Interview with Bapon Fakhruddin, Water and Climate Leader, Green Climate Fund

Interview with Bapon Fakhruddin, Green Climate Fund 

Tobias Schmitz: The Water Resilience for Economic Resilience Initiative argues that in these times of climate change, water has a double role, being both a major hazard of climate change and a powerful means to implement resilience within the broader economy. Water provides us with a key element to promote this resilience and steer economic development. Therefore, water should be at the forefront of economic planning for resilience. What is your opinion on this topic?

Bapon Fakhruddin: I fully agree with the statement.  Water is a critical resource that underpins various sectors of the economy, including agriculture, manufacturing, energy, and cities. Climate change is already causing significant impacts on water resources, such as increased temperatures, more intense droughts, and extreme flooding events. These impacts pose challenges to economic development, as they disrupt water availability and quality, affecting various economic activities.  If one looks at the sectoral impacts on economy has quite a strong interdependency with water. When you then bring in climate change as a critical element, there is a fundamental relationship and interdependency between the sector, water and climate change: one cannot talk about agriculture or energy without taking about water.

The Water Resilience for Economic Resilience Initiative (2023) argues that water should be at the forefront of economic planning for resilience. Water provides a key element to promote resilience and steer economic development in the face of climate change. Integrating water considerations into economic planning can help mitigate the risks associated with climate change and ensure a more sustainable future.

Climate change is having a fundamental effect on the water sector, and if we look at this from the point of view of Integrated Water Resources Management (IWRM) itself, there is an impact of decision making not only on the economy, but also on key aspects of the national development plan and issues such as food security, environment, health and of course SDG 6. Water management has a huge economic impact, and if you are able to ensure that IWRM has been embedded into decision making through processes like multicriteria assessment, it is possible to make judgements about how to make the most efficient use of limited water resources. The modelling is quite complex, but it is possible to make these decisions

Tobias Schmitz: You mention complexity and multicriteria assessments. What tools do we have in our toolbox to support these choices?

Bapon Fakhruddin: First of all, we need to be in tune with the cross-domain, interoperable data envelope which helps us to assess overall risks. Once you have this data, it makes it possible to come up with analytics which can help you as a planner or policy maker, because you need to link this to numbers in terms of monetary value, etc. Of course, this requires proper data sets and not all countries do have this level of data available. 

Tobias Schmitz: The World Bank has just completed a first of its kind 360-degree review of spending in the water sector across the world. It finds that total spending is U.S. $164.6 billion, of which 85.5% is public spending, 6,9% is Official Development Assistance (ODA), 5,9% is through state-owned enterprises and the remaining 1,7% is private investment.  Public spending dominates the sector although ODA is significant also. Nevertheless, despite these investments we are clearly not on track for the achievement of the 2030 Goals, let alone ensure climate resilience of the sector. What options do we have going forward to leverage change and accelerate investments for a water secure future?

Bapon Fakhruddin: The picture is actually quite clear: indeed, there is 164 billion dollars available, while your demand for investment is 6,7 trillion dollars. This is a huge gap. So, you basically have to ask, who has this money? It soon becomes evident that no-one has this kind of money available, not even the multilateral development banks. This means that we have to change our financing model, or collaborative environment. It comes down to how you create your financing environment. Thoughts that come to mind are questions around how you create collaboration between multilateral banks, development finance institutions, climate finance institutions- and make sure that there is no duplication of efforts. We also need to look at scaling up because we tend to have a project focus, but we need to ask whether a project solves a particular problem. Similarly, governments may make flood forecasting assessments and response plans, but there needs to be careful thinking around the mobilisation of investments to finance these plans. Different financing models are required, such as revolving loans, water bonds, or public private partnerships, to provide longer term financing.

Tobias Schmitz: What is the potential of instruments such as blue bonds?

Bapon Fakhruddin: There is certainly a potential, but in order to set this in motion, you need proper legislation and policy in place, and also the initial investment is high – governments do not always want this kind of up-front investment. In the case of disaster responses, it is possible to take out disaster bonds which enable one to access funds immediately if there is a problem that one needs to respond to.

Tobias Schmitz: It seems as though you are saying that it is a lot about the enabling environment: about having the legislation in place, about having a very clear framework for public- private cooperation, and about the government being prepared to walk that route and to put the things in place that are needed to unleash the power of things like blue bonds investments. It seems quite surprising to me that you end up coming back to policiea and laws rater than looking at the investments themselves.

Bapon Fakhruddin: If you look at the water space, on themes like the need for the private sector to engage in the water sector, we have been discussing this for decades, but in reality the private sector does not invest, because they do not see a risk free environment in the sense of legislation and policies that enable them to derisk their investment, and if you cannot provide these kinds of things, nobody will come and invest their money.  

Tobias Schmitz: The interesting thing is that for instance you have this system of twinning of utilities whereby for instance a Dutch utility will twin with a utility in Indonesia in a partnership for ten years, and this fundamentally affects the confidence of banks and the bankability of proposals in an environment in which the receiving utility may be in a difficult position financially.

Bapon Fakhruddin: You have touched on the enabling environment again because with such a partnership, it provides the foundations to leverage funding. These are beautiful models, and at GCF we always say that innovative financing is very important. Globally, only the GCF is available to offer flexible financing: if you need 0% interest rates for 40 years, we can make that happen, and no other bank can do that. If you need an instrument like a guarantor to support your utility, we can provide these kinds of things. If you need an equity fund, we can help create it and make it a revolving fund from our side. Countries should utilize the financing options we have at our disposal.  In addition, we have our readiness funds, where a country can use interim funding to prepare the enabling environment through legislation and policies that attract donors and multilaterals to provide a loan or to invest.

Tobias Schmitz: So, in that sense the readiness fund and other tools that the GCF has are putting in place are responding precisely to what you are saying: they are creating the space for the enabling environment to be out in place so that the rest can develop by itself naturally once that ‘infrastructure’ is in place.

Bapon Fakhruddin: Yes, although the challenge remains that because of the siloed environment of the water sector, the water sector does not have a strong relationship with the ministry of finance or the ministry of environment. Climate finance tends to go directly to the ministry of finance or the ministry of environment, so unless there is strong interdepartmental collaboration, it will be difficult for the water sector to access that finance.

Tobias Schmitz: That actually takes me to the core of my next question: the World Bank report I mentioned seems to underline the paltry public spending on the water sector, indicating that only 1,2% of public funds are devoted to the water sector on average, whereas spending on 'human development' such as education, health and other can be up to 50 times higher. Are we not in this sense barking up the wrong tree and should water not be mainstreamed more within health and education sectors as a critical element for both of them?

Bapon Fakhruddin:  Leveraging change and accelerating investments for a water secure future requires a comprehensive approach that involves collaboration, innovation, establishing metrics, mobilizing financial tools, and improving the resilience of the water sector. By implementing these measures, we can strive towards achieving the 2030 goals and ensuring the climate resilience of the sector.. Water is being used as a leverage or sideline support for other sectors, but we need to bring water to the forefront of our thinking.

Tobias Schmitz: Much of our existing water infrastructure, especially for storage systems such as dams as well as the irrigation sector, is based on historical rainfall (precipitation) records. In an era of climate change, we can no longer rely on this record to predict the future with confidence. This would seem to imply that investments in climate resilience in the water sector are inherently risky and even a touch experimental. What can we do to increase the confidence in our investments in the sector in this regard? 

Bapon Fakhruddin: This is a very good point, and it is the reason why we say that we need to have a risk-based decision-making system. Unless you understand your overall climate risk – which is an overview of the associated exposure, hazards and vulnerabilities -you cannot assess the lifetime of your asset. Infrastructure designed for a one in hundred-year event may not last one hundred years because of a changing climate. Once you understand these risks you will be able to fine tune the design aspect and implement the project. There is quite a standard way to do this: it is necessary to assess the vulnerabilities, the exposure to hazards that is associated with the infrastructure, and develop a dynamic, adaptive pathway which provide step by step mechanisms to respond to needs.  Also we must act decisively and innovatively. There are several tools, technologies are available for assessing risks and guiding our investment decisions. Investing in climate-resilient infrastructure is no longer optional; it is imperative. We must bolster our water storage capabilities, strengthen flood defenses, and secure our water supply systems. Nature-based solutions, as demonstrated in many countries, offer a promising path forward. Finally, collaboration is key. As we plan for the future, we must consider multi-sector trade-offs and embrace both incremental and transformational adaptations. Our strategies must be comprehensive and far-reaching.

Tobias Schmitz: Does that imply a more incremental approach, that the horizon is not long term but planning is more a step by step process?

 Bapon Fakhruddin: You are planning for the long term, but you are working in segments or modules, evaluating each step in turn and making decisions on the next intervention based on the results achieved.

Tobias Schmitz: So one needs stronger monitoring and evaluation?

Bapon Fakhruddin: You need a proper health check for your assets: asset metering , using new sensors and related technology which can help monitor the health of an asset on an ongoing basis and assess its overall life span.

Tobias Schmitz: … And as you mention there is quite a lot of new technology which enables real time monitoring of assets.

 

Bapon Fakhruddin: Yes, and it could actually be a revolution for your asset management perspectives, because if you understand your assets, you can actually reduce your operations and maintenance costs. Instead of being faced with critical damage, you can act in advance to ensure ongoing maintenance.

Tobias Schmitz: The Green Climate Fund has a large portfolio of investments aimed to achieve a water secure future, and it has now entered a new phase of co-production of projects with partners which appears to be iterative and in which the GCF is using its store of knowledge to propose interventions from its side also? Is this observation correct and what can you say about the new direction being taken?

Tobias Schmitz: Well, it is about how we have evolved to support direct access to the GCF for countries (including, as well as about supporting private sector involvement. We do not want to act as a post office anymore, but we prefer to work together on a proposal. We have often received the comment that the application process can take time and it is often difficult for countries to distinguish development issues from climate change issues. Our funds are for climate change, and to help understand where we bring the additionality and complementarity, it is more fruitful to work through co-production. We have managed to reduce the transactional time, whereby in stead of having six iterations of a proposal with a turnaround time of one to one and a half month, with a total time of one and a half years, we can now cut it down to three months.

 Tobias Schmitz: So, it actually saves time and simplifies the process?

Bapon Fakhruddin: Initially it is complex as required stakeholder engagements and sharing ideas on transformational adaptation, climate impact and paradigm shift, and it is necessary to spend time together with your partner to share new ideas, innovative technologies and solutions that could be brought to the market. This process is faster than you receive a concept note and back and forth comments, we spent too much transitional time, energy and money. Using a co-design and co-creation ensure a more interesting projects, moving beyond traditional thinking to paradigm shifts.  

 

The GCF has entered a new phase of co-production of projects with partners, using its store of knowledge to propose interventions. This iterative approach allows for the integration of local knowledge and expertise in project design and implementation. The GCF's new direction emphasizes the importance of collaboration and knowledge-sharing in addressing the complex challenges of water security and climate change.