Climate resilience and adaptation: Risks and opportunities

On 4 November, the Climate Investment Summit discussed how to solve the lack of private-sector finance for adaptation and resilience investments. NIB’s Head of Sustainability and Mandate, Luca De Lorenzo, presented the Bank’s Blue Bond, a replicable model that could “unleash” more capital.

The Climate Investment Summit 2020 aims to accelerate climate investments in pandemic recovery and climate action. NIB is a contributing partner to the Climate Investment Summit 2020.

It is urgent
The keynote speech was given by Ban Ki-moon, the 8th Secretary-General of the United Nations, currently leading The Global Center on Adaptation. His key message was that “We need to become more climate vigilant.”

In the second keynote speech, Denmark’s Minister of Development Cooperation, Rasmus Prehn, said “the challenge ahead of us is frightening”.

“We will have to change the way we produce our food and build our infrastructure. We are challenged by insufficient current climate financing. We need more private investments in adaptation,” said Prehn, adding that “We need all stakeholder to pull together if we want to be serious about reaching the goals of the Paris Agreement and the UN Sustainable Development Goals.”

How to encourage investors?
NIB is a mandate-driven bank sitting on two pillars, increasing productivity and benefitting the environment.

“Clearly, for us climate considerations is at the heart of what we finance, both when it comes to mitigation and adaptation,” said De Lorenzo.

Recorded private-sector investment in adaptation remains especially limited, partly due to a lack of data and in-house expertise, and historical challenges in identifying viable business models.

Asked how to encourage investors to engage further with public climate finance bodies to identify opportunities to apply mitigation investment structures to adaptation projects, Luca De Lorenzo shared three reflections.

“We are lucky enough as a bank to talk to investors that invest in our bonds and to the clients that actually develop the projects on the ground in terms of climate mitigation and adaptation.”

Clarity of impact
“What comes up specifically when talking with investors; is clarity of the ultimate impact of the investment. This is typically more straightforward for mitigation, and hence I think you see more flow there. We should be able also really raise the bar in adaptation, and try to bring that clarity of impact back to the investors. We don’t see capital as the limitation, but rather knowledge, methodology and data. That could maybe open a little bit more flow of capital.”

Adaptation embedded
“The second reflection from our experience is that adaptation measures are rarely stand-alone projects. Instead, they tend to be embedded in every type of infrastructure project that we see with our clients. That is the right approach as well. Everything that we design and build as of today, actually as of yesterday, should have had these items considered. We need to take the long-term risks into perspective. Frameworks like the TCFD, the EU taxonomy and adaptation part helps us a lot as a bank to have the right dialogues, both with our investors and our clients.”

Productivity
“My third reflection is on productivity. We see adaptation and resilient infrastructure as key to maintain, if not increase, productivity. It is only through resilient infrastructure and well-functioning societies that we will have productive and sustainable economies.”

Putting it together: Blue bonds
As an example of what NIB has been working on and where these three reflections have come together, Luca mentioned that the Bank has issued Blue Bonds that focus on the water management and adaptation.

“We had several institutional investors that were really keen on this type of impact. We could see a pipeline of projects in water resources management, some with adaptation measures, typically held by public entities such as municipalities. So we created this product to match the financing with the impact, and it has worked quite well. It is a replicable model, not only in other geographies, but also in other topics. So we recommend to have a look at that.”

Climate Investment Summit is a global convening of decision-makers aiming to accelerate investments in the energy transition and climate projects in order to achieve the goals of the Paris Agreement and ensure a resilient and green recovery. It will present successful business models, policy frameworks and investment strategies to impact the entire climate finance value chain.