Working paper: The private sector and climate change adaptation

International Finance Corporation investments under the Pilot Program for Climate Resilience

24 April 2013 | Briefings

This working paper is published by the Bretton Woods Project and CAFOD, which gratefully acknowledge the support of the Heinrich Böll Foundation, Berlin, in funding the research. This working paper should not be reported as representing the views of the Bretton Woods Project or those of CAFOD. Download the fully formatted and referenced PDF version of this working paper.

Executive summary

Developed country parties to the United Nations Framework Convention on Climate Change (UNFCCC) have committed to mobilising US$100 billion per year by 2020 as climate change finance. Some have advocated that a significant portion of this amount should come from private finance, which could be leveraged via public sources. Meanwhile, the Green Climate Fund set up by the UNFCCC in December 2011 is considering the modalities, scale and scope of a proposed private sector facility.

Proposals for greater private sector involvement can broadly be divided into three categories: stimulation of autonomous climate proofing by private sector entities; co-financing of infrastructure development; and development of adaptation products and services. Donors often cite multilateral development bank (MDBs) mechanisms as examples of how public finance could be used to ‘leverage’ private finance for climate projects, with the World Bank’s Climate Investment Funds (CIFs) as one example. MDBs involved in the implementation of the CIFs have celebrated their innovative approach in targeting private sector finance and argue that there is greater potential for private sector participation in the financing and delivery of projects.

The Pilot Program for Climate Resilience (PPCR) is a CIFs programme which is designed to promote the integration of climate risk and resilience into core development planning and implementation. It is the only dedicated adaptation fund that includes arrangements for the use of public finance for private sector investments. Its focus on ‘transformational change’ was seen as a shift away from technical solutions linked to specific projected climatic risks. However, critics argue that it involves a heavily donor-driven process that creates incentives “to ‘climate-proof’ existing investments, rather than find new ways to develop climate resilience”. It also fails to challenge “the basic trajectory of economic growth embodied in standard development practice”. The PPCR’s results frameworks and the influence of donors and the MDBs are cited as obstacles to a more transformative approach.

This paper contributes to these debates by looking more closely at PPCR projects implemented under the World Bank’s private sector lending arm, the International Finance Corporation (IFC). The initial objectives of the study were, firstly, to map current PPCR projects involving private sector actors and, secondly, to assess them in relation to: (a) criticisms about their failure to take a transformative approach, and (b) three issues identified as crucial by existing analysis on the use of private sector actors to finance or deliver development projects. These three issues are: rationale/additionality; developmental and environmental integrity impact; and country and citizen ownership.

The mapping found that only 9.2 per cent of all PPCR financing involved private sector actors, including projects to promote the use of climate-resilient seeds and building materials and weather index-linked insurance. A further review of 14 projects from eight countries found that there did not appear to be any projects that had yet moved to the implementation stage; it also found that there was no leveraging of additional finance from private sector entities for any of the projects. Given that creating markets for adaptation products and services is the largest category of projects in the PPCR pipeline, a more in-depth analysis of three projects within this category was subsequently carried out. These were two PPCR projects to build markets for climate-resilient seeds from Bangladesh and Nepal, and one project to promote weather index-linked insurance products in Zambia.

At the time this research was undertaken, the PPCR private sector projects were only at the early design stage. This meant that the study was not able to address the critical questions as initially envisaged, namely their financial and development additionality and their developmental and environmental integrity impact. Therefore, these issues will merit further study as PPCR projects move from design to implementation stage.

What the research did reveal in relation to the third critical issue (country and citizen ownership) is that, in the cases of Bangladesh and Nepal, private sector projects under the PPCR appear to have been largely driven and designed by the implementing agency, the IFC. The IFC appears to have actively promoted among government departments the idea that PPCR resources earmarked for interventions in the agricultural sector should be used to finance private sector delivery. In addition, in Nepal and Bangladesh and, to a certain extent, in Zambia, the process of selecting the type of interventions was largely IFC-driven through a process parallel to the main PPCR programme development and/or national adaptation strategies.

Projects were designed after consultations with private companies and without the participation of target communities, civil society organisations and other stakeholder groups with an interest in the successful outcome of the PPCR programme (such as farmers associations, cooperatives or consumer groups). The risk in this selective consultation process is that valuable local knowledge, expertise and discussion of a variety of different approaches were all disregarded. This could ultimately threaten the success of the projects.

However, in Zambia, there appears to have been much greater participation of target communities and civil society groups in decisions over resource allocation within the national PPCR process and, overall, greater country ownership. One notable aspect of the Zambian Strategic Programme on Climate Resilience (SPCR) is the fact that it was incorporated into the country’s own National Climate Change Programme (NCCP), aimed at integrating climate change planning and budgeting across ministries, departments and sectors. The NCCP also envisages a strong role for civil society, with representation on its governing council. This may have been one factor in ensuring that decisions on resource allocation for PPCR investments reflected national priorities.

Overall, the findings of this study highlight important questions concerning the design, implementation and operation of projects financed from public climate funds using private sector actors. In summary, the analysis suggests that the integration of private sector projects into national planning processes and strategies is crucial. Country and community ownership of the project design process is a key to achieving this, as are accountability mechanisms that allow stakeholders to have oversight, to enhance the efficiency and effectiveness of resource allocation. This learning should be fed into discussions about the development of the private sector facility of the Green Climate Fund.

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