Bridging Climate Risk and Infrastructure Investment: A Systems Approach

The world is experiencing more catastrophic weather events with greater frequency. As vulnerable populations continue to face the consequences of climate change, world leaders are faced with the challenge of finding innovative solutions to protect their citizens, adapt their economies, and build resilient infrastructure. The CSIS Sustainable Development and Resilience Initiative recently hosted an event with representatives from the United States government, developing country partners, and the private sector to discuss the growing need to prioritize a systems-oriented development approach to climate-resilient infrastructure investments in developing countries.

The U.S. Agency for International Development (USAID) and the U.S. Millenium Challenge Corporation (MCC), in partnership with other U.S. government agencies, used the event to launch the Resilience at Scale: A Systems Approach to Climate-Resilient Infrastructure Planning report which analyzes the opportunities and challenges associated with applying a systems approach to strategically plan for infrastructure investments. Additionally, at COP29 in Baku, Azerbaijan, the U.S. Center convened a related event for that international forum. As representatives from governments, the private sector, and multilateral organizations look for ways to bolster climate-resilient investments in their countries and regions, rethinking how the United States approaches protecting both the monetary and physical value of these investments will be important.

Q1: What is the “Resilience at Scale” report?

A1: The Resilience at Scale report calls for a “paradigm shift” toward system resilience as opposed to the resilience of individual investment assets. A systems approach looks holistically at how individual infrastructure projects work together to build resilience; brings governments, private sector actors, and multilateral organizations into partnership with one another to support a strategic pipeline of investments in support of adaptation as a whole; and necessitates agreement on resilience standards for long-term development. Historically, U.S. government agencies have addressed climate risk through the lens of individual investments (a road, a bridge, or a school) without thoroughly acknowledging the full picture. If the school is only accessible by road via a bridge, and the bridge gives out in a flood, the value of both the road and the school is negated. Instead, by looking at the system as a whole (the road, the bridge, and the school), the U.S. government and its many partners are better able to identify vulnerabilities and target specific projects to increase the overall resilience of a community or region. A systems approach necessitates assessing current vulnerabilities to the system, integrating climate resilience across development projects, building out country capacity, and coordinating with other donors to financially target adaptation priorities.

The Resilience at Scale report is divided into three main sections:

1. Outlines the benefits of a systems approach: Climate change is a risk in and of itself, but it also magnifies other stressors such as demographic shifts and land degradation. Without adaptation, infrastructure investors risk losing half of their portfolios by 2050 due to extreme weather events; but with adaptation, the potential benefits of resilient infrastructure in low- and middle-income countries could reach into the trillions. According to the report, applying a systems lens allows investors to think critically about which infrastructure investments should be prioritized, the timeline for making these investments, and how upgraded projects will work in tandem with one another to build stronger societies.
2. Underscores current barriers and challenges: There are a series of institutional, technical, and financial barriers that must be addressed in order to make a systems approach standard practice. Good governance is vital to a systems approach as it requires clear governmental direction at the local, municipal, and federal levels and continuity across administration changes. As countries work to increase their technical capacities, recognizing how different infrastructure investments interact with and influence each other becomes important to understand how the system as a whole works. This requires data collection, leveraging tools to better understand what those data say, and setting industry standards.
3. Encourages a “paradigm shift” in the support model for climate investment: Donors, investors, and local governments need to work together to think through a country’s current climate vulnerabilities, coordinate infrastructure investments that work to address these issues, and build a long-term pipeline that incorporates future projects as well as current ones. Instead of looking exclusively at the individual asset, investors should coordinate to analyze the entire system.

This report was an interagency effort led by USAID and the MCC in support of the President’s Emergency Plan for Adaptation and Resilience (PREPARE) and was informed by the work of the PREPARE Infrastructure Working Group, which included representatives from the U.S. Army Corp of Engineers, the U.S. Development Finance Corporation, the U.S. Department of Transportation, U.S. Department of State, U.S. Department of the Treasury, and the U.S. Trade and Development Agency. Through two years of research and convening, the effort sought to address the gap in the literature on the benefits of, and current appetite for, a systems approach to climate-resilient infrastructure planning.

Q2: Why would a shift to a more systematic approach to resilient infrastructure planning be significant?

A2: Infrastructure encompasses both the physical assets and the services they provide; building resilient infrastructure means building resilient communities with reliable water, energy, sanitation, communications, and transportation systems. If one piece of infrastructure fails, it can have a domino effect.

A systems approach can enable infrastructure to be built strategically to benefit competing priorities, including health, gender equality, and digital connectivity. During the historic flooding in Pakistan in 2022, over one-third of the country was submerged in water and it was estimated that the cost of the damage would exceed $30 billion. Approximately 33,000 schools were either destroyed or damaged, delaying education for millions of children for nearly a year. Because the infrastructure failed, there were ripple effects across a range of public services from education to health care. Adapting to the changing climate requires a comprehensive approach to resilience because climate change impacts are far-reaching.

The United States has been screening its international development investments for climate resilience since 2014 in accordance with Executive Order 13677, which makes it a requirement to take into consideration the impacts of climate change for all projects. But transitioning to a more systems-oriented approach has the potential to improve reliability and cost-effectiveness, while also working to protect multiple assets at once. For example, in 1999 the Japan International Cooperation Agency developed a plan to address flood risk in Ho Chi Minh City, Vietnam, based on previous rainfall patterns, without taking into account future risks such as increased urbanization. This ultimately led to increased flood vulnerability. Ho Chi Minh City has since worked with the World Bank to rethink its approach to drainage infrastructure, which has allowed the city to create an investment pipeline that plans for future risks. By incorporating a systems approach, governments should be able to plan more effectively.

Implementing a systems approach faces many challenges, as it requires investors, governments, and multilateral organizations to think through the long-term impacts of different projects, work in conjunction with each other throughout the project’s lifespan, and agree on the same standards of risk, resilience, and feasibility. A lack of strong organizational planning diminishes a government’s ability to effectively implement a long-term strategy to build resilient societies. In addition, taking a systems approach requires upfront private sector involvement. The lack of sufficient funding for climate-oriented projects does not encourage governments to strategically plan for and implement investments that work in tandem to build resilient systems. However, a systems approach to development investments could allow for the U.S. taxpayer dollar to be spent more strategically both in terms of impact and pursuit of U.S. foreign policy objectives.

Q3: How does a systems approach to resilient infrastructure relate to the emerging resilience economy?

A3: Industries are being forced to rethink their approach to acquisition, production, warehousing, and transportation as extreme weather events are altering agricultural seasons, impacting people’s ability to work, and interfering with supply chains. The economic benefits of adaptation are straightforward: the global economy risks losing 4 percent of its GDP without adaptation; but for every $1 invested in adaptation efforts the economic benefits returned could reach approximately $2–10. Resilience efforts stretch across sectors from enhancing the usability and accuracy of early warning systems to boosting sustainable infrastructure and health systems.

As the world works to adapt to the consequences of climate change, a resilience-oriented economy is emerging through the creation of new investment asset classes, insurance solutions, and technology-enabled climate information services. Financing for adaptation efforts crosses sectoral divides that bring a variety of stakeholders together ranging from insurance firms to agricultural companies to technology startups, and it has already produced innovative approaches to building resilience across the world.

In Mongolia, one of the nations most impacted by climate change, a joint U.S.-Mongolia study in 2016 found that the country’s water shortage was one of the key constraints for national economic growth. In partnership with the MCC, Mongolia entered into a $462 million investment compact focused on water infrastructure to increase the country’s water supply by up to 80 percent. The compact is to build new groundwater wells and a water purification plant to enable the usage of wastewater for power generation, reducing the demand for fresh water. In addition to the physical infrastructure projects, the compact is working to strengthen institutional, operational, and human resource capacity for water utilities and introduce a self-sustaining financial framework into the system. The water purification plant is the first of its kind in Mongolia, bringing with it new avenues for construction and skills training. The compact is set to end in 2026, but the government of Mongolia is already thinking through the next steps to further incentivize the use of recycled water by updating its existing regulatory framework on wastewater usage and through financial incentives. As the government looks at ways to apply a similar framework to air pollution issues, the resilience economy will continue to grow in Mongolia.

Q4: How does this connect to the President’s Emergency Plan for Adaptation and Resilience?

A4: The PREPARE initiative was launched in 2021 at COP26 in Glasgow, Scotland with the goal to “help more than half a billion people in developing countries adapt to and manage the impacts of climate change by 2030.” It is based on three principles: knowledge sharing, integrating adaptation into project planning and preparation, and resource mobilization. The following year, the PREPARE Call to Action to the private sector was announced. This prong of the initiative has since mobilized 40 companies to make commitments collectively valued at approximately $3 billion while projecting to reach more than 118 million people around the world by 2030.

The private sector invests in what will protect their capital. As supply chains shift, private actors make investments in climate-resilient infrastructure to protect their assets from extreme weather events. The Resilience at Scale report identifies opportunities for partnerships between governments, private sector actors, and multilateral institutions that will mobilize resources to be a catalyst for further investment. The report was published in support of the PREPARE initiative, but it also provides a roadmap for industries that are looking to make investments in climate-vulnerable regions.

The report seeks to inform the first pillar of PREPARE, “Knowledge is Power,” by articulating a way of thinking about climate-resilient infrastructure investments. As governments, private actors, and multilateral institutions work toward building more resilient communities, taking a systems approach to climate-resilient infrastructure investments wherever possible could help expand the reach of current capital pools while building longevity into those investments.

Noam Unger is the director of the Sustainable Development and Resilience Initiative at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Madeleine McLean is a program manager and research associate with the Sustainable Development and Resilience Initiative at CSIS.