phase 4

Funding & Financing


In the Funding and Financing phase of the infrastructure lifecycle, current or prospective infrastructure owners, including governments and private developers, must identify the capital source(s) necessary to pay for the development, capital, and operational costs of a proposed project. A project could include the construction of a new climate-resilient asset or the adaptation or retrofit of existing infrastructure to address climate risks. While there are other points along the infrastructure lifecycle in which the need to pay for development, capital and/or operational costs arises, this is the point in time when the greatest planning and coordination efforts related to funding and financing occurs.

In most cases, for infrastructure development, financing can practically be considered as the initial capital required to deliver an infrastructure project while funding comprises the regular expenses that must be paid over the operational life of infrastructure, including paying back the finance from whichever source the government or private owners have chosen to utilise. A project typically needs financing to get off the ground (short-term), and this will be paid back through funding arrangements (long-term). The terms are linked and often used interchangeably, but they are distinct.

Financing is money that is borrowed and must be repaid. Traditionally, governments have issued bonds as a source of financing for infrastructure projects or accepted low-interest financing from development banks. As infrastructure continues to evolve as an asset class and climate finance grows, more sources of private financing are becoming available for climate-resilient infrastructure development. Funding is money allocated to a project that does not need to be repaid. For government infrastructure projects, funding may come from money set aside for a project, typically sourced from taxes and fees, or it may come from a grant issued by the national government to the government entity leading the development of the infrastructure project. In low-income countries, funding may also be provided by international donors or development banks.

Funding and financing are intrinsically linked from a resilience perspective as oftentimes decisions related to climate resilience are governed by the availability and sources of financing at the start of a project, and these decisions will influence long-term funding needs during operation and in the event of a climate stress or shock.

As the financing of climate-resilient infrastructure is a rapidly evolving space, this phase identifies two themes for categorizing the existing guidance on the topic of climate-resilient infrastructure funding and financing:

  1. enhancements to the enabling environment, and
  2. project-specific tools and approaches. It also proposes initial actions for practitioners under these themes that will be further developed in collaboration with partners based on available guidance.

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Lead Practitionerss


Government actors set the regulatory environment that influences private sector actors who finance infrastructure. As the owner of a large portion of infrastructure, they also play a critical role in funding infrastructure systems through taxes and fees as well as securing financing for infrastructure projects.

Investors, including but not limited to banks, insurers, pension funds and private equity firms, support the financing of a wide variety of infrastructure projects both in the public and private sector. Capital can be raised from equity and/or debt, depending upon the lifecycle phase and sector. The amount of risk associated with a project will influence which projects are financed as well as the cost of capital (i.e. interest rates). For the projects they finance, investors will also play a role in options evaluation and decision-making, bringing their objectives, including the bankability of the project, into consideration.

Infrastructure owners and operators are responsible for determining ongoing funding and financing arrangements for keeping existing infrastructure assets operational, including emergency sources of funds to address potential climate risks to service provision. In cases where existing infrastructure must be upgraded or adapted to address climate risks, owners and operators must also engage in identifying sources of funding and/or financing to support these additional capital costs. Depending on the sector, owners and operators will be either governments, government-backed (e.g. transport infrastructure) or private entities (utilities industries).

Key Inputs from Other Phases

Phase 1Policies and Plans

This phase sets the enabling environment within which the financial sector can operate to attract and deliver funding and financing for climate-resilient infrastructure.

Phase 2Prioritisation

This phase establishes an initial evaluation of the broad social, environmental, and economic risks and benefits of various project options that can be used initially by investors to begin to price risks, understand costs to mitigate risks, and evaluate financial viability.

Phase 3Feasibility and Preparation

This phase provides the project scope and determines the requirements that a project will fulfill to allow the costs to be established for design, construction, and operation. It establishes which risks can be reasonably and economically mitigated through climate resilience measures and which cannot. This evaluation allows the appropriate financial and operational mechanisms to be identified for the project depending on the proposed ownership structure.

Phase 5Design

The design phase more accurately establishes the costs of a project and determines if further financing is required to realise the desired resilience of the infrastructure. Through this process, as well as through value engineering and iteration on costing between designers and contractors, a project’s final scope and ability to address climate resilience is set.

The design phase sets the parameters of how an asset functions during the operational phase (e.g. energy efficiency) and consequently the ongoing funding required to operate and maintain the asset.

Phase 6Procurement

This phase determines the actual cost of land, materials, services, and/or equipment required to deliver an infrastructure project and may therefore further influence the financing required to deliver the infrastructure.

Phase 7Construction

The construction phase presents the greatest financial risks to the project as capital is deployed to build the asset; however, if sound financial planning takes place during construction and in earlier design and procurement stages, these risks can be mitigated.

Phase 8Operations and Maintenance

The O&M phase informs the funding requirements needed for operation and maintenance. Use of monitoring and inspection methods can determine the climate vulnerability and adaptation needs of existing assets which allows the appropriate capital to be sourced to adapt the assets.

The more stable operational performance of climate-resilient assets in the face of climate shocks stabilises cash flow and makes the assets more attractive to investors in situations where further financing is needed to manage or expand the infrastructure.

Phase 9End of Life

Understanding the cost to repair assets in the face of a climate disaster allows for the appropriate scale of Disaster Risk Financing (DRF) to be put in place. DRF is a financial risk mitigation method providing resilience to critical services that should be considered in the financing phase of any project.

Dismantling existing infrastructure can be an expensive proposition as it most likely will not have been considered in the original design and construction. The costs of including circular principles should be considered as part of the overall financing of any new project

The Basics and the Shift

The funding and financing of infrastructure is complex and must be repeatedly addressed during the infrastructure project lifecycle. It is also the phase that has been identified as the greatest gap in terms of meeting global needs, which are projected to grow as climate change increases the frequency and severity of the extreme events that infrastructure must withstand. In 2019, the ICE stated that approximately US$3.1trn per annum of investment was needed in the transportation, power, water, social infrastructure, and telecommunication industries across the world, and this gap was expected to increase to US$4.2trn by 2020 and US$94trn by 2040[1]

Climate change complicates the ability to assess the funding and financing requirements for infrastructure projects in several ways:

Climate change introduces inherent additional risk and uncertainty into the investment process, which can in part be mitigated like other traditional risks to infrastructure investment.

Climate change is a relatively new concept around which the investment industry has not yet aligned in terms of developing a uniform approach to climate-resilient infrastructure performance standards. This creates a wide variety of approaches that are difficult to assess in terms of costs and benefits for investors.

Finally, and most significantly, there is a disconnect between the traditional short-term investment cycles for financing infrastructure and the inherent long-term nature of climate risk over the lifespan of infrastructure, creating a disincentive to integrating climate resilience into infrastructure investments. Addressing climate risks in new infrastructure by enhancing performance requirements or adding redundancy requires greater up-front costs for development. If a long-term perspective is taken, this additional capital outlay can be justified financially by risk avoidance and more reliable service delivery and revenue over the lifespan of the infrastructure. A shift in the financial enabling environment is needed to create the long-term perspective that will incentivize climate-resilient infrastructure.

It is in the interests of both financial system governance bodies and private financial practitioners to address climate risks collectively. However, the current financial system does not explicitly incentivise good climate risk management by fully pricing in climate risks or by providing policy directives or regulations that support disclosure or risks or investment in long-term adaptation and climate resilience.

Traditional Responsibilities and Decisions

Effects of Climate Change

New Tools and Approaches

Infrastructure investments are traditionally considered over a short-term timeframe and do not account for the long lifespan/usage life of infrastructure assets.  

Assets will face an increase in the severity and frequency of extreme events over their lifetime and therefore need to be designed with enhanced physical resilience, resulting in increased upfront costs.  

Upfront costs to adapt infrastructure or embed resilience are typically paid for in the short-term and not over the lifetime of the asset. Therefore, the benefit of adaptation may not always accrue to initial investors and projects are of greatest risk of not being built in early lifecycle phases. 

Climate-resilient infrastructure attracts more favourable financing costs post-construction. Infrastructure assets that are climate-adapted are seen as better investments.  

 Financial institutions are beginning to more effectively price the reduction of risk resulting from climate-resilient design, allowing a more accurate comparison of the costs and benefits of climate-resilient approaches

Financial models do not fully consider physical or transition risks associated with climate change or the opportunities presented by resilience as part of macroeconomic considerations.

As a result, investors or funders are less aware of and therefore less likely to pursue climate risk mitigation and resilience opportunities

Climate risks include both physical risks from more extreme storms, heat and sea level rise as well as transition risks to businesses (including stranded assets) as economies transition away from carbon-intensive activities. Both types of risks present uncertainty for financiers as historical models are no longer suitable to model the financial costs of physical and economic risks to infrastructure into the future.

Private sector-led initiatives such as the Task Force on Climate-Related Financial Disclosures (TCFD) are beginning to drive the practice of climate risk disclosure, which are beginning to become mandatory (the UK government announced at COP26 that this will be the case for UK businesses). Reporting of exposure allows the risks posed by climate change to be factored into financial markets. Investors require knowledge of their climate risk exposure to ensure a balanced portfolio of investment.  

 Traditional return-on-investment (ROI) calculations are also being supplemented with economic calculations like cost-benefit analysis that better represent the monetary benefits of resilience measures such as avoided losses and well-being improvements. Standardized and universally-accepted methods of pricing climate risks will allow the financial market to understand the impact of climate change on future investment cycles. 

 Insurance models also now account for the increased likelihood of climate events, allowing the associated risks to be more accurately reflected in the premiums of both climate-resilient and non-resilient infrastructure. 

Much of infrastructure has traditionally been financed through bonds, and bond credit ratings have traditionally not accounted for climate risks or the adaptive capacity of the infrastructure or the environments in which it is built.  

Traditional infrastructure investment has assumed a standard level of quality and performance, compliant with governing regulations, and extreme events were considered ‘force majeure’. No additional decision-making or foresight was needed to enhance the level of performance beyond minimum standards based on current or future risks. 

Climate change increases physical risks to infrastructure assets over time and their operational ability. The lack of accounting for climate risk in bond ratings and other ratings systems used to make investment decisions leads to an inaccurate view of the risk and hence the creditworthiness of infrastructure investment opportunities.  

 There is an increasing demand for climate resilience and adaptation finance without the evaluation tools needed to differentiate climate resilient investments. Existing technical standards that set minimum requirements are no longer sufficient and new guidance is needed. A sound methodology is necessary to distinguish between investments that are likely to perform well in the long-term in the face of climate change and those that are not. 

Ratings agencies are beginning to factor in climate risks, which will incentivise governments to more seriously address climate change in their development. 

Other ratings systems have been developed by development banks to more accurately evaluate and regularize their investments in infrastructure. Civil society organisations such as the Institute for Sustainable Infrastructure have also developed ratings systems to allow private and public organizations to adopt a more standardized way of characterizing sustainable and resilient infrastructure. 

These efforts will enable funders and financiers to understand and price climate risks appropriately for different infrastructure projects and systems. 

Integrated Guidance for Climate-Resilient Infrastructure

Based on the review of over 150 existing publications and tools on climate-resilient infrastructure, the following key actions have been identified to support practitioners in integrating climate resilience into infrastructure development in the Funding and Financing phase of the infrastructure lifecycle. These actions are summarized in the table below and grouped by theme. Each action is further elaborated on in this section and references and links to key publication and tools are shared.

View all Themes and Actions

Key resources

The following resources have been identified as most relevant for practitioners working in the funding and financing of climate resilient infrastructure.

Guidance Global Centre on Adaptation

Driving Finance Today for the Climate Resilient Society of Tomorrow

This report by the GCA provides a thorough review of the current situation within the finance sector identifying barriers restricting access to financing for climateresilient development. It provides recommendations for lifting the limit on financial flows and making developments more robust with longer-term perspectives.

Guidance World Bank

Resilience Rating System : A Methodology for Building and Tracking Resilience to Climate Change

The World Bank has developed a Resilience Rating System that considers both the resilience of infrastructure and the resilience that infrastructure offers to society. The system is designed to enable decision makers to track resilience, identify best practice and assess the benefits. The report provides guidance on how to mitigate risk across different sectoral and country contexts.

Resource Inter-American Development Bank

A Framework and Principles for Climate Resilience Metrics in Financing Operations

The report outlines a broad and flexible approach that can be applied to both assets and systems to assess the quality of infrastructure design and its performance results. Examples are provided to illustrate metrics at the input and output levels and showcase a hybrid approach to finance and monitoring.  

Resource World Bank

Lifelines: The Resilient Infrastructure Opportunity – Strengthening New Infrastructure Assets A Cost-Benefit Analysis

This supplementary report to the World Banks Lifelines document explores at a deeper level the benefits and costs associated with making infrastructure systems resilient to climate change. It provides broad analysis of thousands of scenarios at a system level to display the benefits of resilience. 

Infrastructure Pathways seeks partners in the climate-resilience finance sector to collaborate in the further development of the following themes and actions to distil existing literature on the topic of funding and financing of climate-resilient infrastructure into clear guidance for practitioners. If you are interested in partnering with The Resilience Shift on this work, please contact the project team through the Contact Us page on this website.

Theme 1: Enabling environment for scaling investment in climate-resilient infrastructure

4.1.1 Understand the market failures

4.1.2 Understand physical climate risk exposure

4.1.3 Determine eligibility and performance monitoring requirements for climate-resilient finance

Theme 2: Tools and approaches for financing climate-resilient infrastructure

4.2.1 Include climate change exposure in financial modelling

4.2.2 Scale up and diversify investment actors

4.2.3 Develop insurance practices that support climate resilience

4.2.4 Monitor and evaluate climate resilience outcomes

Co-Benefit Considerations


Climate Change Mitigation Considerations

Equity Considerations

Theme 1: Enabling environment for scaling investment in climate-resilient infrastructure

Financing approaches for mitigating climate change through green infrastructure and carbon reduction are more advanced than adaptation and resilience financing.  The enabling environment is already established, particularly in the energy sector, and it has made great progress in scaling investment over the last 20 years with Green Bonds, loans and incentives. These approaches can provide a roadmap for the adaptation sector, including opportunities to incorporate resilience into climate mitigation financing. 

Infrastructure is in many cases a public good and ensuring that capital is made available to adapt it to climate change will allow it to consistently serve society in times of crisis and provide co-benefits on a regular basis. Governments have a civic responsibility to ensure that public infrastructure is accessible to all and can benefit all members of society equitably. Policies, plans and regulations related to the funding and financing of infrastructure must take a people-centred view, putting emphasis on the needs of the most vulnerable members of society.

Theme 2: Tools and approaches for financing climate-resilient infrastructure

Expansion of nomenclature systems that can be applied across different elements of the financing sector will enable tracking and monitoring of ex-ante and ex-post carbon emissions. 

Reporting of carbon emissions through mechanisms such as TCFD allows for transparency which enable institutions who have mitigation methods in place to attract capital for future projects.   

Capital should be available for incubators and accelerators that stimulate technical advancements in sustainable technologies such as low carbon concrete will reduce the impact infrastructure has on the environment. This requires patience and sufficient capital for research and development of new materials and design methodologies. 

Financing should ensure that access to infrastructure is affordable at the point of use. This is achieved by ensuring that the cost of borrowing for climate-resilient and sustainable infrastructure is not more expensive than that for grey or traditional infrastructure. Additional costs are often be born by end users which has the risk of leading to increased inequity within society.

Downstream Benefits of a Resilience-based Approach in the Funding and Financing Phase

Phase 5Design

The funding and financing of a project affects the scope within which designers must work. Sufficient funding for appropriate technical assistance in the design phase ensures that qualified designers have the ability to evaluate climate hazards, to go beyond code-based minimum standards if necessary, to use more advanced design and analysis approaches, and to consider in the design the wider system that an asset is linked to. The design phase should not be restricted by finance but managed to ensure suitable outcomes are achieved.

Phase 6Procurement

Adequate funding and financing for a project, with investors who value the importance of climate resilience, ensures that sufficient capital is available to procure qualified professional services for design and construction and high-quality materials and equipment, and that the complete scope for climate resilience, including co-benefits, can be implemented as envisioned.

Phase 7Construction

As with the procurement phase, sufficient funding and financing for a project secured in Lifecycle Phase 4 reduces the risk of resilience value eroding during the construction phase as qualified contractors with appropriate quality control procedures and knowledge of resilience can be hired and ‘value engineering’ decisions that reduce long-term performance for the sake of short-term financial benefit are less likely to be made.

Phase 8Operations and Maintenance

When financing has provided sufficient capital to prepare infrastructure to meet the future needs placed on it by climate change, this reduces funding requirements during operations. Infrastructure is equipped to meet the climate shocks and stress it will experience over its useful life and hence reduce operational expenses and additional capital expenses. Infrastructure that is climate-resilient is also more attractive to investors and funders, therefore attracting capital at favorable rates to owners and operators.

Phase 9End of Life

The end of life of infrastructure can be caused by climate events or by assets reaching the end of their useful lives. Mechanisms such as Disaster Risk Financing (DRF) provide support to rapidly repair infrastructure and maintain service following extreme events, helping to prevent premature closure. Adequate funding provided for decommissioning and dismantling of infrastructure at the end of its life ensures that it can be done in a way that reuses and recycles materials and components or adapts assets and sites for the benefit of the wider society.


1. ICE, 2019. What the infrastructure gap means for the future of society Online Available at: Last Accessed 25/10/2021