Climate Adaptation Notes

Overview
Climate Adaptation Notes (CAN) creates a new and innovative funding source for water and waste-related climate adaptation infrastructure projects in Southern Africa that have struggled to attract long-term sustainable financing. The new mechanism attracts investment from institutional investors and impact investment funds while creating a new source of credit for commercial banks.

The Problem
Climate change will increase the intensity and frequency of extreme weather events, and in many vulnerable regions also intensify existing resource challenges. Southern Africa, for example, has already faced water shortages and drought and must rapidly adapt to these conditions and the changing climate. Investments in water re-use, which is in effect a new asset class, and waste management, which is technology-driven, will be important to Southern Africa’s future. The public sector – which traditionally would serve as a funder of such projects – is limited in its ability to finance these due to severely restrained government budgets of Southern African countries. While there is an abundance of funding in the local debt capital markets, these private funds have not to-date been invested in infrastructure-related adaptation projects.

The Solution
Climate Adaptation Notes issue Debt Capital Markets-based Notes to commercial banks, who are well suited and willing to lend short term and take on technology risk for early-stage water and waste-related climate adaptation projects. The Notes are structured to be tradeable and repayable with interest over an agreed period aligned with the project’s life span and cash flows, creating a stable and dependable cash flow stream for institutional investors. The goal is to enhance the investment value of the notes with concessional-based funding, allowing larger-scale private investment in this critical area.

Target Impact
According to proponents GFA Climate & Infrastructure and Ashburton Investments, a pilot can be implemented within 6 months on the basis the funding is available. The intention is to launch with the equivalent of US $125 million worth of Notes financing. This will be provided by commercial banks and institutional investors in equal amounts in accordance with the structure of the Notes.