Financing Climate Change Adaptation in Transboundary Basins

27 Financing Climate Change Adaptation in Transboundary Basins Chapter 3 Preparing “Bankable” Projects in the Transboundary Context I n the context of climate finance, the term bankability describes projects that demonstrate a high likelihood of receiving public or private financing on the basis of their objectives, design, enabling environments, risk management, and other factors that indicate that the project is likely to be viable, successful, and sustainable. The use of bankability in climate financing context should not be confused with the more traditional use of the term bankable in the investment financing context, which refers to project proposals that have sufficient collateral, future cash flow, and a high probability of success to be acceptable to commercial lenders. Considering limited climate financing resources, the long-term perspective of climate change, and the ele- vated costs anticipated for addressing climate change, bankability of a project is key. Climate finance institu- tions have rigorous criteria, and the demand for avail- able funding is highly competitive. Studies indicate that current financial flows for adaptation fall far short of what is needed to fund adaptation needs in develop- ing countries (UNEP 2017). Thus, the ability of project proponents to attract private financing, especially for adaptation activities—which have been underrep- resented in overall climate financing—is equally important. Studies demonstrate that, when applicable, private sector financing can far surpass public funding. At the same time, the availability of public finance for a project can be a strong tool to leverage additional pri- vate investment. A project’s bankability is important to both types of financiers. As such, a good understand- ing of the concept of bankability and its requirements for both public and private financiers will improve the possibility of accessing critically needed funds. Several fundamental concepts are critical to identifying, developing, and implementing bankable adaptation proj- ects for transboundary river basins. A project proponent must demonstrate a clear understanding of the adap- tation needs and priorities of the basin, as well as put forward compelling arguments for financing the par- ticular projects presented. There must be a clear and comprehensive understanding of the different sources of finance, their requirements, and procedures. Projects must align with related national, regional, and international policies. Additionally, there must be a reliable and capable project proponent that can effec- tively manage project implementation and its risks. Investments in more programmatic activities—such as basin planning, institutional support to basin coordi- nation, or preparatory programmatic studies—typically involve less risks and are therefore easier to prepare for bankability; characteristically, riparian countries’ agreement and a sound project proposal will suffice. A bankable transboundary climate adaptation project does the following: • States anticipated climate impacts, including at basin level and supported by scientific findings, that are directly addressed by the project • Includes compelling arguments for a transbound- ary approach, rather than national action • Aligns with and supports relevant national, regional, global climate, and development policies • Addresses project risks • Matches the financing institution or partners’ objectives At the transboundary level, both challenges and oppor- tunities related to bankability exist. Beyond the pros and cons of adaptation and resilience projects in the transboundary basin context, regional institutions can play a fundamental role in strategically placing

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