social good

Two key metrics stand out with respect to financing infrastructure. Firstly, there are billions of dollars available, in several instruments, to finance infrastructure that builds climate resilience and addresses poverty and growth. Secondly, while financing for energy infrastructure is running at pace, water infrastructure financing (which is perhaps most needed to build climate resilience) is still toddling along.

At least since the 2002 World Summit on Sustainable Development, water has been seen as an economic and social good. We can postulate that climate resilience is, similarly, both a social and economic good. Africa’s poor struggle to break out of a poverty climate vulnerability cycle, even under the challenges of current climate variability. They need investments in water infrastructure to break this cycle. But it is often difficult to maintain revenue streams in small scale water supply and irrigation schemes. The AMCOW President’s apprehension over the focus on bankable climate resilience infrastructure projects is certainly relevant.

Accessing the billions of dollars for climate resilience infrastructure must, nevertheless, recognise the fiduciary duty financiers have towards their shareholders. Where risks are higher, financing will be more difficult and costs will be higher. The simple epithet that; “Money will flow where there is money to be made” poses a challenge to the bankability of financing climate resilience as a social good. This is exacerbated by low or sub-investment grade ratings in poorer countries.

There is an underlying "catch 22" to this conundrum. Poor water management and inadequate water infrastructure puts brakes on economic growth. But economic growth improves our ability to manage and maintain infrastructure, improves investment ratings and increases the ability to finance new infrastructure. Economic growth also increases a country’s ability to fund the social good component out of taxes on tariffs (or stepped tariffs). However, taxes on tariffs need bigger larger users of water and energy, i.e. We need infrastructure to grow, but we must have grown to finance the infrastructure. This points to a need for a greater focus on the implications of climate vulnerability on the economy as a whole.

This was one of the motivations behind the World Bank’s support to the Climate Change Adaptation Project (CCAP) in Zambia. The CCAP aimed to provide loan financing for a number of small-scale infrastructure investments across the country. The collective impact of this infrastructure on reducing the burden on central government to feed the rural poor in droughts, and reducing rural to urban migration where the cities did not have the infrastructure to absorb the additional people, was more important than the bankability of the individual projects.

This is not a call to ignore the importance of cost recovery in infrastructure projects, but rather a call to flag the need for a broader view of the bankability of small-scale infrastructure aimed at the social good component of climate resilience. At the same time we need to build climate resilient and inclusive economies, which provide the opportunity for taxes on tariffs, improve governance, address inequality and promote social stability. One approach is to build on the momentum in financing energy infrastructure by identifying multi-purpose infrastructure across the water food and energy nexus. Corporate water stewardship offers another. Taking some risks is yet another. A colleague who works for a Chinese Investment Bank told me that they are expected to have a number of failed projects – it signals that they are taking risks and hence reducing the chances of missing the next big thing.

Now is a good time

The World Economic Forum (WEF) is increasingly recognising water, climate and migration crises as drivers of global investment risks. The security community has noted the importance of water and climate security in maintaining social stability. Traction is being gained with water, food and energy nexus thinking. There is a greater focus on corporate water stewardship.

There are now, perhaps more than ever, increasing opportunities to finance both the social and economic good components of climate resilience. To do this we need large and small scale projects that support all the SDGs, and promote growth.

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