WATER GLOBAL PRACTICE DISCUSSION PAPER Financing Climate Change Adaptation in Transboundary Basins JANUARY 2019 Preparing Bankable Projects About the Water Global Practice Launched in 2014, the World Bank Group’s Water Global Practice brings together nancing, knowledge, and implementation in one platform. By combining the Bank’s global knowledge with country investments, this model generates more repower for transformational solutions to help countries grow sustainably. Please visit us at www.worldbank.org/water or follow us on Twitter at @WorldBankWater. Financing Climate Change Adaptation in Transboundary Basins Preparing Bankable Projects JANUARY 2019 © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. 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Contents Acknowledgments v Executive Summary vii Abbreviations xi Chapter 1  Water, Climate Change, and Reslience 1 1.1 Challenges and Opportunities in Transboundary River Basins 2 1.2 Role of Transboundary RBOs 4 Notes 8 Chapter 2 Accessing Finance for Transboundary Adaptation and Climate Resilience Initiatives 9 2.1 Global Cooperation and Climate Finance 9 2.2 Available Finance and Investment for Adaptation and Resilience Building 12 2.3 Climate Finance and Funds Arising from the UN Climate Convention 13 2.4 Private Sector Financing 20 2.5 Concessional Loan Financing 22 2.6 Climate Bonds and Other Bond Options 22 2.7 Interaction and Cooperation between Public and Private Finance 23 2.8 Bundled, Blended, Multidonor, and Other Financial Sources 24 Notes 26 Chapter 3  Preparing “Bankable” Projects in the Transboundary Context 27 3.1 Stage 1: Identifying Potentially Bankable Projects 28 3.2 Stage 2: Project Preparation 29 3.3 Using the Project Cycle as Guide 30 3.4 Managing Risk 31 3.5 Additional Tools and Resources that Strengthen Bankability 33 3.6 Recommendations for Developing Bankable Projects 35 Notes 36 Chapter 4  Conclusions 37 Appendix A Overview of Funding Sources 39 Glossary 43 Bibliography 45 Financing Climate Change Adaptation in Transboundary Basins iii Boxes 1.1. Case Study: Mekong Climate Change Adaptation Strategy and Action Plan for the Lower Mekong Basin 6 2.1. Case Study: Fostering Multi-Country Cooperation over Conjunctive Surface and Groundwater Management in the Bug and Neman Transboundary River Basins and the Underlying Aquifer Systems 16 2.2. Case Study: Drina River Basin Management Project 17 2.3. Case Study: Integration of Climate Change Mitigation and Adaptation Measures in the Concerted Management of the W Transboundary Parc: Adapt-W Project 18 2.4. Case Study: Lake Victoria Basin Commission Climate Change Strategy and Action 19 2.5. GCF Accreditation Case Study: The OSS and Consultation Mechanism of the North Sahara Aquifer System (SASS) 21 2.6. Climate Bonds for Adaptation in the Water Sector 22 2.7. Case Study: Climate Resilience Investment Project for the Niger River Basin 25 3.1. Case Study: Climate Change and Security in the Dniester Basin 34 Figures 1.1. Building Resilience to Climate Change in Transboundary Waters 3 2.1. Global Climate Finance Architecture 10 2.2. Average Annual Public Investments in Adaptation, 2015–16 12 2.3. Green Bond Commitments, by Sector 23 3.1. Levers for Adequate Risk Mitigation of Green Finance Projects 34 Tables 1.1. Observed Climate Change Impacts 2 1.2. Roles of RBOS and Regional Institutions 6 1.3. RBO Challenges and Opportunities in Raising Climate Financing 7 2.1. Green Climate Fund Strategic Impact Areas 19 2.2. Water-Themed Bonds, by Region 23 3.1. Elements of the Project Cycle 31 A.1. Multilateral and Regional Climate and Climate Related Funds 39 iv Financing Climate Change Adaptation in Transboundary Basins Acknowledgments T his report has been prepared by Ana Maria the African Water Facility (AWF/AfDB), EIB, INBO, the Kleymeyer (lead author) with contributions United Nations Economic Commission for Europe from Christina Leb (World Bank, team lead), (UNECE) Water Convention Secretariat, the World Sonja Koeppel (United Nations Economic Commission Bank, the Netherlands, and Switzerland. The training for Europe [UNECE]), David Hebart-Coleman (African was carried out within the framework of activities of Development Bank [AfDB]), Emmanuel Chaponniere the Global Network of Basins Working on Climate (European Investment Bank [EIB]), and Astrid Hillers, Change created by INBO and UNECE. Christian Holde Severin, and Steffen Brandstrup This publication received the support of the Global Hansen (Global Environment Facility [GEF]). Water Security & Sanitation Partnership (GWSP). GWSP Special thanks to Nathan Engle, Christine Ochieng is a multidonor trust fund administered by the World (World Bank), Frederick Mhina Mngube (Lake Victoria Bank’s Water Global Practice and supported by Basin Commission [LVBC]), Fareeha Iqbal (GEF), Ly Australia’s Department of Foreign Affairs and Trade; Thim (Mekong River Commission), Alastair Morrison the Bill & Melinda Gates Foundation; the Netherlands’ (Green Climate Fund [GCF]), and Edouard Boinet Ministry of Foreign Trade and Development (International Network of Basin Organizations [INBO]) Cooperation; Norway’s Ministry of Foreign Affairs; the for their review of earlier drafts, comments, and tar- Rockefeller Foundation; the Swedish International geted inputs. Development Cooperation Agency; Switzerland’s State Secretariat for Economic Affairs; the Swiss Agency for This publication builds on the background paper pre- Development and Cooperation; Irish Aid; and the U.K. pared for and the discussions and outcomes of the Department for International Development. The publi- training workshop “How to Prepare Bankable Projects cation also received support from the GWSP predeces- for Financing Climate Change Adaptation in sor fund, the Water Partnership Program (WPP), a Transboundary Basins,” held in Dakar, Senegal, on multidonor trust fund promoting water security for June 21–23, 2017. The training was jointly organized by inclusive green growth. Financing Climate Change Adaptation in Transboundary Basins v Executive Summary Climate change multiplies the complexities and intensity Yet  countries and river basin organizations (RBOs) of water-related development challenges that countries pursuing basin-level adaptation approaches often face have been addressing for decades through national difficulties in accessing financial resources for the efforts and transboundary cooperation. As pressure on implementation of cross-border and multinational water resources increases with climate change, current development strategies. systems to manage these resources will no longer suf- Basin countries can complement their national capacity fice. Populations have to rely more on water infrastruc- and financial resources with experience and resources ture and water management to meet their needs and drawn from the global climate regime, private finance, provide security against the increasing occurrence of and overseas development assistance. The United extreme and variable hydrological events, such as Nations Framework Convention on Climate Change droughts and floods. Given hydrological interlinkages (UNFCCC), its associated implementation network, that connect territories, transboundary river and lake and the vast array of development agencies and inter- basins offer a logical geographic scope for countries to national financial institutions supporting sustainable advance common development goals and address development offer technical and financial resources to water-related challenges. support developed countries and developing coun- As countries scale up resource mobilization to access the tries in their efforts to reduce poverty, achieve financing needed to address the impacts of climate sustainable socioeconomic development, and address ­ change, their capacity to prepare well-designed, bank- the oncoming impacts of climate change. Additionally, able projects that will attract the limited public and pri- private sector attention to climate implications and vate resources available is critical. The rapidly evolving private finance for climate-related projects is increas- landscape of climate finance can be difficult to navi- ing, especially for larger infrastructure projects. While gate for individual countries and river basin organiza- the availability of financing for both mitigation and tions. Cooperative basin approaches can leverage adaptation is growing globally, access to funds and human and financial resources and provide numerous effective implementation poses challenges, particu- co-benefits. larly for regional approaches. Transboundary cooperation is an effective way to man- Understanding and managing the special risks and com- age shared resources to promote resilience to climate plexities of transboundary river basin projects are critical change and sustainable development. By ensuring to preparing bankable project proposals that will attract basinwide stakeholder participation, interinstitutional public and private financing partners. Transboundary and intergovernmental coordination, and efficient use approaches bring additional risks to a project, such as of limited financial resources, transboundary basin the involvement of multiple countries, legal responsi- approaches can advance economic, environmental, bility and mandate for implementation, and the chal- and social goals while avoiding maladaptation that lenges of sharing up-stream or down-stream benefits may otherwise occur due to unilateral adaptation mea- and commitments. The transboundary context at the sures. Cooperation to develop, finance, and implement same time offers some risk-mitigation tools not avail- projects in transboundary river basins that main- able in single-country projects, especially when RBOs streams climate considerations into sustainable devel- are in place; including existing cooperation agree- opment planning goes beyond “adaptation” toward ments, risk sharing, and additional resource leveraging achieving more holistic and sustainable solutions. potential. Financing Climate Change Adaptation in Transboundary Basins vii Financing mechanisms available to address climate • Understand and follow funding processes carefully and change have distinct procedures and project cycles, and precisely to ensure eligibility and maximize chances of not all are designed to support regional or transbound- success. Although many funds serve similar target ary development approaches. Many of the existing groups and issues, eligibility criteria and procedures funds and financing streams—those that have been for accessing financing vary significantly and are historically used for development finance, as well as often complex. newer instruments and funds created solely for  ­ climate finance—are predominantly structured • Identify, communicate, and address potential risks. To strengthen bankability, identify risks, describe how for single country financing. Options for funding for they will be addressed, and demonstrate ability to RBOs and basin projects are limited when compared manage. with those available to individual states. For example, climate funds such as the Green Climate Fund (GCF) • Support regional planning and mainstreaming. Align are available only to those projects approved by climate financing with existing river basin planning national designated authorities (NDAs) within a basin. because this is critical to ensure the efficiency of To access these resources, countries sharing trans- resource use and the long-term sustainability of a boundary basins and RBOs should strategically project. employ a variety of tools, mechanisms, and develop- • Align projects with existing climate and development ment partnerships. strategies and policies. Virtually all financiers require To access climate resources, project proponents— that project proponents demonstrate alignment whether individual countries or RBOs—should consider with existing policies. the following recommendations for preparing bankable • Capture co-benefits. Project proposals that have adaptation project proposals for transboundary basins: multiple co-benefits are attractive to financiers. • Identify the root of the climate change challenge. • Cluster projects within the basin to coordinate project proposals. A cluster of projects that share geographic Identify vulnerabilities and the reasons for the or thematic characteristics can be simpler to manage climate change–induced problem. from a financier’s perspective than many smaller • Ensure climate adaptation–specific design and scope. projects. Identify and describe the climate change impacts directly responded to by the adaptation project, • Innovate, advocate, and be flexible. Climate finance is demonstrating the benefits of a transboundary a relatively new field of global financing, and as such approach (such as sharing data, or locating mea- many of the current rules and instruments are still sures in which they have an optimum effect). evolving, lack concrete experiences, and therefore offer opportunities for the beneficiaries to shape the • Understand the financing landscape and establish rules and procedures. relationships with financing partners. Resource mobi- lization for adaptation and resilience building in This report highlights the challenges and opportunities a transboundary context requires a strong knowl- that countries face when seeking to access financial edge of the full array of public and private financing resources for climate adaptation in a transboundary river sources and the many funds and options offered in basin context. The paper explains how resilience build- each category. Matching needs to funding sources is ing and taking a basin-level approach may allow coun- a critical part of pre-project planning. tries and RBOs to use resources effectively for the viii Financing Climate Change Adaptation in Transboundary Basins greatest possible benefit. By outlining the basic charac- mandate in the increasing complexities of a changing teristics and criteria for the preparation of bankable climate (chapter 1). Chapter 2 describes financing project proposals, the paper endeavors to serve as a opportunities available to countries sharing trans- guide for those interested in accessing grant and con- boundary river basins to address climate adaptation, cessional financing for adaptation in transboundary including global funds, private sector finance, and river basins. national and concessional finance with attention to how these sources can work together. Chapter 3 The paper allows countries sharing transboundary river explores the requirements for developing bankable basins and RBOs to better understand the climate project proposals that are thus more likely to receive financing landscape and how to prepare bankable proj- the required financing. The paper focuses on bank- ects. It explains the importance of taking a trans- ability of transboundary river basin projects, with boundary approach to address climate change and detailed options and recommendations that countries discusses the challenges and opportunities for RBOs and RBOs may consider as they advance on their confronted with the task of carrying out their adaptation planning and implementation. Financing Climate Change Adaptation in Transboundary Basins ix Abbreviations ACCF Africa Climate Change Fund ADB Asian Development Bank AF Adaptation Fund AfDB African Development Bank ASAP Adaptation for Smallholder Agriculture Programme ASEAN Association of Southeast Asian Nations CCF Climate Change Fund CEFPF Clean Energy Financing Partnership Facility CIF Climate Investment Funds CILSS Permanent Inter-State Committee for Drought Control in the Sahel (Comité permanent inter-Etats de lutte contre la sécheresse dans le Sahel) CIWA Cooperation in International Waters in Africa COP Conference of the Parties CRAFT Climate Resilience and Adaptation Finance and Technology Transfer Facility CTF Clean Technology Fund DMC developing member country EAC East African Community ECOWAS Economic Community of West Africa States ESIA environmental and social impact assessment ESMS Environmental and Social Risk Management System EU European Union EURECCA Enhancing Resilience of Communities to Climate Change through Catchment Based Integrated Management of Water and Related Resources in Uganda Project FAO Food and Agriculture Organization FCPC Forest Carbon Partnership Facility FIP Forest Investment Program GCF Green Climate Fund GEF Global Environment Facility Financing Climate Change Adaptation in Transboundary Basins xi GEF-IW Global Environment Facility International Waters GFDRR Global Fund for Disaster Risk Reduction IADB Inter-American Development Bank IFAD International Fund for Agricultural Development IFC International Finance Corporation INBO International Network of Basin Organizations IWRM Integrated Water Resources Management LDC least developed country LDCF Least Developed Countries Fund LVB Lake Victoria Basin LVBC Lake Victoria Basin Commission MC member country MDB multilateral development bank MEA multilateral environmental agreement MIE multilateral implementing entity MIGA Multilateral Investment Guarantee Agency NAP national adaptation plan NAPA National Adaptation Programme of Action NBA Niger Basin Authority NCCSAP National Climate Change Strategy and Action Plan NDA national designated authority NDC nationally determined contribution NEPAD-IPPF NEPAD Infrastructure Project Preparation Facility NGO nongovernmental organization NIE national implementing entity ODA overseas development assistance ODI Overseas Development Institute OMVS L’Organisation pour la Mise en Valeur du Fleuve Sénégal xii Financing Climate Change Adaptation in Transboundary Basins OSCE Organization for Security and Co-operation in Europe OSS Sahara and Sahel Observatory PPCR Pilot Program for Climate Resilience PPF project preparation facility PPP public-private partnership RBO river basin organization REDD Reducing Emissions from Deforestation and Forest Degradation RIE regional implementing entity RMC regional member country SASS Sahara Aquifer System SCCF Special Climate Change Fund SCF Strategic Climate Fund SDG Sustainable Development Goal SECCI Sustainable Energy and Climate Change Initiative SIDS small island developing states SOGEM Société de Gestion de l’Energie de Manantali SREP Scaling Up Renewable Energy Program for Low Income Countries TDA Transboundary Diagnostic Analysis UEMOA West African Economic and Monetary Union UNDP United Nations Development Programme UNECA United Nations Economic Commission for Africa UNECE United Nations Economic Commission for Europe UNEP United Nations Environment Programme UNFCCC United Nations Framework Convention on Climate Change UN-REDD United National Reduced Emissions from Deforestation and Forest Degradation Program WFD Water Framework Directive Financing Climate Change Adaptation in Transboundary Basins xiii Chapter 1 Water, Climate Change, and Reslience W ater plays a fundamental role in economic and systems to account for climate impacts and development, poverty reduction, maintain- information. ­ This includes strengthening water ing human health, and ensuring ecosystem management systems by increasing access to informa- ­ ­vitality. Its availability is dependent on the climate tion, building the capacity of institutions, and further cycle. As such, because it influences the hydrological ­ developing ­ infrastructure. One category addresses the the onset of climate change is already having signif- ability to skillfully collect and assess information relat- icant impacts on water resources and all that they ing to climate forecasts and impacts on water, such as sustain (see table 1.1­ ). Vulnerability to climate change hydrological trends, changes in water quality, and increases with poverty, inequity, weak governance, and information. Many countries and river meteorological ­ other development challenges, in which countries or basins emphasize the critical need for increased access communities are unable to prepare adequately to limit to monitoring technology paired with capacity build- damages and subsequently unable to recover from the ing to generate and use relevant ­ data. Another cate- impacts. Vulnerability also has to do with heightened ­ gory relates to improved institutional capacity within exposure to climatic changes; for example, commu- governments and river basin organizations (RBOs), nities on low-lying lands easily affected by sea level such as increasing capacity of human resources to rise, coastal settlements exposed to extreme weather identify adaptation needs; prepare and implement events, or arid regions already suffering from water projects; and strengthen technical expertise on critical stress in which increased temperatures can aggravate water-related issues including climate services, eco- ­ drought. Vulnerability to climate change is related to ­ evelopment. nomic analysis, planning, and policy d exposure to water stress, extreme hydrological events, The third category relates to improving infrastructure and the capacity to respond to ­ variability. All sectors to address adaptation needs, which can include invest- reliant upon water resources are impacted by climate ing in green infrastructure, rehabilitating and strength- change, including agriculture, biodiversity, fisheries, ening existing structures, building resilient irrigation forestry, energy, industry, tourism, and ­ navigation. and water supply systems, or managing complex, mul- Therefore, reducing vulnerability through adaptation tipurpose ­reservoirs. resilience building has important linkages with and ­ Transboundary river basins provide life-sustaining water safeguarding economic systems and socioconomic resources and livelihoods to vast populations around the development, strengthening rural livelihood systems, ­world. An estimated 60 percent of global freshwater ). In response and reducing poverty (World Bank 2018­ flows across national boundaries, and more than to the challenge, countries are mainstreaming climate 40  percent of the global population lives in trans- change considerations into national, regional, and ). boundary basins and aquifer systems (UNEP 2016­ transboundary water resources management strategies, There are 286 major transboundary river basins projects. disaster risk management, and development ­ around the world (UNEP 2016), and nearly 600 identi- Building resilience of communities and ecosystems fied groundwater aquifers that cross international dependent on water resouces is among the most effec- political borders (IGRAC/UNESCO IHP, 2015­ ). One tive ways to adapt to climate c ­ hange. Building resilience hundred and fifty-four states have territory in these ­ is about strengthening existing development practices basins, including 30 countries that lie entirely within Financing Climate Change Adaptation in Transboundary Basins 1 TABLE 1.1. Observed Climate Change Impacts Physical systems Biological systems Human and managed systems Glaciers, snow, ice, permafrost (e.g., forests, Terrestrial ecosystems ­ Food production Rivers, lakes, floods, or drought grasslands, lakes, river basins) Livelihoods Coastal erosion or sea level variation Marine ecosystems Health effects Economies Specific climate change impacts Water resource impactsa: increased Coastal impacts: erosion of beaches, Agriculture and land impactsa: crop yield decrease variability; changes in water availability; inundated coastlines; forced migration; from increased temperatures, droughts, and floods; decline in water quality; unpredictability; coastal ecosystem productivity and via- increased irrigation demands; insufficient grazing flooding; drought bility; marine ecosystem deterioration lands or water for animals; food insecurity Weather irregularity (storage and infra- Biodiversity impacts : loss of land and a Health impacts: sickness and mortality from structure needs) water habitats and species; shifts in increased infectious diseases; weather-related sick- ecological zones; forest ecosystem ness and mortality; air quality respiratory disease composition disruption such as wild- Socio-political impactsa: transboundary migration fires; geographic range change due to water and food stress; increased conflict over land and water resources; economic vulnerability ­ ­ onsequences. a. Issues of particular relevance in transboundary river basins, with upstream and downstream c ). Considering the them (Paisley and Henshaw 2013­ framework of addressing water resource management number of people who will be affected and the extent a). With climate change as an added (World Bank 2017­ of the impacts on life, food security, homes, and biodi- challenge, cooperative solutions are imperative to versity, a focus on building resilience in transboundary ensure the water needs of people and the environment basins to the imminent negative impacts of climate run. (See figure 1.1­ can be satisfied in the long ­ .) change is increasingly urgent—especially as pressure and competition over water resources increase with continued global population ­ growth. Challenges and Opportunities in 1.1  Transboundary River Basins Climate change is only one of many challenges facing Climate change poses complex challenges for trans- transboundary ­basins. Political borders that transect a boundary river basins due to the water impacts and basin make addressing issues that transcend those response measures that can have consequences across boundaries—such as water scarcity, flooding, migra- national ­borders. At the same time, the transbound- tion, health epidemics, and other environmental or ary river basin context poses both challenges and social issues—more difficult to address in a coherent, opportunities when developing and implementing manner. As a result, there is often a correla- integrated ­ projects. The sig- climate adaptation and resilience ­ tion between complex hydrological conditions and nificance of climate change in the transboundary poverty, as is evidenced in Sub-Saharan Africa, which context extends beyond direct and immediate also has the highest proportion of shared fresh impacts on communities, ecosystems, infrastruc- water  globally, challenging climate conditions, and ture, and local economies to a broader and more poverty. the world’s highest levels of ­ complex ­ landscape. In the transboundary context, Building resilience to climate change in a transboundary climate change affects multiple countries, stakehold- context needs to be viewed within the broader ers, economies, and political systems. ­­ Measures to 2 Financing Climate Change Adaptation in Transboundary Basins FIGURE 1.1. Building Resilience to Climate Change in Transboundary Waters Climate impacts Vulnerability to Water-related actions Develops resilience Leads to overall climate impacts needed at multiple levels characteristics in water systemic management systems resilience Economic systems related to energy, irrigation, municipal Preparedness supply, Climate industrialization, Regional impacts: and navigation actions Adaptation to • Aridity maintain • Flooding Livelihood systems Robustness function Infrastructure related to Information Institutions • Droughts National • Hydrological smallholder actions variability farming, isheries, Diversity and Transformation • Temperature and settlements redundancy to a better Natural systems Local system related to actions biodiversity, Integration and ecosystems goods connectedness and services, and catchment land Climate impacts result in Water information, institutions, Integrating resilience into water vulnerabilities of di erent and infrastructure actions are management systems enables systems, depending upon their required to manage hydrological economic, livelihood, and sensitivity and adaptive capacity variability to reduce sector vulnerability natural systems a. Source: World Bank 2017­ respond to climate impacts in one country can have agriculture downstream, ecosystem management in multiple and substantial ramifications for neighbor- one area can lead to species migrations with conse- ing countries, not the least of which is national and quent economic impacts, or lack of flood preparation regional ­ security. Acting solely at the national level in one area can obviate investments and planning in an limits the scope of resilience that countries can build area. Furthermore, such actions can result adjoining ­ approaches. Adaptation compared to transboundary ­ in maladaptation compounding difficulties and dam- and resilience building strategies must necessarily ages to basin ­ countries. understand and account for transboundary consider- Building integrated resilience throughout a basin ations if they are to be effective, sustainable, and promotes efficiency of resource use, while avoiding ­ maladaptation. In the absence of increased avoid ­ potential negative consequences of actions that are ­ resilience, climate impacts are likely to reduce food fragmented, lack broad consultation, or do not con- security, reverse poverty alleviation gains, and slow ­ ature. Transboundary sider  the basin’s interrelated n regionally. economic growth nationally and ­ approaches are based on a geographically complete Failure to address the negative impacts of climate change picture of the impacts and provide a broader in a river basin in a coordinated manner can threaten geographic scope of contribution to the s ­ ­ olutions. For socioeconomic development and create new or reinforce example, in basins where upstream storms lead to existing competition and conflict over water resources flooding downstream, monitoring and management states. For example, irrigation man- between riparian ­ of increased water load upstream can help to reduce agement upriver can impact water availability for areas. and even prevent damage to downstream ­ Financing Climate Change Adaptation in Transboundary Basins 3 In  basins where droughts throughout can affect the capacity to address a wide array of cross-border devel- navigability of rivers and eventually prevent access of opment challenges and provide increased benefits to the (e.g., food or fuel) to upstream communities in goods ­ greatest number of people (World Bank 2017­ a). In basins a different country, measures to ensure navigability or where transboundary agreements and basin organiza- provide alternative routes can be essential to many tions exist, these can provide robust institutional frame- stability. countries’ economic ­ works from which to develop and implement effective climate adaptation and resilience building p ­rojects. Actions to protect the upstream basin not only prevent Global framework agreements—such as the United impacts downstream but can also have positive resource Nations Framework Convention on Climate Change and cost implications for downstream responses—and (UNFCCC), the 1992 Convention on the Protection and vice ­versa. Projects to protect or recuperate forest cover Use of Transboundary Watercourses and International upstream can serve as a natural reservoir for water Lakes serviced by the United Nations Economic basin. These projects can help prevent throughout the ­ Commission for Europe (UNECE), and the 1997 United rapid runoff and loss of topsoil, as well as avoid the Nations Convention on the Non-Navigational Uses of need for more expensive infrastructure investments International Watercourses—provide useful intergov- ­ rotection. Coordination among countries for flood p ernmental frameworks and guidelines for climate that share transboundary river basins ­ (e.g., through change adaptation in transboundary b ­ asins. For exam- payment for ecosystem services) can lead to signifi- ple, the Secretariat for the 1992 Water Convention cant cost savings and benefit optimization by taking housed by the UNECE1 supports countries and basins in advantage of positive cross-border impacts and pool- developing transboundary adaptation vulnerability ing of resources (Blumstein, 2016­ ). Because of the assessments, adaptation strategies, and implementa- additional benefits of transboundary approaches, tion though guidance, projects on the ground, and there can be greater return on investments in trans- annual global ­ workshops. In addition, UNECE and the boundary projects than in single country ­ ones. Acting International Network of Basin Organizations (INBO) within a basin unit, countries can collectively direct have created a global network of basins working on cli- the savings from larger scale investments to preventa- mate change adaptation that supports transboundary tive adaptation and resilience ­ building. basins in jointly adressing climate ­ change. ­ Building resilience at the transboundary level hedges against financial risks because it spreads risks over a 1.2 Role of Transboundary RBOs greater financing landscape, and because risks can be ­ ctors. Market failure or financial managed by multiple a RBOs can support countries’ adaptation and resilience weakness in one country can potentially be covered building beyond what each individual country could by  neighboring markets or through international own. RBOs can help coordinate policies achieve on its ­ ­partnerships. and planning, support effective implementation, and avoid the pitfalls of maladaptation, in which good Given the transboundary nature of both climate change intentions result in unwanted or unpredicted ­ results. and water resources, river basin approaches are critical to For example, engaging RBOs in the process of develop- effectively and sustainably addressing climate change ing regional or national investment plans can provide a development. As climate while maintaining sustainable ­ broader regional perspective and thereby help to miti- change impacts increase, transboundary cooperation gate risks and capitalize on broader ­ opportunities. In offers an effective process to use established political, this vein, numerous countries are currently in the pro- economic, and technical resources, institutions, and cess of developing sector plans (SPs) and national or 4 Financing Climate Change Adaptation in Transboundary Basins regional investment plans (NIPs; RIPs) to support responses to climate change have a long-term outlook implementation of countries’ nationally determined (beyond the duration of a legislative period or elec- contributions (NDCs) in line with the Paris Agreement tion  ­ cycle). These characteristics support resilience-­ with support from international organizations and cli- building initiatives that are necessary to address mate finance ­ donors. The appropriate articulation of a future. climate change impacts now and in the ­ risk management narrative concerning transboundary Institutional involvement of a transboundary basin orga- river basins in those plans can ensure that subsequent nization, however, can add complexity, bureaucracy, and aligned. investments are informed and ­ ­risk. Political dynamics in a shared river basin can Regional institutions are uniquely positioned to carry out smoothly. Risk impact the RBOs’ ability to function ­ needs assessments, capacity building, project identifica- management requires careful attention to these fac- tion, and preparation, as well as coordinate or carry tors so that having a joint agency remains an advan- out  implementation, particularly for information and tage and not an added c ­hallenge. RBOs and their institutional strengthening actions (see figure 1.1­ ). institutional capacity must be strengthened so they Infrastructure assets are typically (although not ­ enefits. Through can be effective in pursuing basin b always) developed and managed at the national level, knowledge sharing, strategic planning, advancing even when the benefits of the infrastructure—such as a complementary development strategies, and promot- flow management structure—are shared by more than ing cooperative decision making, RBOs become critical country. That said, some projects can be imple- one ­ support structures for addressing climate ­ change. mented through national and regional actions, such as the installation and management of monitoring sta- The role of RBOs in transboundary resilience building tions for weather information and ­ analysis. In such a and adaptation is variable and v ­ ersatile. RBOs’ roles can project the physical investments may be made on a range from developing a shared understanding of national level, while a regional institution can provide future climate impacts, to supporting countries in capacity building for data collection and management, developing bankable projects, to submitting and the institutional home for a database, analytical ser- implementing adaptation p ­ rojects. In their coordinat- vices, and information d ­ issemination. ing capacity, RBOs help plan, gather information, and communicate critical information about climate Transboundary RBOs are uniquely positioned to ensure issues. As such, institutional strengthening change ­ long-term planning and implementation of resilience projects for RBOs can support climate resilience building ­projects. RBOs are permanent bodies with gov- basin. (See table 1.2.) throughout the ­ ernance structures supported by intergovernmental— international—partnerships. They traditionally and often ­ National governments play an essential, complementary support the basin countries in the long-term planning role in support of RBOs as they collectively work to and implementation of basin development, and their ensure transboundary climate ­adaptation. Critical action decision-making bodies function in close alignment and support from RBO member governments include, strategies. Working and with national and regional ­ among others, active participation in the RBO gover- aligning with these development strategies capitalizes nance; political will and guidance; development of on existing resources, relationships, and management national and regional policy; advocacy for RBO issues ­structures. As permanent institutions with separate 2 among external countries and development partners; legal personalities, RBOs provide a secondary level of empowerment of RBOs to assume necessary sustainability that can buffer the effect of any coun- responsibility; protection of RBOs from national tran- ­ try’s government ­ changes. They can ensure that sitions or  instability; development and enforcement Financing Climate Change Adaptation in Transboundary Basins 5 TABLE 1.2. Roles of RBOS and Regional Institutions of national regulatory frameworks to support project viability and success; and budget and resource ­support. Project Project Project follow-up preparation implementation RBOs can build evidence for strategic regional climate Stakeholder Stakeholder Communication; action through basin assessments and investment readi- ­consultation ­engagement; capacity stakeholder building ­polling ness ­work. Basin-level analyses support the a ­ rticulation of a more robust case for investments in sector, Regional needs Reporting Monitoring and assessments evaluation national, and regional plans, as well as facilitate con- structive dialogue with potential ­ donors. Financial resource Finance partner identification and ­coordination; fund- Several transboundary basins, especially those with mobilization ing recipienta; funds established basin organizations, are taking cooperative ­disbursementb ­ hange. Basin organi- approaches to addressing climate c Information Information Historical record zations are taking action by collecting climate-related ­gathering ­management data, developing adaptation strategies, and imple- Project proposal Communication menting activities on the g ­ round. Even in basins with- evaluation out RBOs, cooperation on climate change adaptation is Country coordi- Country coordination Country possible; see, for instance, transboundary adaptation nation ­coordination strategies in the Dniester and Neman river basins Project document Implementation, Reporting in  Eastern Europe, as well as in the Mekong river prep when mandated basin (see box 1.1). Sometimes the need for coopera- Note: RBO = river basin ­organization. tion on climate change adaptation can even facilitate a. When the RBO is the recipient or target of project ­ benefits. powers. b. If the RBO has financial or fiduciary ­ transboundary cooperation more ­ broadly. BOX 1.1. Case Study: Mekong Climate Change Adaptation Strategy and Action Plan for the Lower Mekong Basin • Lower Mekong Basin shared by Cambodia, Lao People’s Democratic Republic, Thailand, and Vietnam • Implementing agencies: Mekong River Commission The Mekong Climate Change Adaptation Strategy and Action Plan (MASAP) 2018–2022 supports the member countries of the Mekong River Commission (MRC) in planning for addressing transboundary impacts of climate ­ LMB). Approved in 2017, the MASAP change and needs for transboundary adaptation in the Lower Mekong Basin ( ­ evel. Member countries have agreed to implement sets out the MRC’s strategic priorities and actions at the basin l the following seven strategic priorities: • Mainstream climate change into regional and national policies, programs, and plans • Enhance regional and international cooperation and partnership on adaptation • Prepare transboundary and gender-sensitive adaptation options • Support access to adaptation finance box continues next page 6 Financing Climate Change Adaptation in Transboundary Basins BOX 1.1. continued • Enhance monitoring, data collection, and sharing • Strengthen capacity on development of climate change adaptation strategies and plans • Improve outreach of MRC products on climate change and adaptation Financing Mechanisms Although the MRC Basket Fund will implement the MASAP, the MRC will further identify and prepare joint projects on transboundary and gender-sensitive adaptation to address climate change issues in sensitive countries. The joint projects will then be hotspots that need urgent actions between two or more member ­ further submitted for funding and implementation support among development partners as well as climate institutions. change finance ­ al. 2014. Source: Timmerman, et ­ TABLE 1.3. RBO Challenges and Opportunities in Raising Climate Financing Challenges Opportunities • Uncertainty about the transboundary scope and nature of cli- • Climate information systems increase as countries share resources and mate ­impacts. initiatives. capacity through basin ­ • Coordination, integration, and alignment of basin planning and • Transboundary cooperation can improve coordination of measures at implementation with national, regional, and local planning and impacts. the river, lake basin, or aquifer levels, thereby enhancing ­ priorities. This can be particularly acute in large basins with ­ • Strategic use of funding over related geographic and thematic areas relationships. many countries and delicate diplomatic ­ limited. creates greater efficiency and effectiveness when resources are ­ • Limited resources and difficulties in allocating funds to and • Negative impacts on other riparian countries and maladaptation from institution. through a multicountry ­ mitigated. unilateral measures can be avoided or ­ • While the economic returns of large, multipurpose projects • Cooperative management of transboundary basins addresses chal- may be significant, indirect benefits and public good benefits lenges that can provide widespread and exponential benefits to the do not necessarily translate into direct revenue streams that good. This is partic- region and beyond, providing an important public ­ can sustain these ­ investments.a ularly true in the case of adaptation and resilience building, in which • Options for funding to RBOs and basins are limited when com- addressing the cause is a shared responsibility and the harms avoided pared with sovereign states by criteria and rules of funding become benefits to ­ all.a ­institutions. • The public good benefits position transboundary initiatives and proj- • RBOs may lack revenue streams or the required legal personal- ects for concessional public finance, because they demonstrate char- ity to qualify as a borrower for ­ loans. bankable.a acteristics that concessional financiers consider most ­ • Legal status may affect RBOs’ ability to receive funds on • Transboundary basin projects and resources can be used to comple- behalf of the countries, especially accessing concessional ment national efforts and limited RBO ­ budgets. ­finance. • The geographic scope of basin-level planning, implementation, and • Given limited availability of climate finance, there is a risk monitoring aligns logically with the geographic scope of climate that RBO-generated projects may be seen as “competition” impacts, and is therefore well suited to understanding the risks and by national ­Institutions. finding potential ­ solutions. organization. ­ Note: RBO = river basin ­ a. SIWI 2007. Financing Climate Change Adaptation in Transboundary Basins 7 Some RBOs have elaborated strategies and project 2. Options for building resilience to climate change will be considerably smaller if limited to actions undertaken by individual countries only— proposals to access climate ­ ­ financing. The RBOs and run the risk of counterproductive investments when viewed at responsible for the Danube, Dniester, Mekong, ). the regional scale (World Bank 2018­ Neman, Nile, and Rhine river basins respectively have 3. Numerous transboundary river basin adaptation strategies exist or finalized their transboundary adaptation strategies; are under development, including the Mekong Adaptation Strategy while others, such as those responsible for the Sava http://­ and Action Plan: Objectives and Roadmap, ­ w ww.mrcmekong​ and Chu Talas river basins, have strategies under .org ​/­assets​/­Publications​/­Events​/­2nd-CCAI-Forum​/­5-5­-Mekong-Ada ptation-Strategy-and-Action-Plan.pdf; Strategic Framework for ­development. In addition to these basinwide adapta- 3 Adaptation to Climate Change in the Dniester River Basin, tion strategies, the Niger and Lake Chad basin organi- ­https://­w ww.unece.org​/­fi leadmin​/­DAM​/­env​/­d ocuments​/­2016​/­wat​ zations have developed climate resilience investment /­0 4​A pr_6-7­_ Workshop​/­S trategic_Framework_Dniester_draft_trans​ lation_Engl.pdf; Strategic Framework for Adaptation to Climate plans to enable strategic resource mobilization and Change in the Neman River Basin, h ­ ttps://­w ww.unece.org​/­fileadmin​ support. Still, many RBOs have not implementation ­ /­DAM​/­env​/­documents​/­2016​/­wat​/­04Apr_6-7­_Workshop​/­Strategy_of​ Adaptation_to_Climate_Change_ENG_for_print.pdf; Danube River _­ ­ nancing. In begun adaptation planning and seek fi https://­ Basin Climate Adaptation Strategy (2012), ­ w ww.icpdr.org​​ these efforts, RBOs face challenges and opportunities /­­m ain​/­s ites​/­d efault​/­fi les​/­n odes​/­d ocuments​/­i cpdr_climate-adapta​ as summarized in table 1.3. tion-strategy.pdf; Climate Change Strategy for the Nile Basin, ­h ttp://­n ileis.nilebasin.org ​/­s ystem​ /­f iles​ /­2 3.10.13%20climate%20 strategy.pdf; Climate Change Adaptation Strategy for change%20­ the Rhine River Basin, ­https://­w ww.riob.org​/­fr​/­file​/­290577​ Notes download?token=jY1aoNAN; Water and Climate Adaptation Plan /­ https://www.unece.org​ 1. See the UNECE “Water Convention” website, ­ https://­ for the Sava River Basin, ­ openknowledge.worldbank.org​ /­env/water/. /­handle​​/­10986​/­22944. 8 Financing Climate Change Adaptation in Transboundary Basins Chapter 2 Accessing Finance for Transboundary Adaptation and Climate Resilience Initiatives T he costs of adapting to climate change and building receive support. First, it is critical to understand what resilience increase annually with the onset of climate can make a transboundary adaptation project change. According to The Adaptation Gap Report “bankable.” What will ensure that the project receives ­ (UNEP 2017), the cost of adapting to climate change in financing and is successful in its implementation? developing countries is estimated to reach between Developing bankable projects for the transboundary $280 billion and $500 billion per year by 2050, a figure context requires understanding the available sources. that is four to five times greater than previous estimates. Policy makers and other stakeholders must also address project requirements, articulation and atten- Availability of financing for climate change is increasing tion of basin-specific risks, political awareness, and globally, yet access to funds and implementation is consideration of ownership and implementation not  simple, even for individual countries, and responsibilities throughout the project cycle. demand exceeds both current and projected availability. Resources for climate change responses are available Examples of both practical and innovative approaches to through climate funds, multilateral development access and deliver financing within a transboundary con- banks, and development cooperation partners. While text are available. RBOs should remain optimistic in the developed countries have mobilized significant levels changing financing landscape that despite inherent of financing to support climate action in accordance ­ challenges, they offer an efficient and effective way of with their obligations under the United Nations delivering climate adaptation results. An institution’s Framework Convention on Climate Change (UNFCCC), administrative rules and procedures may preclude or current financing falls far short of what is needed disfavor multicountry projects, or additional adminis- to protect populations and adequately support adap- trative burdens of such projects may discourage institu- tation efforts. Developing countries will need to tions from considering such projects. However, given be  more resourceful in accessing existing funds, the broader public good benefits, RBOs or riparian ­ leveraging new finance, and working strategically countries acting jointly should be able to advocate with  national and regional development plans, bud- ­ convincingly about the benefits of transboundary gets, and resources to meet increasing needs. approaches to overcome these hurdles. When financing directly to the RBO is not possible, or when financing While climate finance is available to countries for both sources fund only single country projects, creative solu- mitigation and adaptation activities, the transboundary tions are possible. For instance, the RBO can provide river basin context often requires tailored approaches administrative support, implementation coordination, that do not necessarily fit the most common approaches or fulfill similar roles, while the financing is channeled to accessing finance. Existing financing sources have through individual riparian countries as implementers. distinct procedures and project cycles, and many do not envisage financing projects that cross international borders. Nevertheless, the benefits of transboundary Global Cooperation and Climate 2.1  river basin adaptation projects are numerous and Finance require persistence from both donors and project pro- A growing architecture of global cooperation for climate ponents to find solutions and ensure these projects change ensures that financial support is available to Financing Climate Change Adaptation in Transboundary Basins 9 developing countries. (See figure 2.1.) Accessing and beyond the strict bounds of climate funding to cover effectively using these funds pose challenges, how- their development needs. ever, due to the multiplicity of funds and procedures as well as the readiness and absorption capacity of Climate finance is intended to support either activities those in need. Due to needs and demands far exceed- that reduce greenhouse gas emissions (mitigation) or ing available finance, decision makers must find effi- strategies and actions that help prevent and respond to cient, cost-effective approaches that increase the the impact of climate change (adaptation). Climate impact and sustainability of funding. International finance covers studies, project preparation grants, cooperation for climate change covers only a portion of activities that enable implementation, small- to large- the financing requirements for building resilience. scale investments, technology development and trans- Countries will therefore need to access additional con- fer, capacity building, procurement, mitigation or cessional and private financing that may expand adaptation efforts and their means of implementation, FIGURE 2.1. Global Climate Finance Architecture Public finance Private finance/cooperation and other Developing countries Developed countries Other sources Capital markets private investment Grants Co-financing investments Borrowing CDM Philanthropy Source Bilateral Multilateral Carbon Foreign direct National National cooperation cooperation Levy markets investment financing Risk-pooling Loans Other mechanisms Insurance Commercial financial institutions National budgets Non-UNFCCC funds UNFCCC funds Private funds/Foundations markets/Financial institutions National ODA Multilateral • GEF Treasury climate funds (eg. • GCF Private Fund Sector Bilateral CIFs, Biocarbon • Adaptation NGOs Various agencies fund, PMR, FIP, fund National climate funds SREP, PPCR, etc) • SCCF/LDCF • Communities • National ministries • MDBs (World Bank, ADB, IADB, • National • Individuals • Regional govt./bodies Implementing agency AfDB, IDB, etc.) Implementing • National private companies • Local govt. • UN Agencies (UNEP, UNDP, etc.) Entities (NIEs) • Multinational companies • NGOs • Regional implementing • Multilateral IEs • Government • NIEs/RBOs/RIEs agencies (e.g. RBOs) • Regional IEs • NGO/institutions and organizations • Private sector or PPPs • Etc. Developing country Official development “New and additional” Private sector Other finance funding assistance climate finance investment Sources: Adapted and simplified based on ODI/HBS 2016, Buchner et al. 2017, and WRI, https://www.wri.org/resources/charts-graphs/global-architecture​​ -climate-finance. Note: ADB = Asian Development Bank; AfDB = African Development Bank; FIP = Forest Investment Program; GCF = Green Climate Fund; GEF = Global Environment Facility; IADB = Inter-American Development Bank; IDB = Islamic Development Bank; IE = implementing entity; LDCF = Least Developed Countries Fund; MDB = multilateral development bank; NGO = nongovernmental organization; NIE = national implementing entity; ODA = overseas development assistance; PPCR = Pilot Program for Climate Resilience; PMR = Partnership for Market Readiness; PPP = public-private partnership; RBO = river basin organization; RIE = regional implementing entity; SCCF = Special Climate Change Fund; SREP = Scaling Up Renewable Energy Program for Low Income Countries; UNDP = United Nations Development Programme; UNEP = United Nations Environment Programme; UNFCC = United Nations Framework Convention on Climate Change. 10 Financing Climate Change Adaptation in Transboundary Basins among others. In addition to financing adaptation to impacts, since 2016, climate finance also addresses Bankable projects in the context of global “climate loss and damage associated with impacts of climate finance” require the following: change that some developing countries are already • Clearly articulated link to climate change impacts experiencing. The Warsaw Mechanism on Loss and Damage1 is a UNFCCC initiative to enhance knowledge, • Familiarity and strict compliance with funding procedures action, and support to the most vulnerable developing countries, including finance issues. Financing for • Complementary financing (sometimes), for exam- loss and damage is yet to be seen in practice (Durand ple, through co-financing or bundled or blended et al. 2016). financing from other sources Each fund, financier, or donor has differing rules and procedures that need to be followed when applying for The national adoption plan (NAP) and nationally deter- financing and for project implementation. The levels mined contribution (NDC) development processes allow of autonomy for the implementing party differ countries to assess project costs, evaluate current bud- accordingly. Adaptation and resilience financing can geting needs, and begin developing project proposals for take many forms and come from a variety of sources. priority issues. NAPs and NDCs, which have emerged The greatest autonomy for a country occurs when from the UNFCCC process, guide countries in their using national budgets to fund adaptation. A high planning and implementation of climate action. Most margin of autonomy is also maintained through countries have national adaptation strategies and “direct access,” which is available only under a lim- plans in place or under development. While funding ited number of funds, as explained in the following for the preparation of NAPs and NDCs is readily avail- sections. In contrast, substantive donor involvement able to most developing countries, funding for imple- takes place at all stages of the project cycle in bilat- mentation of adaptation and mitigation projects eral and multilateral financing. Private and nongov- happens on a project-by-project basis by application to ernmental finance also typically involves a high one or more of the existing funds. level of involvement in decision making and imple- Most countries are also mainstreaming climate consider- mentation by the financiers, as will blended finance, ations throughout their broader national planning and in which multiple funding sources are involved. development strategies; however, this does not always Both autonomy and involvement have benefits and account for transboundary aspects of adaptation. The limitations. mainstreaming process is critical because it allows A beneficiary should carefully consider its needs and ministries of finance to incorporate climate costs into ­ circumstances on a project-by-project basis when identi- immediate and long-term budgetary planning. It also fying the appropriate funding source. Transboundary incorporates climate vulnerability considerations institutions’ level of autonomy and access to various throughout the sectoral ministries and in discussions funding sources will depend on the mandate and with development partners. The predominantly resources granted to the RBO by its member states. As national focus of these approaches and processes, such, an evaluation of the existing RBO mandate, however, tends not to recognize the transboundary resources, and legal status, and how these may affect nature of climate impacts, when relevant, nor the financing eligibility, is a useful first step to inform dis- opportunities of working through RBOs to achieve cussion among member countries on how to source greater impacts more efficiently. Therefore, it is often adaptation financing. incumbent on the RBOs, or the ministries of water that Financing Climate Change Adaptation in Transboundary Basins 11 are customarily represented therein, to advocate for a financing, and lowered to US$383 billion in 2016. Over transboundary approach to project development. 2015–16, 79 percent of finance in developing countries was raised in the same country in which it was spent, and there is a steady upward trend of domestically Available Finance and Investment for 2.2  raised investment (Buchner et al. 2017). In anticipation Adaptation and Resilience Building of the Paris Agreement, multilateral development finance A clear picture of available climate finance can better institutions committed to scale up climate finance, with inform decision makers and investors at the national, targets ranging from 25 percent to 40 percent of their regional, and basin levels. Familiarity with the full array total business by 2020. As of early 2017, these institu- of financial institutions, including their priorities and tions, collectively, are more than three-quarters of the procedures, is key to formulating a balanced finance way toward those goals (World Bank 2017c). portfolio, especially for large-scale adaptation projects such as dams, irrigation, or weather systems. Most cli- Public and private finance for adaptation projects is a mate financing for adaptation in developing countries is lesser percentage of overall climate finance; however, channeled through bilateral, regional, or multilateral global negotiations promise greater attention, especially mechanisms. These mechanisms are similar to the tradi- in light of increasing climate impacts and scientific tional development assistance mechanisms, but the dif- ­warnings. Studies indicate that adaptation financing ference appears in the funding approach of each fund dropped slightly to 16 percent of overall climate finance and each agency’s respective project cycle. Mitigation, in in 2016 with US$26 billion in investments. Notably, of contrast, is predominantly funded by private finance all adaptation sectors, water and wastewater manage- with smaller amounts of public and concessional finance ment received 51 percent of global public finance serving to anchor and leverage the larger private during 2015/16, and national investments in the sector investments. Investments for climate change reached ­ have far exceeded all other sectors (Buchner et al. US$437 billion in 2015, 66 percent of which was private 2017). (See figure 2.2.) Recent climate-related disasters FIGURE 2.2. Average Annual Public Investments in Adaptation, 2015–16 Water and wastewater 11 management Agriculture, forestry, land use, 4 and natural resource management (Other) disaster risk management 2 Others; cross-sectoral 2 Infrastructure, energy, and 1 other built environment Coastal protection <1 0 2 4 6 8 10 12 US$, billions Source: Buchner et al. 2017. 12 Financing Climate Change Adaptation in Transboundary Basins around the globe (such as hurricanes Harvey, Maria, Project cycles vary by institution, especially regarding and Irma—with costs exceeding US$300 billion) are implementation, monitoring, and evaluation. pressing governments to invest in preventive mea- Accreditation permitting countries or institutions to sures and resilience building. receive, manage, or implement climate financing is some- Financing for adaptation and resilience in the trans- times required and can be complex, requiring careful boundary river basin context is available as grants or consideration as to the costs and benefits. In most loans through such financing sources as multilateral cases, accreditation enables direct access by a country development banks, global climate funds, international or organization, increasing ownership and financial financing institutions, bilateral donors, and private part- benefit. ners. Each funding source has different financing pro- cedures and project cycles, which can make accessing Climate Finance and Funds Arising 2.3  financing more challenging for countries and RBOs. To from the UN Climate Convention facilitate resource mobilization in a transboundary context, RBOs should, if possible, have dedicated Financing climate mitigation and adaptation is one of the experts on climate finance who know the spectrum of specific commitments of developed countries to devel- financing sources, understand procedures, and oping countries under Article 4 of the UNFCCC. This sec- develop relationships with donors and financing part- tion describes the key funding mechanisms established ners. These finance experts require the support of by agreements under the United Nations Framework technical teams comprising national government Convention on Climate Change (UNFCCC). Unlike experts, scientists, nongovernmental organizations overseas development assistance (ODA), this category (NGOs) (such as universities or research institutions), of climate finance emerges from a treaty obligation and other regional or international partners. These and, as such, has rules and modalities agreed to by all teams can constructively support relevant steps in the member states. Principally, climate finance under the project cycle (such as needs assessments, evaluations, UNFCCC is based on the commitment of developed and monitoring) and the success of the project from countries to support mitigation and adaptation in start to finish. Table A.1 in appendix A compiles the developing countries. Not all financing for climate most common funding sources for climate adaptation change originates from or is accounted for as part of of relevance to transboundary basins. these obligations. A significant amount of public, pri- vate, and concessional finance for climate change proj- Multilateral institutions, such as the World Bank, the ects is not related to or governed by the international Global Environment Facility (GEF), and regional develop- climate agreements. It is useful to understand the legal ment banks, have specific climate funds, some of which basis and means of accessing financing under the are accessible to transboundary institutions. Some mul- global agreements related to climate finance as distin- tilateral climate funds are purely grant-based, while guished from other sources of financing to mobilize all others provide both grants and concessional loans. potential resources, strategically combining as needed Some financing institutions, such as the African in a transboundary context. Development Bank (AfDB), give special priority to cli- mate projects aligned with NAPs or a country’s NDC. In The UNFCCC specifies when resources will cover full addition, most bilateral donors have specific funds for cost  (in the case of reporting requirements under the climate change with dedicated levels of financing, Convention) and when they will cover “incremental specific financing modalities and procedures, and, costs.” Based on the UNFCCC methodology, incremen- often,  particular requirements for each project type. tal costs cover the difference between a less costly, Financing Climate Change Adaptation in Transboundary Basins 13 more atmosphere-polluting option and an alternative, and climate change mitigation, or cross-cutting issues which is more climate friendly or resilient (and often such as sustainable forest management. GEF financing more expensive). “Agreed full cost,” on the other 2 can cover only new and additional grant and conces- hand, covers the entire cost of a climate project. sional funding for agreed incremental costs to achieve Article  4.3 of the UNFCCC delineates what projects “global environmental benefits” in these GEF focal under the Financial Mechanism have incremental or areas. Proponents must demonstrate qualitatively, not full cost coverage. quantitatively, that a project is likely to generate global environmental benefits (GEF 2007).4 Transboundary The UNFCCC created a Financial Mechanism to provide river basins arguably have a strategic advantage agreed financial resources to developing countries. All because of the layered co-benefits to water supply, decisions on policies, rules, priorities, and eligibility water quality, ecosystems, and food security, among criteria related to the Mechanism are made by the others. Additional requirements for GEF projects are Conference of the Parties (COP), which meets annually that a project should demonstrate country ownership; and makes decisions on how the Mechanism func- it should align with national sustainable development tions. In 1994, the GEF became the operating entity of priorities, involve wide national stakeholder participa- this Mechanism. Countries initially established three tion, and be country driven in both the proposal and special funds: the  Special Climate Change Fund implementation stages. (SCCF), the Least Developed Countries Fund (LDCF), and the  Adaptation Fund (AF)—all managed by the The GEF project cycle has four phases: project concept GEF—to support climate projects. In 2010, the Green development; project preparation; project appraisal; and Climate Fund (GCF) became an additional operating project approval and implementation supervision, entity. In 2015 it received its mandate to serve the Paris including completion and evaluation. Accredited GEF Agreement. 3 agencies prepare and implement most projects, except for special funds eligible for direct financing.5 There 2.3.1 Global Environment Facility are four types of projects: The GEF is one of the primary institutions currently ­ funding transboundary river basins. It is the Financial • Full-sized projects over US$2 million go through Mechanism for the UNFCCC, as well as other major every phase of the GEF project cycle and are multilateral environmental agreements (MEAs), and approved by the council. manages designated financing for climate mitigation • Medium-sized projects under US$2 million can go and adaptation, including the SCCF and LDCF. Priority through expedited processing, in which approval is sectors include agriculture, water resources manage- delegated to the CEO. ment, infrastructure, and health. • Enabling activities under US$450,000 in GEF funds To be eligible for climate finance from the GEF, potential go through an expedited processing in which projects or programs have to fulfill various criteria. approval has been delegated by the council to the Proponent countries must have ratified the UNFCCC, CEO, while those over US$450,000 follow the regu- be members of the World Bank, or be eligible for United lar project cycle. Nations Development Programme (UNDP) technical • Programmatic approaches strive to secure larger-­ assistance. The project must address one or more of scale, sustained impact on the global environment the GEF focal area strategies: biodiversity, interna- through medium- to long-term strategies that tional waters, land degradation, chemicals and waste, are  consistent with national and regional plans. 14 Financing Climate Change Adaptation in Transboundary Basins Any  stakeholder group, including countries, GEF policy as part of environmental and social safeguards ­ agencies, or civil society organizations, can seek GEF agency accreditation. The unique experience of programmatic financing, as long as they provide GEF across its focal areas, including climate change “enhanced accountability and oversight.” While and international waters, makes it an attractive partner strengthening country ownership, these projects for financing transboundary river basin projects for aim to leverage resources from other financing adaptation. (See box 2.1 for an example) partners. GEF has funded approximately US$1.6 billion in grants for adaptation activities that reduce vulnerability to the According to GEF (2010): “Programmatic adverse effects of climate change. In mitigation projects frameworks have greater flexibility in program it estimates to have generated US$38.3 billion in invest- design. They feature a Project Framework ments, with US$4.2 billion of its own investment, Document (PFD) commitment deadline rather than while the LDCF and SCCF have leveraged US$5 billion the current fixed country plan. Because of this and US$2.6 billion, respectively. latitude, they enable proponents to develop project concepts during program implementation Special Climate Change and Least 2.3.2  rather than all in advance. There are specific Developed Country Funds guidelines that provide procedures to submit and resubmit programs including ‘Integrated The SCCF supports adaptation and funds technology Approaches’ [stress added]. This approach provides transfer and mitigation projects in selected sectors. a potential opportunity for transboundary river- Projects must be (i) country-driven, cost-effective, and basin organizations.” integrated into national sustainable development and poverty reduction strategies; and (ii) consider national communications or National Adaptation Programmes In addition to its mandate to serve as the financing of Action (NAPAs) and other relevant studies and mechanism for large MEAs, GEF finances projects that ­ ­ information. The SCCF supports adaptation projects in achieve other global environmental benefits, including developing countries on (i) water resources manage- improving management of transboundary waters. GEF is ment; (ii) land management; (iii) agriculture; (iv) health; the largest grant funding mechanism for multicountry (v) infrastructure development; (vi) fragile ecosystems collaboration on water and oceans. Projects often bring (including mountain ecosystems); (vii) integrated together governments, private sector, NGOs, and mul- coastal zone management; and (viii) climatic disaster tilateral institutions. GEF implementing agencies— risk management, including supporting existing or new which include UN agencies (such as the Food and national and regional centers and information networks Agriculture Organization [FAO], the United Nations for rapid response to extreme weather events.6 Development Programme [UNDP]; and the United Nations Environment Programme [UNEP]), interna- SCCF finances full-sized and medium-sized projects tional and regional development banks, and accredited (greater than US$2 million grants and less than US$2 mil- NGOs—assist countries or basins in the development lion grants, respectively). (See box 2.2) As of 2017, the and implementation of projects. GEF requires co-­ SCCF has financed 79 adaptation projects in 77 coun- financing from project proponents or other sources, tries, with US$348 million in grant financing.7 It com- which may include additional lending, bilateral agency plements the LDCF, as all developing-country parties grants, private sector finance, or in-kind contributions. to the UNFCCC are eligible to receive SCCF ­ support. GEF, like most multilateral institutions, has a robust Highly vulnerable small island developing states Financing Climate Change Adaptation in Transboundary Basins 15 BOX 2.1. Case Study: Fostering Multi-Country Cooperation over Conjunctive Surface and Groundwater Management in the Bug and Neman Transboundary River Basins and the Underlying Aquifer Systems GEF-IW project ID 9767; GEF grant funding: approx. US$3 million The proposed project assists Belarus and Ukraine to (i) join Poland and Lithuania in reaching a common understanding of the water resources of the shared basins, the existing pressures and drivers of change impacting the sustainability of the resources, and the dependent ecosystems, in particular increasing climatic variability and change and to move toward joint planning and management of the basins; (ii) agree on policy, legal, and institutional reforms, and investments to improve water security and resilience to the impacts of climatic variability and change, and enhance the sustainability of the transboundary freshwater resources and dependent ecosystems in the Bug and Neman basins; and (iii) accelerate the transformative processes by pilot testing conjunctive management solutions, and consolidating transboundary coordination and cooperation. The project will also support countries in implementing the European Union Water Framework Directive (EU WFD) and the 1992 Water Convention serviced by the United Nations Economic Commission for Europe (UNECE). The Transboundary Diagnostic Analysis (TDA) will embrace a comprehensive cross-sectoral approach analyzing freshwater resources in their entirety (surface and groundwater), and under many usage perspectives and interactions and under future climatic scenarios. This approach is a response to the priorities set forth by the GEF-6 IW Strategy on conjunctive surface and groundwater management, and on the water nexus conflicts. Another aspect of innovation is the broad geographic scope of the project, encompassing two adjacent and similar basins, artificially connected and characterized by the largely unregulated flows and by strong surface– groundwater interactions. Cooperation among the countries, both GEF beneficiaries and nonbeneficiaries, within this vast periglacial region, will maximize opportunities for broader adoption, and sharing of experiences. (SIDS) that are not least developed countries (LDCs) programs, leveraging almost US$5 billion in financing and therefore ineligible for LDCF support have partners, and is expected to deliver climate resil- from ­ received SCCF adaptation support. At the behest of ience benefits to more than 20 million people through the  UNFCCC COP, the SCCF provided grant financ- the current portfolio of active projects (UN CDP 2016). ing  toward a global support program for NAPs in non-LDCs. 2.3.3 Adaptation Fund The LDCF was created by UNFCCC parties to support In 2007, the Kyoto Protocol established the Adaptation the  preparation and implementation of NAPAs in the Fund (AF) to bolster support for adaptation by generat- 51  LDCs and is operated by GEF. The LDCF helps to 8 ing financing through the Protocol’s Clean Development identify priority activities, design, and implement Mechanism. The AF supports developing countries that adaptation projects. As mandated by the UNFCCC COP, are parties to the Kyoto Protocol that are particularly the LDCF supports the NAPs process. As of 2017, the vulnerable to the adverse effects of climate change, Fund has supported 252 projects and programs in 51 including low-lying and other small island countries; LDCs, the largest portfolio of adaptation projects of its countries with low-lying coastal, arid, and semi-arid kind. As of 2017, the Fund has approved around areas or areas liable to floods, drought and desertifica- US$1.2  billion in grant funding for projects and tion; and those with fragile mountainous ecosystems.9 16 Financing Climate Change Adaptation in Transboundary Basins BOX 2.2. Case Study: Drina River Basin Management Project GEF-IW project ID 5556 and SCCF project ID 5723; GEF grant funding: approx. US$10 million In 2016 the GEF International Waters (GEF-IW) and the SCCF approved a combined grant of US$10 million for the support of the West Balkans Drina River Basin. The project offers support to Bosnia-Herzegovina, Serbia, and Montenegro for capacity building and studies and investments to strengthen in-country capacity to plan and implement integrated, cooperative management of the Drina River Basin and to address climate change adaptation. Contributions from the SCCF and GEF-IW enable (i) investments in river management simulation models that would guide the preparation and implementation of regional, multisectoral basin plans and prepare for climate variability adaptation—as well as to strengthen hydrological and meteorological facilities; (ii) local pilot investments for enhanced emergency responses to floods and drought, and to reduce climate change risks; and (iii) institutional capacity development in the three countries for more effective, structural, and regulatory arrangements for river basin management and development, and to inform strategic investments of regional significance. The project offers a strategy for ensuring sustainability and enabling the scaling up of successful Integrated Water Resources Management (IWRM) strategies and measures at the regional and national levels. The project is designed to align closely with national investment priorities and the Drina River Basin program and contribute toward a basinwide investment plan. Although the basin offers many investment opportunities, the externalities and trade-offs at the local and regional levels remain unquantified. Limited availability of data and analytical tools have kept individual countries from effectively prioritizing investments or evaluating the transboundary sharing of benefits and risks. In addition, the three countries have struggled with the operationalization of an IWRM approach in an environment of severe financial constraints. The AF funds transboundary projects include two proj- without the involvement of an external implementing ects in West Africa and the Lake Victoria Basin, agency, such as UNEP, UNDP, or a regional develop- described in boxes 2.3 and 2.4. The regional pilot pro- ment bank. Parties to the UNFCCC have agreed to gram was launched in May 2015 by the AF and covers establish direct access for climate funds and have car- four themes, including transboundary water manage- ried the practice over to the Green Climate Fund. ment. Two or more countries in the same UN region, or adjacent regions—particularly countries that share a 2.3.4 Green Climate Fund common border or similar adaptation challenges—can The GCF, fully operational in 2015, is the newest actor in apply through multilateral or regional implementing the multilateral climate finance architecture. The GCF entities, partnering with national implementing enti- Secretariat is based in the Republic of Korea. Like the ties. Proposals need to highlight the added value of the GEF, it functions under the guidance of the UNFCCC regional approach. COP. The 24 GCF board members have equal represen- An innovative feature of the AF is the option for coun- tation of developed and developing countries. They tries to have “direct access” to funds. A developing have developed policies and frameworks to receive, country, having established an accredited national manage, approve, and program GCF projects. The implementing entity (NIE), can receive funds directly Fund finances incremental costs of climate change for Financing Climate Change Adaptation in Transboundary Basins 17 BOX 2.3. Case Study: Integration of Climate Change Mitigation and Adaptation Measures in the Concerted Management of the W Transboundary Parc: Adapt-W Project Thematic focal area: disaster risk reduction and early warning systems Shared by Benin, Burkina Faso, and Niger, the W Transboundary Biosphere Reserve extends over 31,000 square kilometers to 50,000 square kilometers, including riparian areas (43 percent in Benin, 36 percent in Burkina Faso, and 21 percent in Niger). The project will strengthen the resilience of ecosystems and improve livelihoods through establishment of a multi-risk early warning system and the implementation of concrete adaptation measures. • Component 1. Design and implementation of multi-risk early warning system (drought, floods, locust invasions, fires and land use change). Cost: US$1.5 million. • Component 2. Integrate climate change aspects and emergency plan into the park management plans at regional and national levels. Cost: US$300,000. • Component 3. Improve the resilience of ecosystems and livelihoods of neighboring and user populations through the implementation of concrete adaptation actions. Cost: US$2.2 million. • Component 4. Sensitize, strengthen and build capacity on previous experiences for a concerted, integrated and sustainable management of the W-Arly-Pendjari Transboundary Biosphere Complex. Cost: US$300,000. The project will involve regional, national, and local stakeholders. At the local level, the project’s development and implementation will require the mobilization of populations and other local authorities, as well as associations, NGOs, villages, and women’s cooperatives, among others. National executing entities in consultation with environment ministries in the three beneficiary countries will implement the project. The Sahara and Sahel Observatory (OSS) will serve as the project’s regional implementing entity (RIE) and will be in charge of all financial, monitoring, and reporting aspects to AF. The project will be executed by a project management unit hosted by OSS. Other regional organizations will be involved, such as participating in the steering committee (Permanent Inter-State Committee for Drought Control in the Sahel [CILSS], Economic Community of West Africa States [ECOWAS], and West African Economic and Monetary Union [UEMOA]). Source: Adaptation Fund 2015. activities to enable enhanced action on adaptation, or focal point. The NDA oversees the relationship mitigation (including Reducing Emissions from between a developing country and the GCF. The Deforestation and Forest Degradation [REDD+]), and NDA  provides broad strategic oversight of the GCF’s supporting developing countries’ efforts to deliver on activities within the country and is the point of com- their NDCs. The GCF finances low emission and cli- munication with the Fund. The NDA seeks to ensure mate resilient projects and programs in the public and consistency of funding proposals with national objec- the private sectors that contribute to achieving at least tives and priorities. To date, more than 120 countries one of its eight strategic impact areas. (See table 2.1.) have established an NDA. GCF requires three key steps for engagement. First, each The second step is to identify and seek accreditation of country appoints a national designated authority (NDA), entities to directly access GCF funds. The GCF channels 18 Financing Climate Change Adaptation in Transboundary Basins BOX 2.4. Case Study: Lake Victoria Basin Commission Climate Change Strategy and Action Lake Victoria is the largest inland water body in Africa and the world’s second largest freshwater, with surface area of 68,800 square kilometers. The Lake Victoria Basin (LVB), covering about 184,000 square kilometers, is shared with five East African Community (EAC) partner states (Burundi, Kenya, Rwanda, Tanzania, and Uganda). In recognition of the effects of Climate Change in EAC Partner States, the EAC approved the EAC Climate Change Master Plan, Policy and Strategy. EAC conducted a study on Climate Change Vulnerability Assessments, which demonstrated that climate change affects agriculture, transportation, wildlife, fisheries, power, health, and water resources in the LVB. To address climate change challenges in the LVB, the Lake Victoria Basin Commission (LVBC) approved the LVB Climate Change Strategy and Action plan. EAC and UNEP, through the LVBC, developed a LVB project proposal to implement LVB-CCSA and submitted the proposal to the Climate Change AF for funding. Project preparation by UNEP and the LVBC included (i) review of the EAC Climate Change Strategy and LVB Climate Change Strategy and Action plan to understand priority areas for the proposed project; (ii) review of the Climate Change vulnerability assessment report to develop relevant recommendations and action areas; (iii) involvement of EAC partner states (Burundi, Kenya, Rwanda, Tanzania and Uganda) in the development and endorsement of the project proposal under the supervision of the LVBC and UNEP; (iv) LVB Sectoral Council of Ministers’ approval of the draft project proposal; (v) submission of the approved final project proposal by UNEP to the Climate Change Adaptation Fund Secretariat in 2016 and approved in November 2017; (vi) establishment of the regional project steering committee comprising permanent secretaries from all the partner states to guide the project implementation; and (vii) development of a detailed action plan and budget to start implementation. The proposal process benefited greatly from the partnership between the LVBC and UNEP, an international implementing entity with extensive experience in climate change financing proposal development and implementation. Project development and application procedures are complex and therefore require guidance from a Multilateral Implementing Entity (MIE) or Regional Implementing Entitiy (RIE) with knowledge of preparing and executing climate change policies, strategies, studies, and planning. The development of the project proposal should carefully follow AF guidelines. National Implementing Entity (NIE) endorsement letters from all designated signatories in the basin were needed throughout the proposal development stages, requiring full knowledge and engagement from all countries involved. Finally, the AF board was ready to provide support when requested. Source: Case study provided by Dr. Ally Said Matano, Fredrick Mhina Mngube, and Eng Omari Mwinjaka (LVBC Secretariat). TABLE 2.1. Green Climate Fund Strategic Impact Areas its resources through a network of NIEs and RIEs— not only through international finance institutions. Adaptation Mitigation Health, food, and water security Energy generation and access Entities may be public, private, or NGOs operating Livelihoods of people and Transport at subnational, national, regional, and international communities levels. These institutions must align with the Fund’s Infrastructure and built Forests and land use objectives and meet its fiduciary standards and envi- environment ronmental and social safeguards through an accredita- Ecosystems and ecosystem Buildings, cities, industries, tion process. NDAs provide letters of nomination to services and appliances direct access. As of April 16, 2018, 59 national, regional, Financing Climate Change Adaptation in Transboundary Basins 19 and international institutions have achieved accredita- private sector actors, especially in the water sector. tion under the GCF. Still, in the private sector context a project’s “bankabil- ity” is directly contingent on the ability to recoup and The final step is to develop projects and program propos- secure a return on investment. In a transboundary als for funding through NIEs and RIEs. Proposals may be river basin context, a private sector investor may look submitted from accredited entities and NDA at any to the resource flows throughout the basin, even across time using the funding proposal template on the GCF borders, because if they do not, investing in produc- website. Proposals are considered against the Fund’s 10 tion facilities, human resources, and correlated prod- investment framework. To ensure country ownership, uct or service chains may not be financial viable in the the board considers only funding proposals supported long term. by a “letter of no-objection” from the NDA, indicating While private sources of finance make up the bulk of alignment between the project and other national current funding for mitigation projects, even the strategies. The GCF can accept regional projects, sup- larger infrastructure projects for climate adaption ported by the NDAs, of all the countries involved (see are  not yet optimizing the resources and capacity of example in box 2.5). the private sector. This may be because the private sector is unaware of the investment opportunities 2.4 Private Sector Financing that climate change adaptation offers in their coun- Private sector finance is a substantial, important, but try or region, or because project proponents have still  relatively minor source of funding for adaptation. yet to develop their own understanding and rela- Currently, most private sector investments in adapta- tionships with private sector partners. Recalling that tion finance—both domestic and international—focus most financing is sourced in the region in which it is on insurance schemes, such as micro-insurance spent, efforts to inform and connect with private schemes to provide support to individual households investors could benefit transboundary RBOs and or small-scale farmers in cases of drought and riparian countries considering transboundary infra- flooding. structure investments. RBOs, governments, and other project proponents need to increase their The primary objective of the private sector is financial efforts or package adaptation efforts in ways that return, driven by fiduciary responsibility to shareholders attract private sector investment. Alternatively, and investors. Social and environmental responsibility private sector can be considered for national-level ­ in the private sector—while gaining more importance financing of projects that contribute to a broader in decision making and along supply and demand basin adaptation program. chains—remains a secondary goal. Nonetheless, in many instances the goals of financial profit and posi- The World Bank, regional banks, and other development tive impact can align, especially with increasing con- agencies will often work with private finance institutions— sumer demand for equitable and sustainable products including, for example, by engaging with the World and services. Moreover, many climate change–related Bank Group’s International Finance Corporation projects offer return on investment when associated (IFC)  or private banks in countries and regions—to with products or services that can produce gains. To seek  arrangements appropriate for local needs and date, more mitigation-related projects attract private attractive to private investors. Ultimately, blended investment, but increasingly adaptation project pro- finance provides a viable option for engaging the ponents are successfully forging partnerships with ­private sector. 20 Financing Climate Change Adaptation in Transboundary Basins BOX 2.5. GCF Accreditation Case Study: The OSS and Consultation Mechanism of the North Sahara Aquifer System (SASS) 30 member states • 23 African countries: Algeria, Arab Republic of Egypt, Burkina Faso, Cabo Verde, Chad, Côte d’Ivoire, Djibouti, Eritrea, Ethiopia, The Gambia, Guinea-Bissau, Kenya, Libya, Mali, Mauritania, Morocco, Niger, Nigeria, Senegal, Somalia, Sudan, Tunisia, and Uganda • 7 non-African countries: Belgium, Canada, France, Germany, Italy, Luxembourg, and Switzerland 13 member organizations OSS programs and projects are financed by voluntary contributions, grants, and donations from its members and partners Description OSS is an international, intergovernmental organization with an African focus based in Tunisia. OSS initiates and facilitates partnerships around common challenges related to shared water resources management, implementation of international agreements on desertification, biodiversity, and climate change in the Sahara and Sahel region. At the 18th GCF Board Session in 2017, the OSS was accredited as a GCF regional implementing agency. OSS is the fourth African entity to comply with GCF requirements, which makes it one of the key stakeholders in accessing climate finance in Africa. This accreditation will allow OSS to mobilize financing from the biggest climate fund endorsed by the international community. OSS is also accredited as a regional implementing entity by the AF since 2013 and by the GCF since October 2017. It accordingly provides its member countries and partners with technical and institutional support for the development of project proposals in relation with climate change adaptation and mitigation. Funded by the AF and implemented by OSS for the benefit of Uganda, the Enhancing Resilience of Communities to Climate Change through Catchment Based Integrated Management of Water and Related Resources in Uganda Project (EURECCA) project is a perfect outcome of this process. OSS has a set of policies that demonstrate the principles and procedures to assess the environmental, social and gender impacts that form an integral part of the Environmental and Social Risk Management System (ESMS) and is intended to build on the existing policies, operating procedures, and project cycle of OSS. In this context, the policy pursues the following objectives (among others): • Define a common, all-encompassing framework to incorporate environmental, social, and gender standards into the planning, appraisal, implementation, and monitoring of measures financed by OSS. • Promote transparency, predictability and accountability in the decision-making processes of environmental and social impact assessments (ESIAs) and screenings. • Encourage project proponents and executing entities of projects directly funded or supported through OSS to have appropriate consideration for environmental and social impacts. • The due diligence conducted includes the level of social and environmental risks commensurate to the scale and nature of the project being financed. Source: OSS website, http://www.oss-online.org/en/who-we-are. Financing Climate Change Adaptation in Transboundary Basins 21 2.5 Concessional Loan Financing projects that generate climate benefits. A bond issuer raises a fixed amount of capital, repaying the capital Concessional loans are provided to borrowers on terms (principal) and accrued interest (coupon) over a set substantially more generous than loans based on market period of time. The issuer must generate sufficient rates. Concessionality may be achieved through inter- cash flows to repay interest and capital. est rates below those available on the market or by grace periods, or a combination. Concessional finance Climate bonds are innovative financial instruments is available through international and regional devel- wherein proceeds are invested exclusively in climate proj- opment banks and partners, as well as through some ects that generate climate or other environmental bene- national banks with loans having long grace periods. In fits for hydropower, energy efficiency, sustainable waste the transboundary river basin context, access to con- management, sustainable land use (forestry and agricul- cessional financing can provide much needed finance ture), biodiversity, and clean water. Their structure, to complement limited budgets and available resources risks, and returns are otherwise identical to those of for climate finance. Many developing countries access traditional bonds. For an example of how these could mainly nonconcessional financing for their develop- be used by an RBO see box 2.6. Globally, climate-aligned ment. Even LICs that have previously been largely bonds stand at US$895 billion, of which labeled green dependent on concessional finance have recently bonds stand at  US$221 billion  outstanding issuances been  diversifying resource mobilization  to less con- and unlabeled climate-aligned bonds at US$674 billion cessional and nonconcessional sources, includ- in 2017 (Climate Bonds Initiative 2018). (See table 2.2.) ing multilateral, bilateral, and commercial creditors as well as international bond markets. The use of climate bonds is growing globally for a wide array of sectors, including water. While only a small per- centage of climate bond issuances has been related to Climate Bonds and Other Bond 2.6  adaptation projects, the water sector is perhaps the Options most attractive and viable (see figure 2.3). This finan- Climate bonds, or “green bonds,” can help mobilize cial tool could offer an opportunity for leveraging pri- resources from domestic and international capital mar- vate finance for water supply and treatment projects, kets for adaptation, renewable energy, and other as well as other blended projects  such as energy or ­climate-friendly projects. They resemble conventional agriculture, thus providing a source of co-financing bonds, except that the proceeds are invested in that could make a project more bankable. BOX 2.6. Climate Bonds for Adaptation in the Water Sector Water scarcity is a threat to many regions of the world, which is increasing steadily with climate change. In most poor regions, water use is highly inefficient due to the high cost of efficiency technology. An RBO could create a basin water facility financed by water bonds, which would generate a guaranteed feed-in tariff for water supplies. The fund would guarantee a minimum price for water provided by a company proportionate to the region’s water availability. As regional economies grow, so will the beneficiaries’ ability to pay, enabling them to eventually pay the fees, at which point the tariff would become redundant. Such an arrangement could attract private investment to provide sustainable water, because there would be a guarantee of payment, and could furthermore enhance food security if designed with agricultural objectives. 22 Financing Climate Change Adaptation in Transboundary Basins Because public finance for climate adaptation has fallen rate of return to investors when a certain predeter- short of estimated need, innovative financing solutions mined objective (e.g., avoiding damage from sea are indispensable. Promising options emerging in the level rise) is met; and (iii) resilience bonds. The latter global bond market for investors looking to diversify approach, in the pilot phase, seeks to incentivize long- their investment portfolios with climate change adap- term decision making by offering a premium discount tation solutions include (i) catastrophe bonds, linked to for the issuer, contingent on a completed infrastruc- insurance that support financial resilience in the ture improvement. face of increasing climate impacts; (ii) environmental impact bonds, incentivize investors by paying a higher Interaction and Cooperation between 2.7  Public and Private Finance TABLE 2.2. Water-Themed Bonds, by Region Public finance, while significantly smaller in scale and reach to private finance, drives private investment and Amount IG Hard grows annually. In 2014, of the US$392 billion dollars of Region (US$, Issuers Deals rated CCY billions) (%) (%) climate finance, 61 percent was private, and 39 percent Europe 63.4 23 231 94 99 was public (CPI 2016). In the context of constrained Asia Pacific 19.7 21 190 80 15 public budgets, significant additional private sector North America 15 30 87 99 99 finance into adaptation will be required to put devel- Latin America 2.3 10 54 <1 15 oping countries on low carbon, climate resilient devel- opment pathways. Generally, investing in developing Africa 0.1 1 2 — 100 countries is an attractive source of returns for private Total 100.5 85 564 — — sector capital providers. In the water sector and trans- Source: Climate Bonds Initiative 2018. Note: CCY = currency; IG = investment grade; — = not available. boundary basin contexts, there is significant potential FIGURE 2.3. Green Bond Commitments, by Sector Allocated and Equity, US$ (billions)a Committed outstanding Mitigation Adaptation Total Renewable energy and Renewable 6.2 0.0 6.2 3.8 energy efficiency energy and Transport energy efficiency 33% Transport 5.1 0.0 5.1 2.0 40% Water, wastewater, and solid 0.1 1.3 1.4 0.9 waste management Agriculture, land use, and 0.5 1.3 1.8 0.8 forestry Resilient Resilient infrastructure, built infrastructure Water and 0.3 0.7 0.9 0.7 Agriculture, waste Mgmt., environment, and other and other, forestry and 9% 6% Total 12.1 3.3 15.4 8.3 ecosystems, 12% 79 21 100 Source: World Bank 2017b, p. 7. a. May not add up due to rounding. Financing Climate Change Adaptation in Transboundary Basins 23 for large public and private investments in irrigation, compatible development projects, making them finan- water storage, and water supply, among others, to be cially more viable and as such more bankable. adaptation related. Incremental costs are generally funded by public climate There is an emerging market for private finance in adap- finance resources; these contributions can motivate tation. Recent signals from large institutional investors investment decisions of private entities and investors. suggest that further capital could be raised specifically Capital investments in climate projects, in contrast, are for adaptation activities, provided the right invest- investments that need to be paid back and are often ment products are available (ABD 2016). There are funded by private sources. Large-scale, complex cli- ­ various ways in which private finance can support mate projects often require both incremental and cap- adaptation. Debt, in particular, can be used as an ital costs, and as such project proponents frequently enabling instrument for both publicly and privately need to combine, or “blend,” private and public fund- initiated adaptation, including direct project lending ing in their proposals. and credit lines to local finance institutions. However, Blending offers the opportunity to scale up commercial to reach poor populations, finance may need to be financing for developing countries and to channel this delivered in new ways, including through microfi- financing toward investments with climate impacts. nance products. Private finance will likely not be equi- Blended finance incorporates different types of financ- tably distributed among countries, but instead will ing into a single project or fund (e.g., grants; concessional focus on large emerging economies and resource rich and market rate debt; equity investment; and risk miti- countries. Public finance will therefore continue to gation instruments, such as insurance or guarantees) play a crucial role in ensuring adequate finance is to  cover full costs and best allocate individual risks. available to those countries not benefiting from private Blended finance allows project proponents to manage flows, and in helping to leverage private finance. In project risks more effectively and use the more limited this regard, blended finance is an important option to public finance to catalyze private investment. The IFC consider when seeking funding. and the GCF have been trying blended finance approaches for climate projects. Implementing entities, such as the World Bank or regional development banks, Bundled, Blended, Multidonor, and 2.8  Other Financial Sources can advise on the viability of a blended approach, depending on the project. In 2017, a collection of interna- At the transboundary level, project scale and other tional, bilateral, nongovernmental, and private sector ­complexities—including those related to the involvement partners created an innovative climate resilience invest- of multiple countries—are sometimes best served by ment fund to support adaptation efforts in the most combining financing sources to meet project require- ­vulnerable countries. The fund was co-created by a U.S.- ments. This might entail combining co-financing from based investment firm called the Lightsmith Group, in national budgets with an international contribution, collaboration with the GEF’s SCCF  project the Climate establishing finance consortia involving multiple insti- Resilience and Adaptation Finance and Technology tutional partners and financiers, blending public and Transfer Facility (CRAFT),11 Conservation International, private sources, or a combination. and the Nordic Development Fund. The fund will invest Blended finance mixes forms of capital to support devel- in companies that provide “resilience intelligence,” such opment. It can bring together public and private finance. as data analytics, modeling, and forecasting, or “resil- Blended climate finance uses development finance ience solutions,” including products and services that to leverage additional resources in support of climate address climate risks in areas such as water, agriculture, 24 Financing Climate Change Adaptation in Transboundary Basins and energy. Other potential investments include ­“climate because of high administrative costs. At the same time, smart” supply chain analytics software, drought-­tolerant a series of smaller projects is often necessary to address tree crops, coastal protection, and disaster recovery. The critical resilience building or adaptation needs. RBOs fund will provide private investors the opportunity to can compile multiple smaller projects within a larger invest in a climate change fund that exclusively focuses project proposal or programmatic approach that are on resilience-related companies. then more attractive to international financiers because of the larger financing amount. In addition, the coordi- Transboundary RBOs can facilitate resource mobilization nation and management role played by the RBO in from a variety of international financing institutions by implementation and the reduced administrative burden providing a coordination and compilation service. For ­ ttractive. for the financier makes such an approach a some international financiers and multilateral develop- (See box 2.7.) Investor roundtables can be organized ment banks (MDBs), small projects are less attractive to present such proposals to a group of financiers. BOX 2.7. Case Study: Climate Resilience Investment Project for the Niger River Basin Implementing partners: World Bank, AfDB, bilateral agencies, Niger Basin Authority, national governments Description The Niger Basin is home to more than 112 million people throughout the nine countries of Benin, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Guinea, Mali, Niger, and Nigeria. The Niger River and its tributaries are a vital lifeline providing drinking water, irrigation, aquaculture, energy, and transport to these nine riparian countries. Heavy reliance on natural resources, combined with ongoing conflicts and political instability, make it one of the most fragile river basins in Africa. Over 70 percent of the population lives in areas where food security depends on unreliable rainfall and highly variable interannual and intra-annual river flows. Climate variability has long been a challenge and an obstacle for development in the basin. The Niger Basin countries recognize that the shared nature of their water resources presents an opportunity for a collaboration and coordination that will derive greater resilience building outcomes. The Investment Plan for the Strengthening of Resilience to Climate Change was prepared and will be implemented by the Niger riparian countries and the Niger Basin Authority (NBA), one of the oldest African intergovernmental agencies, created in 1964 in Niamey, Niger. The Plan includes 246 actions divided in two packages that focus knowledge management and sectoral investments, including measures targeting vulnerability to water stress, variability, soil, land, and ecosystem degradation, and strengthening resilience. Actions were culled from the NBA’s Operational Plan, member countries’ NAPAs and NAPs, as well as country proposals. This comprehensive basin approach to address development and resilience is widely considered a good practice, but rarely implemented in developing countries due to the urgency of many competing development needs as well as resource and capacity constraints. Full implementation of the Plan is estimated to cost US$3.11 billion. The Plan will mobilize funding from a wide array of sources, including regional and multilateral partners, such as the NBA member countries, the AfDB, and the World Bank, as well as private financing. All financing for the investment plan is aligned and consistent with existing plans at the regional and national levels. Financing Climate Change Adaptation in Transboundary Basins 25 7. “…The concept of additional cost, in the context of LDCF and SCCF, Notes is the amount of funding necessary to implement adaptation mea- 1. See the UNFCCC website: https://unfccc.int/topics/adaptation-and​ sures that would not be necessary in absence of climate change” and -resilience/workstreams/loss-and-damage-ld/warsaw​-international​ that “As the LDCF and SCCF fund the full cost of adaptation, they can -mechanism​-for-loss-and-damage. also fund standalone projects, provided that what is being financed are shown to be exclusively adaptation interventions, which are not 2. The multilateral development bank (MDB) methodologies on cli- linked to BAU development.”, https://www.thegef.org/sites/default​ mate finance tracking slightly differ. For example, “…[t]he concept /­f iles/council-meeting-documents/Clarification_on_Additional​ of additional cost, in the context of LDCF and SCCF, is the amount of _­Cost_8_May_4.pdf. funding necessary to implement adaptation measures that would not be necessary in absence of climate change”, https://www.thegef​ 8. Currently 48 because some LDCs graduated after the establishment .org/sites​/­default/files/council-meeting-documents/Clarification_on​ of the LDCF. _­Additional​_Cost_8_May_4.pdf. 9. Operational policies and guidelines for parties to access resources 3. See the UNFCC website, https://unfccc.int/. from the AF are available at UNFCC’s website, http://unfccc.int/files​ 4. For further information on GEF financing criteria, see the GEF’s /­adaptation/implementing_adaptation/adaptation_funding_interface​ funding page, https://www.thegef.org/about/funding. /­application/pdf/afbguide.pdf. 5. See the GEF website, https://www.thegef.org/partners/gef-agencies. 10. See the GCF website, https://www.greenclimate.fund/who-we-are​ /­about-the-fund. 6. Further information on accessing resources under the SCCF is avail- able in the report “Accessing Resources under the Special Climate 11. See the GEF website, https://www.thegef.org/project/structuring​ Change Fund”, https://www.thegef.org/sites/default/files/publica​ -and​-launching-craft-first-private-sector-climate-resilience-adapta​ tions/23470_SCCF_1.pdf. tion​-fund. 26 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 must demonstrate a clear understanding of the adap- describes projects that demonstrate a high likelihood of tation needs and priorities of the basin, as well as put receiving public or private financing on the basis of forward compelling arguments for financing the par- their objectives, design, enabling environments, risk ticular projects presented. There must be a clear and management, and other factors that indicate that the comprehensive understanding of the different sources project is likely to be viable, successful, and sustainable. of finance, their requirements, and procedures. The use of bankability in climate financing context Projects must align with related national, regional, and should not be confused with the more traditional use of international policies. Additionally, there must be a the term bankable in the investment financing context, reliable and capable project proponent that can effec- which refers to project proposals that have sufficient tively manage project implementation and its risks. collateral, future cash flow, and a high probability of Investments in more programmatic activities—such as success to be acceptable to commercial lenders. basin planning, institutional support to basin coordi- nation, or preparatory programmatic studies—­typically Considering limited climate financing resources, the involve less risks and are therefore easier to prepare long-term perspective of climate change, and the ele- for  bankability; characteristically, riparian countries’ vated costs anticipated for addressing climate change, agreement and a sound project proposal will suffice. bankability of a project is key. Climate finance institu- tions have rigorous criteria, and the demand for avail- A bankable transboundary climate adaptation able funding is highly competitive. Studies indicate project does the following: that current financial flows for adaptation fall far short of what is needed to fund adaptation needs in develop- • States anticipated climate impacts, including at ing countries (UNEP 2017). Thus, the ability of project basin level and supported by scientific findings, proponents to attract private financing, especially that are directly addressed by the project for adaptation activities—which have been underrep- • Includes compelling arguments for a transbound- resented in overall climate financing—is equally ary approach, rather than national action important. Studies demonstrate that, when applicable, private sector financing can far surpass public funding. • Aligns with and supports relevant national, regional, global climate, and development policies At the same time, the availability of public finance for a project can be a strong tool to leverage additional pri- • Addresses project risks vate investment. A project’s bankability is important to • Matches the financing institution or partners’ both types of financiers. As such, a good understand- objectives ing of the concept of bankability and its requirements for both public and private financiers will improve the At the transboundary level, both challenges and oppor- possibility of accessing critically needed funds. tunities related to bankability exist. Beyond the pros Several fundamental concepts are critical to identifying, and cons of adaptation and resilience projects in the developing, and implementing bankable adaptation proj- transboundary basin context, regional institutions ects for transboundary river basins. A project proponent can play a fundamental role in strategically placing Financing Climate Change Adaptation in Transboundary Basins 27 projects within broader regional initiatives, provide In transboundary river basins, adaptation will always valuable information, and help coordinate aspects of take place within a backdrop of multiple coexisting project preparation, implementation, and follow-up. national, regional, and global climate change and devel- This is a risk mitigating factor for financiers of opment policies. Project proponents must identify all ­ transboundary projects and improves bankability potentially related policies and ensure that (i) the compared to a series of individual national projects. proposed project aligns with existing priorities and when possible; and (ii) supports the achievement of additional other priorities. Increasingly, RBOs have or Stage 1: Identifying Potentially 3.1  are developing climate adaptation strategies based Bankable Projects on  available information on climate change impacts A clear and well-grounded understanding of the pro- predicted throughout the respective basins. This work jected climate impacts is a critical foundation for identi- will support availability of information for all countries fying and developing bankable projects. Although basin within the basin and improve bankability of projects at organizations, designated information gathering sys- the transboundary level. Articulating the policy align- tems, or adaptation plans are not available in all trans- ment of proposed projects significantly strengthens boundary river basins, where they exist, river basin bankability. organizations (RBOs) can compile critical information for identifying bankable projects from countries in the Check alignment with related policies and plans, basin. They can compile national communications such as the following: (prepared in each country for United Nations Framework Convention on Climate Change [UNFCCC] • National Adaptation Programme of Action (NAPA) reporting); identify information gaps; carry out stake- • National Adaptation Plan (NAP) holder consultation; research, assess, and report; eval- uate related national and regional development • National Climate Change Strategy and Action policies; and help countries with prioritization. All Plan (NCCSAP) bankable projects are based on good climate change • Sustainable Development Goals (SDGs) research, data, and analysis. • National development strategy plans (e.g., 20-year and five-year plans) Transboundary RBOs can support or provide regional and basinwide the following: • Relevant sectoral strategies and plans • Climate information systems • Relevant subnational and regional plans • Stakeholder engagement • Gender strategies, policies, frameworks, and action plans • Research, evaluation, reporting • Alignment with policies Whether a project is bankable depends on criteria and • Prioritization processes procedures required by each financial institution or fund- ing source. As RBOs or other basin- or country-level • Resilience planning project proponents identify needs, they can assess • Resource identification and mobilization which source might be best suited for which area of action. Each financing source varies in its objective, 28 Financing Climate Change Adaptation in Transboundary Basins focus, and procedures. As such, resource mobilization management interventions. Climate adaptation financ- begins with identifying the correct financing partners ing is typically designed to cover only those projects or and exploring compatibility. Some institutions provide project elements that address climate change impacts. direct access (e.g., Adaptation Fund [AF]; Green Establishing an irrefutable link to climate change is Climate Fund [GCF]; nongovernmental organizations essential in any climate finance proposal. While this [NGOs]; and private investors), while others require a may seem obvious, it is one of the most common errors national or international implementing agency, such or weaknesses in project proposals. These links should as a national implementing entity (NIE) (e.g., GCF) or also be carefully considered when developing an adap- an international agency such as the United Nations tation financing strategy. Development Programme (UNDP), the United Nations Climate finance, and especially financing for adaptation, Environment Program (UNEP), or the World Bank. is similar to yet distinct from development finance. Each type of access has its special characteristics. Recognizing and being able to articulate the difference Further, financing institutions each have criteria for between climate and development finance are crucial climate adaptation projects, such as (i) providing the to securing funds for climate-related activities. Climate most benefits to the greatest number of people; change finance is any national, regional, or interna- (ii)  providing for effective implementation; and tional financing provided for activities or projects that (iii)  ensuring sustainability over time. Sustainability address the causes or impacts of climate change. can be affected by such factors as a national govern- ment’s willingness and ability to carry projects beyond the period of initial investment or finance. When insti- Clearly articulating the “climate rationale” in a tutions already finance related (or nonclimate change– transboundary basin is critical to any bankable related) projects in the basin, they might be eager to project. Test your climate rationale by asking the following questions for each project component: complement ongoing work with an additional climate adaptation project. • What is the problem I am trying to solve? • How is the problem caused by the onset of cli- European Investment Bank criteria for bankable mate change (chain of causation)? projects: • What is the proof (scientific data or climate infor- • Project meets at least one of the EIB’s objectives mation) for question 2? • Is technically sound • Will project implementation prevent impacts, • Is financially viable build resilience, or otherwise help the target group to adapt? And if so, how? • Shows an acceptable economic return • Complies with environmental protection, social standards and procurement regulations To be eligible for climate finance, a project must clearly establish how it will respond to climate change impacts by stating the expected impacts, as supported by 3.2 Stage 2: Project Preparation ­ scientific findings, and by demonstrating how the Climate change impacts on water resources are numer- project activities and elements directly address those ­ ous, and actions required to avoid or address these impacts. Developing bankable project proposals for impacts are often similar to traditional water resources transboundary river basins arguably requires a third Financing Climate Change Adaptation in Transboundary Basins 29 requirement beyond identifying and adequately resource mobilization and avoid unwanted missteps. addressing climate impacts: the proposal needs to In addition to project preparation funds available demonstrate that it is necessary to address those through the GCF and the Global Environment Facility impacts with a transboundary approach, rather than (GEF), institutions such as the African Water Facility or simply a national one. regional UNDP offices support the preparation of detailed feasibility studies that will enable lending Project proposals must delineate the benefits of a trans- institutions to make a funding decision for the respec- boundary basin approach and demonstrate how potential tive project. challenges are being addressed. Climate impacts for transboundary river basins can be found in numerous sources. The first source, if available, is a river basin’s 3.3 Using the Project Cycle as Guide climate impact assessment. Another source is compil- Understanding the project cycle of the financing ing the national climate impact studies of every basin sources targeted with the proposal is an important first country. Every developing country has a National step to developing a bankable project. Every public or Communication produced for the UNFCCC1 that details private institution that invests in project develop- climate impacts, greenhouse gas inventories, and miti- ment has a  project cycle that marks every step gation and adaptation options, among other informa- through which a project passes from conception to tion. The Intergovernmental Panel on Climate Change post-implementation assessment. Although they (IPCC)2 also produces comprehensive reports every four contain many similar components or steps, project to five years that contain topical, regional, and subre- cycles vary between institutions, and no single gional information on climate impacts. Many research approach applies to all potential financing sources. institutions, universities, local and international NGOs General elements in most project cycles are delin- also investigate and report on climate impacts. eated in table 3.1. The project cycle typically begins with project identification based on needs assess- Preparing a bankable project requires following the proj- ments, research, or other processes that identify ect eligibility criteria, application rules, and procedures: a needs and articulate a proposed response. For climate simple yet fundamental step. Not every project is appro- adaptation projects, the potential impact must be priate for every financing source; this is especially true clearly and demonstrably linked to climate change for transboundary basin projects and projects pro- and is not simply a development issue involving posed by RBOs that face distinctive challenges. All cli- weather variability or customary climate causes. The mate finance institutions provide detailed information project appraisal and design stage follow, during on eligibility, application process, and other funding which proponents typically work with potential relevant instructions on their websites. funders to assess viability and carefully design the Support for project preparation and to identify the right detailed content of the project and its budget. After financing source is frequently provided by development design and approval, the project moves to implemen- partners and financing institutions. The inherent com- tation, funds are disbursed, and the project is carried plexities of transboundary adaptation and resilience out.  During and after implementation, the project projects make technical assistance from development undergoes monitoring and evaluation that allows for agencies and the availability of a project preparation adjustments, if needed, to improve effectiveness or facility especially attractive. If this kind of support is provide lessons for future projects. Each stage not readily available, an RBO or co-riparian countries includes numerous elements and varying degrees of could consider hiring an external consultant who spe- involvement from the project proponents, funders, cializes in adaptation project preparation to optimize and other relevant partners or groups. 30 Financing Climate Change Adaptation in Transboundary Basins It is critical to conduct climate-lens analysis at all design such  as an RBO, could have its own project cycle to stages of the project cycle, as each stage has a distinct role identify and implement projects funded internally. to play. Table 3.1 summarizes main elements and subcom- Typically, however, an RBO will be a project proponent ponents of a project cycles (based on project cycle criteria for support from a financing institution, for which the from various institutions) and illustrates how ­ climate latter’s project cycle will therefore apply. change adaptation can be integrated at each level. Some aspects of the project cycle are prepared exclu- 3.4 Managing Risk sively by the recipient, some are carried out by the finan- Managing risk is a key measure to improve the bankabil- cier, and other stages are cooperative or co-generated. ity of a transboundary river basin project. Helping with An institution with its own discretionary funding, removal of obstacles to investment by the private TABLE 3.1. Elements of the Project Cycle Preparatory phase • National and basinwide climate impact studies • Stakeholder consultations • Transboundary climate change study (mitigation and adaptation) • Development of transboundary adaptation strategy • Identification of relevant national policies, regional development strategies, and so on • Review of national and transboundary development plans, policies, and projects to identify alignments and synergies • Information gathering on existing adaptation practices and tools • Identification of potential funds, private sector partners, institutional partners, other financing sources Project identification • Priority setting • Cross-governmental and stakeholder consultation: RBO or other transboundary body carries out stakeholder consultation, including with relevant national authorities • Aligning or complementing existing projects • Risk assessment with climate lens • Climate impact and needs assessment (based on impact studies) Project preparation and review • Acquisition of information on project proposal rules and instructions • Design of project components in cooperation with transboundary stakeholders and according to donor requirements • Development of budget • Development of compelling arguments for transboundary project • Approval of NDAs in all concerned countries, as applicable depending on funding source • Design of monitoring and evaluation component • Preparation or revision of proposal with the financing institution or adviser Financing negotiation (loan, grant, or other sources, if applicable) • Definition of financing terms • Setting of loan repayment period (as applicable) • Conditions for reporting or repayment • Procurement and decision-making rules table continues next page Financing Climate Change Adaptation in Transboundary Basins 31 TABLE 3.1. Continued Project loan approval • Final approval by financing body • Preparation for disbursement Implementation and project oversight • Disbursement of all or part of payment • Procurement and hiring • Implementation activities • Involvement of all concerned countries and stakeholders to create ownership • Establishment of data and information collection system for reporting • Sharing of experiences at basin and global level Monitoring and evaluation (part of implementation as well as postimplementation review) • Data collection and measurement of outcomes • Evaluation process of outputs and outcomes • Reporting on outcomes, including required adjustments, if applicable Note: NDAs = national designated authorities; RBO = river basin organization. sector is one example of what transboundary institu- agreements that include a combination of tions can achieve. RBOs can assess risks of investments institutional mechanisms—such as a joint basin in specific sectors and geographic areas throughout commission—and mechanisms for enforcement, their basin. This “big picture” perspective allows them monitoring, conflict resolution, and flexibility, to balance risks with benefits, coordinate with coun- among others, tend to notably enhance cooperation tries and stakeholders on risk management, and pro- above and beyond basin agreements lacking this vide a central point of communication and information combination of features (Dinar and Dinar 2016). This on risks for interested private sector entities and is one reason why investors are more likely to pro- potential investors. One of the challenges RBOs and vide financial resources to basin development and riparian states face is the limited availability of risk adaptation projects in basins with established joint management tools for the transboundary context, institutional  mechanisms that are underpinned by such as funding for demonstration projects, setting up legal agreements. revolving funds, initiating transboundary public-pri- Differences among national legal frameworks, compli- vate partnerships (PPPs), and risk financing. When ance, enforcement, and regulatory environments in available, RBOs can explore these and other financial riparian countries in a transboundary basin can create and institutional modalities to improve private sector complex challenges and increase investment and imple- involvement. mentation risks for climate adaptation projects, espe- Strengthening river basin agreements to address risks cially when transboundary RBOs have limited substantive posed by climate change is critical to long-term viabil- mandates, powers, or enforcement capacity. When resil- ity and cooperation as well as attracting investment ience or adaptation projects entail activities by national and financing. Global experience and research demon- or subnational agencies, projects necessarily unfold strate a positive relationship between the existence within the context of legal and institutional mandates. of formalized river basin agreements and subsequent Incoherent, weak, or conflicting legal mandates within ­ cooperation in individual basins. Moreover, basin a basin create risks and can impair bankability. 32 Financing Climate Change Adaptation in Transboundary Basins Projects are more precarious when they intend to fos- provide political risk insurance and investment guar- ter behavioral change among water users if the national antees that can be used to mitigate against payment legal or policy framework are not supportive. An addi- risks. MIGA provides guarantees in the form of politi- tional complexity to this is in federal or decentralized cal risk insurance for cross-border direct investments systems for water management. Conversely, legal and for private sector clients. New cross-border sovereign regulatory coordination by an RBO, as well as involve- guarantee mechanisms are being explored that could ment of the RBO in regionally relevant compliance sys- be employed in transboundary settings, such as for tems, can help manage these risks. hydropower cascade development (Leb et al. 2018). Designing a sound risk-sharing protocol during the proj- Although political risk insurance is unusual for invest- ect development phase is crucial to ensuring bankability. ments in transboundary river projects, there is no reason For example, an infrastructure investment project why it could not be tailored to this context. The Overseas could require a feasibility study including options Development Institute (ODI) proposes the establish- assessment and financial and economic assessment for ment of a “risk guarantee fund” by the transboundary higher transboundary risks. If multiple countries institution to facilitate economically viable projects design and agree to the project proposal, the risk of that face political exposure and might be considered nonagreement is covered. The risk of slower imple- too high risk due to the uncertainty of transboundary mentation resulting from higher transaction costs will contracts, such as when water stored in one country is always be there. In contrast, if a transboundary project used by another, (Nicol, van Steenbergen, and te Velde has not secured agreement among affected co-riparian 2002). Alternatively, financiers or riparian countries partners, the risk management strategy would include can provide targeted guarantees to secure investments an explanation on why nonagreement does not affect or establish a special purpose vehicle to limit political the project or a strategy on how the project will other- risk. An overview of levers for risk mitigation more wise address transboundary risk. If the risks are not generally is provided in figure 3.1 below. allocated to the right parties during a project’s concep- tualization phase, the likely consequence is an inabil- Additional Tools and Resources that 3.5  ity to find investors and lenders. Strengthen Bankability Project preparation facilities (PPFs) support the develop- Insurance is an additional way to manage risk. Many pri- ment of bankable, investment-ready projects. PPFs pro- vate investments in adaptation for the water sector vide technical and financial support to project focus on small-scale insurance schemes to farmers or proponents. They can cover such activities as undertak- households to ensure against drought and flooding. ing project feasibility studies, including value-for- Other types of insurance are focused on covering, money analysis; developing procurement documents for  example, loss of investments resulting from and project concessional agreements; undertaking restrictions on repatriating profits out of the country, social and environmental studies; and creating aware- expropriation and nationalization, breach of contract, ness among the stakeholders. Having these preparatory and war and civil disturbance. Insurers can be brought elements in place strengthens a project’s bankability together to spread and share exposure. International and improves future implementation options. institutions and private insurance companies such as the Multilateral Investment Guarantee Agency (MIGA), Another tool for strengthening bankability suitable for part of the World Bank Group; Overseas Private large-scale transboundary projects or other private sector Investment Corporation (meant to facilitate U.S. pri- projects is a market sounding exercise. Such exercises vate investment abroad); or the Lloyd’s syndicates communicate with and inform an array of investors and Financing Climate Change Adaptation in Transboundary Basins 33 FIGURE 3.1. Levers for Adequate Risk Mitigation of Green Finance Projects Green nance system/Machanism Adequate risk mitigation for bankability of green nance projects Government role: incentivize • Incentivizing frameworks of laws, policies, standards, Well-prepared and structures projects and concessional funds Use of government concessional funds Third party role: institutionalize as leveraging nance • Institutionalizing an independent green achievements Optimal risk allocation between public and targeting, monitoring, and performance system provate nance • Enabling local governments in project preparation Clear green targets linked to nancial and monitoring capacities incentives Investment vehicles option for institutional Markets role: innovate investors’ ease of entry and exit • Innovations of nancial instruments and investment Capital markets roadmap for issuing green vehicles securities Source: ADB 2018. BOX 3.1. Case Study: Climate Change and Security in the Dniester Basin Implementing partners: UNECE and Organization for Security and Co-operation in Europe (OSCE) Climate Change and Security in the Dniester River Basin is an integral part of a larger project: Climate Change and Security in Eastern Europe, Central Asia and the Southern Caucasus. The strategic framework for Climate Change Adaptation in the Dniester Basin was developed and launched at a high-level event by the deputy ministers of environment of Moldova and Ukraine. An implementation plan and resource mobilization plan are being developed in consultation with the basin stakeholders to ensure mainstreaming adaptation to climate change in the national and local policy instruments. Several adaptation measures have been implemented in the basin. Climate impacts include flooding in the Dniester River Basin (as happened in 2008 and 2010), which causes significant damage and presents a consequence of climate change. According to long-term observations, such flooding used to happen once in 10 to 15 years. The number of low water years has also increased. During the last decades the periodicity of dry years (with unfavorable conditions for agriculture) has increased to every three years from a four-year cycle and harms the agriculture sector. The basin has elaborated a Plan for Implementation of the Strategic Framework and a Funds Mobilization Strategy that describe funding opportunities from international to local levels for financing adaptation measures. Source: (OSCE, 2017). partners, assessing their interest and concerns regarding allocation matrix (see box 3.1). It  can also provide a particular sector or project prior to an official announce- insight to the lending market and gauge the interest of ment or request. Market sounding provides valuable lenders, which for many reasons can vary over time. feedback from the lender community to the project Getting lenders input early in the project preparation can proponents that helps shape the project and its risk ­ help manage risk and improve bankability (Rana 2017). 34 Financing Climate Change Adaptation in Transboundary Basins 3.6  Recommendations for Developing Understand and follow funding processes carefully and Bankable Projects precisely to ensure eligibility and to maximize chances of success. Although many funds serve similar target groups Identify the root of the climate change challenge. and issues, eligibility criteria and procedures for access- Identify vulnerabilities and the reasons for climate ing financing vary significantly and are often complex. change–induced problems. What are the broad chal- lenges, and what are the root causes for vulnerability? Identify, communicate, and address potential risks. To Why are they not already addressed? Is there a trans- strengthen bankability of a project, proponents of boundary component to why the problem has not transboundary river basin projects should be able to already been addressed? Nonclimate-related factors identify risks and demonstrate their ability to manage are also at the heart of the matter. Understanding the these. Risk management can be quite technical and causes of the problem in their causal relationship to may require involving additional experts and advisers climate change is critical for formulating an appropri- during project development and design. ate adaptation response. Support regional planning and mainstreaming. Aligning Ensure design and scope specific to climate adaptation. climate financing with existing river basin planning is Define the problem. Describe the climate change critical to ensure the efficiency of resource use and the impacts directly responded to by the adaptation proj- long-term sustainability of a project. Bankable climate ect, including possible transboundary impacts. Make adaptation projects will strive to complement and sup- reference to existing assessments and studies as well port ongoing implementation of river basin develop- as documents such as NAPS and NDCs, and demon- ment strategies and planning. As such, projects should strate the benefits of a transboundary approach (such reference the strategies or tools and how they either as sharing data and locating measures that may have support or could be supported by climate financing. In an optimum effect). turn, river basin management plans and climate invest- ment plans can consider and make reference to climate Understand the financing landscape and establish rela- finance opportunities. tionships with financing partners. Resource mobiliza- tion for adaptation and resilience building in a Align projects with existing climate and development transboundary context requires a strong knowledge of strategy and policy. Virtually all financiers require proj- ect proponents demonstrate alignment with existing the full array of public and private financing sources policies. and the many funds and options offered in each cate- gory. Not all funds and donors accept transboundary Capture co-benefits. It is possible, and often attractive to projects, or they may have restrictions about the types donors, for project proposals to identify multiple of institutions with which they will partner. Beyond co-benefits. Without forcing the interlinkages, a mitiga- understanding which funds exist, policy makers tion project that reduces carbon dioxide might also should develop direct relationships with people in build the resilience of a community to the impacts of each fund who are responsible for project selection in climate change. In other instances, mitigation or adap- the respective region or for working in transboundary tation projects can also protect human health, restore river basin contexts. Advocating for the benefits and biodiversity, or advance economic development. These opportunities inherent in transboundary approaches types of projects are attractive because of the exponen- to resilience building and adaptation to climate change tial benefits. They open opportunities for alternative is a crucial step to capturing the interest of financing sources of support and financing. Common  examples institutions. of such projects are reforestation or forest protection Financing Climate Change Adaptation in Transboundary Basins 35 projects in which the benefits include both carbon many current rules and instruments are still evolving, absorption and resilience building through land man- lack concrete experiences, and, therefore, offer oppor- agement, watershed protection, and improved liveli- tunities for the beneficiaries to shape the rules and hoods; or dam installation for energy generation when procedures. Knowing the strengths and weaknesses of paired with improved irrigation and flow regulation to working within a transboundary context will allow prevent floods and droughts. Highlighting multiple project proponents to lobby effectively for added ben- benefits can give greater access to funds and increase efits, while managing risks. New funding sources may budget availability. Other attractive combinations for have flexibility if they can be convinced that funds financiers are projects that have both adaptation bene- will have a greater impact in a transboundary project fits and achieve other sustainable development goals as than a single country one. Multicountry projects theo- co-benefits to the project. For example, reinforcing retically have more advocates because each govern- water distribution facility resilience toward climate ment and the RBO can lobby in support of them. It is change has both adaptation benefits and achieves important to be flexible and strategic, however, when SDG  6. At the same time, such projects may be more the rules may not allow for a transboundary project complex at implementation, monitoring, and reporting and see how funds might be accessed for a single stages and can pose additional risks. country that can then support the overall basin adap- tation program, decreasing its financing needs so oth- Cluster projects within the basin, coordinating project ers in the basin might access limited national or proposals. Clustering two or more smaller geographi- regional finance. cally related or thematic projects under one larger project proposal have numerous advantages and bene- Share experiences and learn from others. Transboundary fits. A cluster that shares geographic or thematic char- climate change finance is still a very new field. It is acteristics can be simpler to manage from a financier’s therefore crucial to share experience and learn from perspective than many smaller projects. Some inves- other basins. Events such as the UNFCCC Conference tors have stated or unstated project budget minimums of the Parties (COP), World Water Week, and the World that preclude smaller projects from receiving funding. Water Forum—as well as those taking place within the A group will surpass such as threshold and become context of the UNECE/International Network of Basin more attractive. Clustered projects may be more effi- Organizations (UNECE/INBO) global network of basins cient to implement, because they can share project working on climate change adaptation—provide useful management, technical resources, and other resources forums in which to meet and share experience. that allow for wider implementation with more limited Additionally, the GEF knowledge management and funding. However, clustering can add complexity and lessons sharing mechanism for international waters, challenges at all stages of the funding process. Whether GEF IW: LEARN,3 which is more than 18 years old, or not to cluster projects is a decision to make early in offers considerable experience and knowledge on cli- the project cycle or in consultation with potential mate finance, including in the transboundary context. financiers. River basin management plans or invest- ment strategies can determine the potential for clus- Notes tering. It is usually the responsibility of the national 1. See the UNFCC website, https://unfccc.int/process/transparency​ representative appointed to liaise with the RBO to -and-reporting/reporting-and-review-under-the-convention/national​ - communic ations-non-annex-i-parties/submitted​-national​ review, understand, and coordinate national policies -communications-from-non-annex-i-parties. and strategies with those of the basin. 2. See the IPCC website, https://www.ipcc.ch/publications_and_data​ Innovate, advocate, and be flexible. Climate finance is a /publications_and_data_reports.shtml. relatively new field of global financing, and as such 3. See the GEF website, https://iwlearn.net/. 36 Financing Climate Change Adaptation in Transboundary Basins Chapter 4 Conclusions I n transboundary contexts, working cooperatively have higher transaction costs and tend to take more and with basin organizations is critical to supporting time because endorsement from all riparian countries successful adaptation and resilience strategies, access- is usually needed by the climate funds and multilateral ing much-needed financial resources for climate action, ­MDBs). Implementation can be development banks ( and making the best use of limited national resources more complex because river basin organizations available for the most critical ­ issues. Basins’ abilities (RBOs) often cannot receive direct funding and may to respond effectively to the onset of climate change lack the required legal and financial status and capac- depend on a broad range of factors including access ity to manage complex projects, therefore requiring to information on potential impacts, institutional the involvement of individual riparian countries and capacity to prepare and deploy adaptation strategies, implementation. further parties for ­ monitoring and information gathering to respond Each basin is different, and basin organizations need to appropriately and rapidly to climate impacts, and identify the most suitable role in supporting climate access to financing and absorption capacity, among financing for their ­ region. Their role may include estab- others. The issues covered in this paper aim to provide ­ lishing the basis for successful financing strategies by a better understanding of available climate financing developing transboundary adaptation plans (through for adaptation and resilience building in transbound- cooperative decision making), prioritizing measures to ary contexts, and recommendations on how to pre- support countries in fundraising efforts by sharing pare bankable projects to successfully accessing these knowledge, and, in some cases, receiving and imple- ­resources. menting funds for investment directly, such as done by The challenges of climate change impacts for countries L’Organisation pour la Mise en Valeur du Fleuve in transboundary river basins are compounded further by (OMVS). Some RBOs become very active in Sénégal ­ the complexity of multinational decision making, legal this field, such as the Lake Victoria Basin Commission and political challenges, and additional risks unique to a ­OSS). (LVBC) and the Sahara and Sahel Observatory ( geographical context in which water resources are shared They can participate in different stages of the project yet crossed by national ­borders. Transboundary cooper- cycle for needs assessment, implementation, coordi- ation improves the eventual quality of adaptation evaluation. nation, and monitoring and ­ measures thanks to stakeholder involvement and RBOs consistently underline their need for capacity multicountry ­support. building and technical assistance to develop bankable Cooperation can furthermore improve the bankability of ­projects. Training, advisory support, and further projects because of the enhanced ability to manage opportunities to exchange experiences among basins certain investment risks ­ (e.g., maladaptation) and opti- can make a major contribution to supporting trans- mize ­benefits. Conversely, transboundary projects often building. boundary adaptation and resilience ­ Financing Climate Change Adaptation in Transboundary Basins 37 A clearly presented summary document, or investment project. The information in step to develop a bankable ­ project profile, is a fundamental preparation tool for ­ .1, provides a starting point from appendix A, table A resource mobilization and developing investment which to collect critical information to developed ­partnerships. Understanding the funds available, their adaptation project proposals that fit the respective ­ eligibility criteria, and processes is the next important requirements. fund’s specific ­ 38 Financing Climate Change Adaptation in Transboundary Basins Appendix A: Overview of Funding Sources Table A.1 focuses on funds that finance adaptation-related activities and are relevant for transboundary basin adaptation projects and programs. TABLE A.1. Multilateral and Regional Climate and Climate Related Funds Eligible sectors and Eligible countries Host entity or Name Funding type Further information activities and actors fund trustee Adaptation Grant Adaptation, all sec- Developing member World Bank https://www.adaptation-fund​ Fund (AF) tors, including trans- countries (DMCs) .org/ boundary waters Adaptation for Grant, loans Agriculture (small- Least developed International Fund https:​/­​/­www.ifad.org​/­web​ Smallholder Agri- holder farmers) countries (LDCs) for Agricultural /­guest​/­asap culture Programme Development (ASAP) (IFAD) Asian Develop- Co-financing Greenhouse gas DMCs ADB https:​/­​/­www.adb.org​ ment Bank (ADB) for CDM emission mitigation; /­publications​​/­­carbon-market​ Carbon Market ­ rojects p energy; methane -program-brochure Program; incl. Asia capture Pacific Carbon Fund and Future Carbon Fund Africa Climate Grant Climate readiness, Regional member African Develop- https:​/­​/­www.afdb.org​ Change Fund access to climate countries (RMCs), ment Bank (AfDB) /­en​/­topics-and-sectors​​ (ACCF) finance all sectors, nongovernmen- /­­initiatives-partnerships​ including trans- tal organizations /­africa-climate-change-fund​/­ boundary waters (NGOs), research institutions, regional institutions Africa Water Grant Water, including RMCs AfDB ­​ ­www.africanwaterfacility​ https:​// Facility transboundary .org​/­en​/­ waters Association of Loans Transport, energy, Member countries ADB https:​/­​/­www.adb.org​ Southeast Asian water and sanitation, (MCs) /­site​/­funds​/­funds​​ Nations (ASEAN) environment, rural /­­asean-infrastructure-fund Infrastructure Fund development, social infrastructure BioCarbon Fund Upfront and Landscape MCs, private actors, World Bank https://wbcarbonfinance.org​ results-based ­restoration NGOs /​Router.cfm?Page=BioCF​ finance &ItemID=9708&FID=9708 table continues next page Financing Climate Change Adaptation in Transboundary Basins 39 TABLE A.1. continued Eligible sectors and Eligible countries Host entity or Name Funding type Further information activities and actors fund trustee Carbon Initiative Performance-​ Energy access LDCs World Bank ­​ ­www.ci-dev.org​/­ https:​// for Development based finance Clean Technology Loans Energy (renewable, MCs World Bank https://www.climateinvest​ Fund (CTF) energy efficiency), mentfunds.org/topics​ Transport /­clean-technologies Clean Energy Grant and Energy DMCs ADB https://www.adb.org/site/funds​ Financing Part- nongrant /funds/clean-energy-financing​ nership Facility -partnership-facility (CEFPF) Climate Change Grant, techni- Adaptation, clean DMCs ADB https://www.adb.org/site/funds​ Fund (CCF) cal assistance, energy development, /funds/climate-change-fund and direct REDD+ and land charge use, climate finance readiness Climate Invest- Grant, loans Clean technologies, MCs World Bank https://www​ ment Funds (CIF) climate resilience, .climateinvestmentfunds.org/. energy access and See also CTF, FIP, PPCR, and sustainable forests SREP ClimDev-Africa and Technical Early warning, fore- RMCs United Nations http://www.climdev-africa.org​/­ ClimDev Special assistance casting, mitigation, Economic Com- Fund adaptation mission for Africa (UNECA), African Development Bank (AfDB) Congo Basin Forest Grant Forest management, RMCs, NGOs, CSOs, AfDB https://www.afdb.org​ Fund livelihoods research institutions, /­en/topics-and-sectors​ private sector /­initiatives-partnerships​ /­congo-basin-forest-fund​/­ Cooperation in Grant Transboundary DMCs World Bank http://www.worldbank.org/en​ International waters /­programs/­cooperation-in-inter Waters in Africa national-waters-in-africa (CIWA) Forest Carbon Grant, techni- Forest management REDD+ countries World Bank https://www​ Partnership Facility cal assistance, .forestcarbonpartnership.org/ (FCPC); Readiness result-based Fund and Carbon payment Fund Forest Investment Grant, loan, Forest management DMCs, private sector, World Bank https://www.climateinvest​ Program (FIP) concessional communities, indige- mentfunds.org/­topics​ finance nous peoples /­sustainable-forests table continues next page 40 Financing Climate Change Adaptation in Transboundary Basins TABLE A.1. continued Eligible sectors and Eligible countries Host entity or Name Funding type Further information activities and actors fund trustee Global Environ- Grant Climate change, MCs World Bank https://www.thegef.org/ ment Facility (GEF) international waters, water resources, biodiversity, forests, chemicals and waste, land management Global Climate Grant, techni- Adaptation and mit- LDCs, SIDS EU (European http://www.gcca.eu/ Change Alliance cal assistance igation all sectors, Union) REDD Global Fund for Technical Resilience building MCs World Bank https://www.gfdrr.org Disaster Risk assistance Reduction (GFDRR) Green Climate Grant, loan, Mitigation and adap- DMCs https://www.greenclimate.fund​ Fund (GCF) equity, tation all sectors; /­home ­guarantee including regional programs and trans- boundary waters Least Developed Grant Adaptation, all sec- LDCs GEF https://www.thegef.org/topics​ Countries Fund tors including trans- /­least-developed-countries​ (LDCF) boundary waters -fund-ldcf NEPAD Infra- Grant Energy, transport, DMCs AfDB https://www.afdb.org​ structure Project energy, ICT, water; /­en​/­topics-and-sectors​ Preparation Facility including trans- /­initiatives-partnerships​ (NEPAD-IPPF) boundary waters /­nepad​-infrastructure-project​ -preparation-facility-nepad-ippf​/­ Pilot Program for Grant, Adaptation, all DMCs World Bank https://www.climateinvest​ Climate Resilience ­concessional ­ ectors s mentfunds.org​/­topics​ (PPCR) finance /­climate-resilience Scaling Up Renew- Grant, Renewable energy DMCs World Bank https://www.climateinvest​ able Energy ­concessional mentfunds.org​/­topics​ Program for Low finance /­energy-access Income Countries (SREP) Special Climate Grant Adaptation, all sec- DMCs GEF https://www.thegef.org​/­topics​ Change Fund tors, including trans- /­special-climate-change-fund​ (SCCF) boundary waters -sccf Strategic Climate Grant, loan, Adaptation all sec- DMCs World Bank The SCF is the umbrella trust Fund (SCF) concessional tors, energy, forest fund for FIP, PPCR, and SREP. finance management Sustainable E ­ nergy Grant, loan, Energy, agriculture, RMCs IADB https://www.iadb.org/­en​ and Climate concessional transportation, /­topics/­climate-change​ Change Initiative finance water, environment, /­secci%2C1449.html (SECCI) climate resilience table continues next page Financing Climate Change Adaptation in Transboundary Basins 41 TABLE A.1. continued Eligible sectors and Eligible countries Host entity or Name Funding type Further information activities and actors fund trustee Sustainable Energy Grant, techni- Small and medium RMCs AfDB ­​ ­www.afdb.org​ https:​// Fund for Africa cal assistance, scale renewable /­en​/­topics-and-sectors​ equity energy and energy /­initiatives-partnerships​/­sustain efficiency able-energy-fund-for-africa​/­ United Nations Grant Forest Management MCs FAO, UNDP, UNEP http:​// ­​ ­www.un-redd.org​/­ Reduced Emissions from Deforestation and Forest Deg- radation Program (UN-REDD) 42 Financing Climate Change Adaptation in Transboundary Basins Glossary Adaptation. While definitions vary widely among attractiveness for proponents, national or interna- ­institutions, adaptation generally refers to measures tional partners, and financiers. For climate adaptation taken to support and build the ability to withstand projects, these often include mitigation, health, water the impacts of climate change. This includes changes resources management, and economic development, in processes, practices, and structures to respond to among others. climate impacts. Adaptation can also encompass ­ Climate finance. Any funding allocated to projects that actions that exploit beneficial opportunities that may address climate change, whether in the mitigation of arise from climate change (e.g., increased crop yields greenhouse gases, adaptation to climate impacts, certain areas). Adaptation covers a wide range of in ­ building of resilience to changes in the global climate, ­ activities. It might include large infrastructure or the losses and damages incurred from the onset of changes, such as preparing coastal villages to with- climate change. stand sea level rise; socioeconomic changes, such as transitioning to crops that can withstand increased Climate impacts. The effects of climate change on natu- temperatures; or behavioral changes, such as encour- ral and human systems. Potential impacts include all aging individuals to use less water or businesses to buy impacts that may occur given a projected change in flood insurance. It may be planned or spontaneous, climate, without considering adaptation. ­ small or large scale. Agreed incremental costs. These cover the difference Adaptive capacity. The ability of a system to adjust to between a less costly, more polluting option and an climate change (including climate variability and alternative, which is more climate friendly or resilient extremes) to moderate potential damages; take advan- (and usually more expensive). Agreed full cost, in tage of opportunities; or cope with the consequences. contrast, covers the entire cost of the climate project. ­ Article 4.3 of the UNFCCC delineates what projects Bankable. The state of preparedness of a particular under the Financial Mechanism have incremental or adaptation project such that funders find the project full cost coverage. sufficiently attractive and secure in terms of invest- Oversees Development Assistance (ODA) is financing ment value. A project is bankable if it illustrates provided from developed to developing countries to characteristics and is sufficiently elaborated such that assist the latter in attending to diverse development financing institutions or organizations will cover the challenges or supporting in crisis situations. requested costs. Resilience to climate change. The ability to sustain Blended finance. Combining of two or more types of shocks imposed by climate impacts while maintaining financing instruments to cover costs and diversify integrity. The definition is often expanded to include sources, thereby ensuring that all costs are covered; the capacity to renew and develop, as well as to use this reduces risk, and creates greater attractiveness ­ certain climate impacts as opportunities for innova- for a wide variety of financiers. tion and evolution of new pathways that improve one’s Co-benefits. Secondary benefits to the primary objec- ability to adapt to those changes. Climate resilience tive of a project that will often strengthen a project’s encompasses a dual function: to absorb shock as well Financing Climate Change Adaptation in Transboundary Basins 43 as to self-renew. This is perhaps the main way to distin- for  restricted specified task. Authorities are assigned guish it from the concept of adaptation. For example, a  wider mandate for action including the potential increasing water access points throughout a river basin hosting of investment projects. improves the resilience of the community to drought Risk. The probability or threat of quantifiable damage, induced by climate change. Climate resilience both loss, or any other negative impact caused by external enables an actor to absorb climate shocks and advance or internal vulnerabilities, and that could be avoided its development or growth. by preemptive measures. River basin organization (RBO). An institution created to Transboundary river basin. Includes in its geographical support cooperation in a river basin. RBOs help with area two or more countries. It may also be defined as a decision making, resource mobilization, and project basin that contains at least one political border: either implementation, among other activities. Designated a border within a nation or an international boundary. powers impact on the type of projects that an RBO can carry out or the appetite for supporting bankable Vulnerability. The degree to which a system is susceptible projects. Basin committees often have limited legal to, and unable to cope with, adverse effects of climate strength legally. Activities are mainly coordination or change, including climate variability and extremes. advisory function. Commissions have some legal pow- Vulnerability is a function of the character, magnitude, ers in given sectors and are more effective in develop- and rate of climate change and variation to which a system ing and implementing projects. 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