Integrating climate into PPPs for green and resilient infrastructure
Governments alone don’t have the resources to finance the low-carbon and climate-resilient (LCR) infrastructure investments necessary to achieve their climate-related goals. Public resources are scarce, so much of the financing needed to mitigate and adapt to climate change will have to come from the private sector.
According to a 2017 report commissioned by the World Wildlife Fund, governments and other stakeholders are largely using an ad-hoc approach to identify and plan for climate risks and LCR investment opportunities. Typically, they use a wide range of evaluative criteria and methodologies on a case-by-case basis, but these are neither consistent nor uniformly applied.
Looking for solutions upstream
The World Bank can help governments mobilize private capital towards climate-related investments. How? One way to build an investable climate portfolio is to systematically screen for climate risk and proactively develop investment opportunities. This approach could help LCR infrastructure become an asset class and attract investor interest.
To address this challenge, the Public-Private Infrastructure Advisory Facility (PPIAF) and some of its partners—the Global Infrastructure Facility (GIF) and IFC Transaction Advisory Services (IFC-CTA)—are developing a set of toolkits to analyze climate risk, embed climate mitigation and adaptation considerations, and facilitate increased private investment in LCR infrastructure in emerging markets. These include a high-level climate toolkit for public-private partnerships (PPPs) in infrastructure and five sector-specific toolkits.
Designed for application in the planning and structuring stages of the PPP lifecycle, the toolkits will help assess the enabling environment and broader institutional capacity in a given country—enabling climate considerations to be integrated into potential PPP projects. They will also provide standardized and practical guidance to client governments. This will enable them to evaluate advisory-supported infrastructure PPP projects with a specific focus on climate resilience and mitigation. With a focus on practicality, the toolkits include checklists, scoring sheets, methodologies, and templates for terms of references. These tools will enable users to advise on, plan, structure, and tender LCR investments in infrastructure PPPs.
PPIAF will conduct in-country pilots, capacity-building workshops, dissemination events, and publications (such as blog posts and peer-reviewed articles) to support the application of the toolkits.
Supporting the World Bank Group’s priorities
In 2021, the World Bank Group approved a new Climate Change Action Plan for FY21–25, committing to an ambitious target for 35% of its financing to have climate co-benefits, on average from 2021–2025. Recognizing the climate adaptation finance gap, the World Bank also committed to allocating at least 50 percent of climate finance to adaptation.
In the Climate Change Action Plan, the World Bank Group also committed to developing new diagnostic tools (including Country Climate Development Reports), expanding its support for client country Nationally Determined Contributions and Long-Term Strategies, prioritizing adaptation and resilience measures, and scaling its finances for transformational climate projects. COVID-19 recovery also spurred the World Bank Group’s adoption of the Green Resilient and Inclusive Development (GRID) initiative, focused on building back better through accelerating LCR infrastructure investments to facilitate green, resilient, sustainable, and inclusive recovery.
PPIAF’s climate change initiative supports the wider World Bank Group climate goals and includes the following four approaches:
Prioritization of grants towards activities that generate climate co-benefits based on the multilateral development bank climate financing framework adopted in 2016
Provision of funding through the Climate Change Trust Fund for Infrastructure to promote climate-smart enabling environments, provide upstream thought leadership, and catalyze climate-smart models
Launch of the Climate Resilience and Environmental Sustainability Technical Advisory (CREST) in FY21 to provide additional resources, expertise, and tools to help governments anticipate environmental and climate risks and attract private investment
Development of knowledge products that enable private sector participation in LCR infrastructure investment, includingthe Climate Toolkits for Infrastructure PPPs
The development of the toolkits has been a collaborative effort, whosetask team includes members from PPIAF, GIF, and IFC. The toolkits benefit from feedback provided by numerous departments within the World Bank Group, including strategic inputs and advice from the Bank’s Climate Change Group. The initiative benefits from IFC’s transactional, investment, and climate finance expertise with private sector clients and the World Bank’s technical expertise in disaster risk management, climate change, capital markets, and the banking sector. The first among the suite of toolkits—the high-level toolkits for multisector application—is expected to be completed in February 2022.