Financing Climate Change Adaptation in Transboundary Basins

20 Financing Climate Change Adaptation in Transboundary Basins and international institutions have achieved accredita- tion under the GCF. The final step is to develop projects and program propos- als for funding through NIEs and RIEs. Proposals may be submitted from accredited entities and NDA at any time using the funding proposal template on the GCF website . 10 Proposals are considered against the Fund’s investment framework. To ensure country ownership, the board considers only funding proposals supported by a “letter of no-objection” from the NDA, indicating alignment between the project and other national strategies. The GCF can accept regional projects, sup- ported by the NDAs, of all the countries involved (see example in box 2.5). 2.4 Private Sector Financing Private sector finance is a substantial, important, but still relatively minor source of funding for adaptation. Currently, most private sector investments in adapta- tion finance—both domestic and international—focus on insurance schemes, such as micro-insurance schemes to provide support to individual households or small-scale farmers in cases of drought and flooding. The primary objective of the private sector is financial return, driven by fiduciary responsibility to shareholders and investors. Social and environmental responsibility in the private sector—while gaining more importance in decision making and along supply and demand chains—remains a secondary goal. Nonetheless, in many instances the goals of financial profit and posi- tive impact can align, especially with increasing con- sumer demand for equitable and sustainable products and services. Moreover, many climate change–related projects offer return on investment when associated with products or services that can produce gains. To date, more mitigation-related projects attract private investment, but increasingly adaptation project pro- ponents are successfully forging partnerships with private sector actors, especially in the water sector. Still, in the private sector context a project’s “bankabil- ity” is directly contingent on the ability to recoup and secure a return on investment. In a transboundary river basin context, a private sector investor may look to the resource flows throughout the basin, even across borders, because if they do not, investing in produc- tion facilities, human resources, and correlated prod- uct or service chains may not be financial viable in the long term. While private sources of finance make up the bulk of current funding for mitigation projects, even the larger infrastructure projects for climate adaption are not yet optimizing the resources and capacity of the private sector. This may be because the private sector is unaware of the investment opportunities that climate change adaptation offers in their coun- try or region, or because project proponents have yet to develop their own understanding and rela- tionships with private sector partners. Recalling that most financing is sourced in the region in which it is spent, efforts to inform and connect with private investors could benefit transboundary RBOs and riparian countries considering transboundary infra- structure investments. RBOs, governments, and other project proponents need to increase their efforts or package adaptation efforts in ways that attract private sector investment. Alternatively, private sector can be considered for national-level financing of projects that contribute to a broader basin adaptation program. The World Bank, regional banks, and other development agencies will often work with private finance institutions — including, for example, by engaging with the World Bank Group’s International Finance Corporation (IFC) or private banks in countries and regions—to seek arrangements appropriate for local needs and attractive to private investors. Ultimately, blended finance provides a viable option for engaging the private sector.