Defining and measuring systemic resilience

Honourable guests, ladies and gentlemen,
Thank you for the opportunity to speak at this important event.

Over the past week, we have seen the building momentum to scale up global climate response. To translate this momentum into action will require significantly greater investments, investments in a different set of assets, and investments that address the humanitarian imperative of social inclusion and poverty alleviation.

Notably, we are facing a double challenge. We will have to both reduce the present infrastructure financing gap and ensure that this new infrastructure is low carbon climate resilient. According to some estimate, the infrastructure gap worldwide could reach USD 3 to USD 6 trillion by 2040.

From a microeconomic point of view, the infrastructure investment gap looks like an economic paradox since, with current low-interest rates, infrastructure investments deliver a real return between 4% and 8%.

With an estimated USD 14 trillion of negative-yielding debt in OECD countries and USD26 trillion of low carbon, climate-resilient investment opportunities in developing countries by 2030, capital in search of higher results should flow from developed to developing countries to address this gap. This is not happening because of perceived risks associated to a range of policy, technical, business, macro-economic barriers.

This risk perception is magnified for green investment. Green investments tend to have higher upfront capital requirements, longer pay-back periods, and can have higher sensitivity to policy changes and technology risks than conventional investments.

Moreover, pricing climate risks remain a challenge for investors, who estimate the likelihood of various climate scenarios and their implications for physical and transition risks at the institutional and project levels.

There is usually a limited understanding of the range of climate interventions, their applicability in each country context, and how to develop markets for scaling them up.
Data gaps and unavailability of data pose an additional challenge to identify emerging needs and validate business models.

In effect, these gaps and barriers create a range of policy, economic, and technical risks that discourage capital flows to the project development cycle of climate innovations. As a result, we are not witnessing a repricing of assets to reflect climate risks in global financial markets.

There is a need for valuation methodologies and a system-wide approach that measures risks—incorporating them in integrated project pipeline design to crowd-in public and private investments.

GCF, together with the Government of Jamaica and the CCRI, is piloting methodologies for resilient infrastructure structuring and financing such as the ‘Systemic Resilience Assessment Tool.’

This tool will be the first of its kind— integrating climate risk analytics in programmatic infrastructure decision-making.  Its methodology ensures that physical climate risks are included in the design, structuring, and valuation of climate infrastructure assets, providing visibility and foresight of risks. This tool will be used to develop a pipeline of projects, prioritising and creating a step-wise approach to ensuring infrastructure AND investment resilience in Jamaica and in other countries. 

A particular component that makes the new ‘Systemic Resilience Assessment Tool’ innovative is its provision for nature- and ecosystem-based approaches. Investments in nature and ecosystems can deliver tangible benefits beyond their value as a climate tool. 

A pilot project launched by GCF together with the Government of Jamaica is testing the capacity of nature-based solutions to complement hard infrastructure in any defined hotspot— along coast lines, energy infrastructure, transport infrastructure, water and sewerage infrastructure, health facilities, and other critical services.

The project is testing design solutions in terms of their technical feasibility and cost in Jamaica. It is planned to be scaled-up to any other interested country— a step-by-step methodology of adaptation and cross-cutting projects pipeline origination.

These solutions can then be shared with other developing nations who are also facing climate hazard risks.

GCF is committed to support climate-vulnerable countries to overcome barriers to climate innovation and action. I thank the Government of Jamaica and CRRI for being steadfast partners in delivering innovative ways to de-risk investments and mobilise finance at scale, that can be a model for other countries.

Let us sustain the COP26 momentum and continue to open new avenues for countries to realise their climate ambitions.