CEADIR Series: Climate Change Risks to Infrastructure Investments

The Task Force on Climate-related Financial Disclosures (TCFD) is developing voluntary, consistent climate-related financial risk disclosures for companies to provide information to investors, lenders, insurers, and other stakeholders. A 2015 conference organized by the Agence Française de Developpement and the World Bank focused on the impacts of climate change on power and water infrastructure in Africa. The effects of climate change on infrastructure, especially for transport, energy and trade are a major concern for private companies, investors, governments, and donors. Climate change will exacerbate existing concerns about the adequacy of infrastructure investments in Africa raised by the Brookings Institution. Proper integration of climate change in planning and design can reduce climate risks to hydropower, irrigation, and other vulnerable infrastructure investments.

 
On July 14, 2016 the CEADIR Discussion Series hosted four climate finance experts to speak on “Climate Change Risks to Infrastructure Investments.” Vladimir Stenek, Senior Climate Change Specialist at the International Finance Corporation (IFC), discussed climate change influences and financial risks identified in case studies on coastal adaptation in Colombia and hydropower in Zambia. Roseann Casey, Policy Lead in USAID’s Power Africa and Trade Africa Office, focused on USAID’s work in African electric power policy reforms and investments, including distribution grids and renewable energy sources. Mathias Jungen, Senior Vice President at Swiss Re Group, discussed how insurance companies calculate the effects of changing weather patterns on energy infrastructure, with insights from ongoing work on hydroelectric power in Colombia. Matt Austin, USAID Private Capital and Microenterprise Office, moderated the discussion.
 
Key takeaways from the event include:
  • Long-term infrastructure investments should systematically incorporate climate risk screening into their financial models.
  • Revenue from infrastructure investments (e.g., wind farm, solar farm, hydro dam) may fluctuate on a yearly basis as a result of the variability of the resource (wind, cloud cover, rain). 
  • Climate and weather data can be obtained for modeling from sources like the National Climatic Data Center, NASA, National Center for Atmospheric Research, and local meteorological stations and agencies.
  • Insurance products are available to provide a payout when revenue falls short as a result of resource variability.
  • Even for climate impacts not expected to occur for 10 to 20 years, the long time frame of infrastructure projects and the large potential impacts justifies taking such considerations into account in the design stage or during long-term operational and maintenance schedules.
  • A key next step in order to facilitate investment in resilient infrastructure is to make more localized information available on climate risks, especially for the private sector and investors.
 

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Strategic Objective
Adaptation, Mitigation
Topics
Adaptation, Climate Finance, Climate Risk Management, Coastal, Clean Energy, Infrastructure, Water and Sanitation
Region
Africa, Latin America & Caribbean

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