FINANCING CLIMATE CHANGE ADAPTATION IN TRANSBOUNDARY BASINS. PREPARING BANKABLE PROJECTS

Climate change multiplies the complexities and intensity of water-related development challenges that countries have been addressing for decades through national efforts and transboundary cooperation. As pressure on water resources increases with climate change, current systems to manage these resources will no longer suffice. Populations have to rely more on water infrastructure and water management to meet their needs and provide security against the increasing occurrence of extreme and variable hydrological events, such as droughts and floods. Given hydrological interlinkages that connect territories, transboundary river and lake basins offer a logical geographic scope for countries to advance common development goals and address water-related challenges. As countries scale up resource mobilization to access the financing needed to address the impacts of climate change, their capacity to prepare well-designed, bankable projects that will attract the limited public and private resources available is critical. The rapidly evolving landscape of climate finance can be difficult to navigate for individual countries and river basin organizations. Cooperative basin approaches can leverage human and financial resources and provide numerous co-benefits. Transboundary cooperation is an effective way to manage shared resources to promote resilience to climate change and sustainable development. By ensuring basinwide stakeholder participation, interinstitutional and intergovernmental coordination, and efficient use of limited financial resources, transboundary basin approaches can advance economic, environmental, and social goals while avoiding maladaptation that may otherwise occur due to unilateral adaptation measures. Cooperation to develop, finance, and implement projects in transboundary river basins that mainstreams climate considerations into sustainable development planning goes beyond “adaptation” toward achieving more holistic and sustainable solutions. Yet countries and river basin organizations (RBOs) pursuing basin-level adaptation approaches often face difficulties in accessing financial resources for the implementation of cross-border and multinational development strategies. Basin countries can complement their national capacity and financial resources with experience and resources drawn from the global climate regime, private finance, and overseas development assistance. The United Nations Framework Convention on Climate Change (UNFCCC), its associated implementation network, and the vast array of development agencies and international financial institutions supporting sustainable development offer technical and financial resources to support developed countries and developing countries in their efforts to reduce poverty, achieve sustainable socioeconomic development, and address the oncoming impacts of climate change. Additionally, private sector attention to climate implications and private finance for climate-related projects is increasing, especially for larger infrastructure projects. While the availability of financing for both mitigation and adaptation is growing globally, access to funds and effective implementation poses challenges, particularly for regional approaches. Understanding and managing the special risks and complexities of transboundary river basin projects are critical to preparing bankable project proposals that will attract public and private financing partners. Transboundary approaches bring additional risks to a project, such as the involvement of multiple countries, legal responsibility and mandate for implementation, and the challenges of sharing up-stream or down-stream benefits and commitments. The transboundary context at the same time offers some risk-mitigation tools not available in single-country projects, especially when RBOs are in place; including existing cooperation agreements, risk sharing, and additional resource leveraging potential. Financing mechanisms available to address climate change have distinct procedures and project cycles, and not all are designed to support regional or transboundary development approaches. Many of the existing funds and financing streams—those that have been historically used for development finance, as well as newer instruments and funds created solely for climate finance—are predominantly structured for single country financing. Options for funding for RBOs and basin projects are limited when compared with those available to individual states. For example, climate funds such as the Green Climate Fund (GCF) are available only to those projects approved by national designated authorities (NDAs) within a basin. To access these resources, countries sharing transboundary basins and RBOs should strategically employ a variety of tools, mechanisms, and development partnerships. To access climate resources, project proponents— whether individual countries or RBOs—should consider the following recommendations for preparing bankable adaptation project proposals for transboundary basins: • Identify the root of the climate change challenge. Identify vulnerabilities and the reasons for the climate change–induced problem. • Ensure climate adaptation–specific design and scope. Identify and describe the climate change impacts directly responded to by the adaptation project, demonstrating the benefits of a transboundary approach (such as sharing data, or locating measures in which they have an optimum effect). • Understand the financing landscape and establish relationships with financing partners. Resource mobilization for adaptation and resilience building in a transboundary context requires a strong knowledge of the full array of public and private financing sources and the many funds and options offered in each category. Matching needs to funding sources is a critical part of pre-project planning. • Understand and follow funding processes carefully and precisely to ensure eligibility and maximize chances of success. Although many funds serve similar target groups and issues, eligibility criteria and procedures for accessing financing vary significantly and are often complex. • Identify, communicate, and address potential risks. To strengthen bankability, identify risks, describe how they will be addressed, and demonstrate ability to manage. • Support regional planning and mainstreaming. Align climate financing with existing river basin planning because this is critical to ensure the efficiency of resource use and the long-term sustainability of a project. • Align projects with existing climate and development strategies and policies. Virtually all financiers require that project proponents demonstrate alignment with existing policies. • Capture co-benefits. Project proposals that have multiple co-benefits are attractive to financiers. • Cluster projects within the basin to coordinate project proposals. A cluster of projects that share geographic or thematic characteristics can be simpler to manage from a financier’s perspective than many smaller projects. • Innovate, advocate, and be flexible. Climate finance is a relatively new field of global financing, and as such many of the current rules and instruments are still evolving, lack concrete experiences, and therefore offer opportunities for the beneficiaries to shape the rules and procedures. This report highlights the challenges and opportunities that countries face when seeking to access financial resources for climate adaptation in a transboundary river basin context. The paper explains how resilience building and taking a basin-level approach may allow countries and RBOs to use resources effectively for the greatest possible benefit. By outlining the basic characteristics and criteria for the preparation of bankable project proposals, the paper endeavors to serve as a guide for those interested in accessing grant and concessional financing for adaptation in transboundary river basins. The paper allows countries sharing transboundary river basins and RBOs to better understand the climate financing landscape and how to prepare bankable projects. It explains the importance of taking a transboundary approach to address climate change and discusses the challenges and opportunities for RBOs confronted with the task of carrying out their mandate in the increasing complexities of a changing climate (chapter 1). Chapter 2 describes financing opportunities available to countries sharing transboundary river basins to address climate adaptation, including global funds, private sector finance, and national and concessional finance with attention to how these sources can work together. Chapter 3 explores the requirements for developing bankable project proposals that are thus more likely to receive the required financing. The paper focuses on bankability of transboundary river basin projects, with detailed options and recommendations that countries and RBOs may consider as they advance on their adaptation planning and implementation.