Climate Resilience Principles: A framework for assessing climate resilience investments

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December, 2019
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Summary

Losses due to weather-related events have increased nearly ten-fold over the last 40 years, from a ten-year global average of USD 12 billion in 1980 to USD 119 billion today.1 To combat spiralling losses from climate impacts, an estimated USD 200 billion globally will be required annually within twenty years.2 The accelerated deployment of various sources of finance, including green bonds, is urgently needed.

To this end, in October 2018, the Climate Bonds Initiative (CBI) convened the Adaptation and Resilience Expert Group (AREG) to design a set of principles that would guide the integration of criteria for climate adaptation and resilience into the Climate Bonds Standard. The Climate Bonds Standard & Certification Scheme for green bonds was established in 2015 to provide guidance to issuers and provide assurance to investors on green bond credentials in a voluntary market. To date, 15% of all green bonds issued globally (by value) have been certified under the Climate Bonds Standard & Certification Scheme.

Until now, the Standard & Certification Scheme has focused primarily on greenhouse mitigation, and to be eligible for certification, a green bond’s use of proceeds needs to meet the sector-specific greenhouse gas Mitigation Criteria. These Criteria screen for assets and projects compatible with a low-carbon trajectory necessary to meet the goals of the Paris Agreement. While the Standard includes Climate Resilience Criteria for some sectors, these have been developed by different groups of experts and therefore lack consistency across sectors.

Therefore, the AREG was tasked with advising on the types of climate adaptation and resilience investments that are needed. These are defined as investments that improve the ability of assets and systems to persist, adapt and/or transform in the face of climate-related stresses and shocks in a timely, efficient and fair manner that reduces risk, avoids maladaptation, unlocks development and creates benefits. And then, with a focus on resilience investments that might be financed via green bonds, the AREG was tasked with determining how any such proceeds might be screened to ensure that the underlying assets and activities are ‘fit for purpose’ in terms of addressing climate resilience and therefore could be considered eligible for certification under the Climate Bonds Standard & Certification Scheme. The Climate Resilience Principles (“the Principles”) described in this document provide an overarching framework for this screening.

Subsequently, the Technical Working Groups convened by the Climate Bonds Initiative will develop sector-specific Climate Resilience Criteria in line with these Principles. Such sector-specific Criteria will be the primary reference for issuers of green bonds seeking certification.

Together, the Principles and sector-specific Criteria will support the mainstreaming of climate resilience considerations across all green bonds as well as improve transparency in the market for green bonds that aim to enhance resilience. It is also hoped that these Principles and the sector-specific Criteria can serve as a model for other identification and assessment schemes for climate resilient investments.

This document is therefore intended for a wide audience, including but not limited to bond issuers, investors and other stakeholders seeking guidance on:

  • The potential range and type of climate resilience investments

  • How to define and assess physical climate risks

  • How to credibly demonstrate climate resilience outcomes