Building an Evidence Base on

Private Sector Engagement in

Financing Climate Change

Adaptation

CIF Side Event, 11.05.2015

OFFICIAL USE

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MDB 2013-14 private sector adaptation finance is highly leveraged

Total value of projects:

US$5,520m

MDB financing:

$1,470m (27% of TPV)

Adaptation share: $270m

(21% of MDB finance)

Donor co-financing: $33m

Adaptation related TA: $4m

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Adaptation investments tend to increase with overall project size and overall MDB investment size

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MDB adaptation finance component (US$ million)

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The Non-EU Europe and Central Asia region is the largest beneficiary of MDB private sector finance in 2013-14

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Non-EUEurope andCentral Asia

EU 13 Middle Eastand North

Africa

Latin Americaand the

Caribbean

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MDB private adaptation finance Number of projects (RHS)

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Middle-income countries received more than 80 per cent of MDB private sector adaptation finance

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MDB private adaptation finance Number of projects (RHS)

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The agricultural and ecological resources sector is the main beneficiary of MDB private sector adaptation finance

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Agricultural &ecologicalresources

Industry,extractiveindustries,

manufacturing& trade

Energy,transport, and

other builtenvironment

andInfrastructure

Financingthroughfinancial

intermediaries

Coastal &riverine

infrastructure(including builtflood protectioninfrastructure)

Water &wastewater

systems

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Private adaptation finance Number of projects (RHS)

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Increased water scarcity is the main climate risk addressed

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Increased waterscarcity

Increased waterscarcity and heat

stress

Increased waterscarcity and flood

risk

Increasedhydrological

variability

Rising sea levelsand increase in

storms

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MDB private adaptation finance Number of projects (RHS)

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Most private sector adaptation finance is invested in technologies that improve resilience to droughts and enhance water use efficiency

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— two out of 26 projects received donor co-financing in the for of CAPEX grant and

concessional loan resources

— a residential buildings credit line in Turkey received a concessional loan of $12 million

— a hydropower rehabilitation project in Tajikistan received a concessional loan of $10 million

and an $11 million CAPEX grant

— both projects were reported by the EBRD; all concessional finance was provided by the CIF

— there may be considerable scope for scaling up private sector adaptation finance

through targeted donor support for adaptation investments

— this could include approaches that integrate MDB finance, donor co-financing and

commercial co-financing

Two out of 26 projects received donor co-financing

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— Pre-signing TA

— Resource audits

— Feasibility studies

— Market studies

— Climate change resilience assessment

— Post-signing TA

— Capacity building

— MDB private sector adaptation TA accounted for $4 million in 2013/14, funded by

different sources, including the CIF, bilateral agencies and in the case of EBRD the

Bank’s Special Shareholder Fund

MDBs use different types of TA in private sector adaptation projects

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$4 million of TA consisted mostly of feasibility studies

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Feasibility study Resource audit Market study CC resilienceassessment

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MDB private adaptation pre-signing TA Number of projects (RHS)

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MDBs are mainstreaming adaptation into their business operations

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MDBs have developed a set of different origination tools for private sector adaptation

projects:

— Client driven MDB private sector adaptation projects

— Bank driven private sector adaptation projects, through

— Adaptation screening tool: a simple tool used to identify projects with adaptation potential at

the concept review stage. The team follows up and identifies climate risks and technical

solutions with client and bankers

— Technical assistance: this includes resource audits, feasibility studies, climate change risk

assessments and capacity building

— Adaptation market studies: a methodology for identifying financing priorities for supporting

private sector adaptation projects in a particular market

— Banking teams: as awareness for climate change adaptation increases, banking teams are

initiating projects. They are often guided by sector and industry strategies which contain

private sector adaptation priorities

— In many cases, MDBs use a combination of the origination tools to prepare private

sector adaptation projects

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In the EBRD portfolio, TA (resource audits and feasibility studies) is a primary driver of private adaptation investment

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Picked up byscreening tool

Resource audit Regulation Feasibility study Banking teamrelations

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MDB private adaptation finance Number of projects (RHS)

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Across MDB private sector adaptation finance projects, behavioural and regulatory

barriers were observed

— behavioural barriers were present in e.g. the EBRD’s harbour expansion project in

Poland

— Partial implementation of recommendations made as part of the EBRD’s climate resilience

assessment

— Client unfamiliarity with the innovative measures proposed was a barrier to their adoption

— Deployment of donor co-financing could have incentivised the client to consider the

implementation of more robust adaptation measures

— a lack of regulatory incentives for water efficiency measures appears to be a

hindrance to adaptation activity

— in a selection of MDB target countries, low/uneven water tariffs and ensuing cross-

subsidisation between sectors implies that economic actors lack incentives to invest in

climate resilience

— this suggests that there may be an opportunity for MDBs and other organisations to engage

with policy-makers to stimulate private sector adaptation finance

— an example of this kind of exercise is the IFC’s Enabling Environment for Private Sector

Adaptation programme

Behavioural barriers and regulatory shortcomings were the main observed barriers to adaptation investment

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key findings of the report are:

— MDB private sector adaptation finance in 2013–14 equalled US$270 million, which

made a total of $1.5 billion of MDB investment more climate-resilient

— private sector adaptation finance is highly leveraged: the total project value of

these MDB investments with adaptation components was $5.5 billion

— infrastructure, water and agribusiness projects dominate the portfolio, which is

broadly consistent with known adaptation priorities

— over 80 per cent of MDB private sector adaptation finance was delivered in middle-

income countries

— donor co-financing has played a modest role to date, but may provide an

opportunity for the expansion of MDB private sector adaptation financing activities

— technical assistance is an important facilitator of private sector adaptation

finance: it provides evidence on the materiality of adaptation to clients’ investment

— MDBs can enhance the impact of their operations, for example by continuing to

mainstream climate change across banking teams

Key findings

OFFICIAL USE

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