Financing Climate Change Adaptation in Transboundary Basins

23 Financing Climate Change Adaptation in Transboundary Basins Because public finance for climate adaptation has fallen short of estimated need, innovative financing solutions are indispensable. Promising options emerging in the global bond market for investors looking to diversify their investment portfolios with climate change adap- tation solutions include (i) catastrophe bonds , linked to insurance that support financial resilience in the face of increasing climate impacts; (ii) environmental impact bonds, incentivize investors by paying a higher rate of return to investors when a certain predeter- mined objective (e.g., avoiding damage from sea level rise) is met; and (iii) resilience bonds . The latter approach, in the pilot phase, seeks to incentivize long- term decision making by offering a premium discount for the issuer, contingent on a completed infrastruc- ture improvement. 2.7 Interaction and Cooperation between Public and Private Finance Public finance, while significantly smaller in scale and reach to private finance, drives private investment and grows annually. In 2014, of the US$392 billion dollars of climate finance, 61 percent was private, and 39 percent was public (CPI 2016). In the context of constrained public budgets, significant additional private sector finance into adaptation will be required to put devel- oping countries on low carbon, climate resilient devel- opment pathways. Generally, investing in developing countries is an attractive source of returns for private sector capital providers. In the water sector and trans- boundary basin contexts, there is significant potential FIGURE 2.3. Green Bond Commitments, by Sector Source: World Bank 2017b, p. 7. a. May not add up due to rounding. Equity, US$ (billions) a Committed Allocated and outstanding Mitigation Adaptation Total Renewable energy and energy efficiency 6.2 0.0 6.2 3.8 Transport 5.1 0.0 5.1 2.0 Water, wastewater, and solid waste management 0.1 1.3 1.4 0.9 Agriculture, land use, and forestry 0.5 1.3 1.8 0.8 Resilient infrastructure, built environment, and other 0.3 0.7 0.9 0.7 Total 12.1 3.3 15.4 8.3 79 21 100 Renewable energy and energy efficiency 40% Transport 33% Water and waste Mgmt., 9% Agriculture, forestry and ecosystems, 12% Resilient infrastructure and other, 6% TABLE 2.2. Water-Themed Bonds, by Region Region Amount (US$, billions) Issuers Deals IG rated (%) Hard CCY (%) Europe 63.4 23 231 94 99 Asia Pacific 19.7 21 190 80 15 North America 15 30 87 99 99 Latin America 2.3 10 54 <1 15 Africa 0.1 1 2 — 100 Total 100.5 85 564 — — Source: Climate Bonds Initiative 2018. Note: CCY = currency; IG = investment grade; — = not available.