Adapting to Climate Change: Assessing the World Bank Group ...

CHAPTER 2ADAPTATION AT THE BANK GROUPCLIMATE RISK IDENTIFICATION AND SCREENING AT IFC2.18 While IFC’s 2008 Climate Policy articulated an approach to greenhouse gasmitigation, the organization is still in the process of understanding how to approachclimate adaptation. It recognizes two avenues. First, to support the transfer ofadaptation-related technologies to client countries. Second, to identify risks to its ownportfolio and more generally, to the private sector in the developing world, and devisemitigation strategies. An important step in this direction has been the formal adoption(January 2012) of a Performance Standard related to climate: “The risks and impactsidentification process will consider the emissions of greenhouse gases, the relevant risksassociated with a changing climate, and the adaptation opportunities.” Theaccompanying Guidance Note asks clients to perform climate risk identification forprojects located in climate-sensitive areas. (A working group is devisingimplementation procedures.) The Bank has no equivalent requirement.2.19 IFC has sponsored an insightful analytic program on understanding climate risksto projects (Stenek, Connell and others 2011a). Recognizing that little is known aboutthe magnitude of risks or the options for mitigating them, IFC assessed those risks forfive projects, four of them already active and one under appraisal 10 . Some risks turnedout to be imponderable but possibly large (such as at a hydropower plant in Nepal);others were small (such as the loss of efficiency in palm oil processing due totemperature rise in Ghana). A particularly interesting case is the Port of Cartagena. Themain climate risk it faces is sea level rise, which will eventually submerge the causewaythat carries all the port’s cargo. Analysis showed that the optimal adaptation strategywould be to raise the causeway by 20 centimeters every 10 years, starting in 2030. Evenat a 3 percent discount rate it would not make sense to raise the causeway prematurely.These analyses illustrate how sector- and location-specific climate risks are.IFC’S APPROACH TO CLIMATE RISK MANAGEMENT IN CURRENT PRACTICE2.20 To assess climate risk management at IFC, IEG interviewed staff and revieweddocumentation for recent projects in three highly climate-sensitive sectors: agribusiness,hydropower, and coastal resorts. (Hydropower is discussed at greater length on page73.)2.21 Pending the implementation of the new Performance Standard, climate riskassessment at IFC is subsumed into the conventional areas of risk management: credit,financial, and operational risks. Climate risks often take the form of flood and stormrisks to facilities and to business disruption, and are covered by insurance.2.22 In project appraisal, IFC has until now tested for climate sensitivity during theperiod of its financial investment, which is less than the operational life of the project.IFC tests the effects of climate shocks on the project’s returns (part of its development19