1 Introduction
This book serves as a guide for local governments and private enterprises
as they navigate the unchartered waters of investing in climate change
adaptation and resilience. Local governments and private enterprises in the
State of California have made tremendous strides in developing an adaptive
capacity for addressing the current and future impacts of climate change.
Both the public and private sectors have been united in their challenge to
not only conceptualize the economic consequences of climate change but
also to develop a practical set of methodologies and criteria for evaluating
investments undertaken in the name of adaptation and resilience. Through
successive adaptation plans and updates for nearly the past decade, the
State of California has made advances in framing investment challenges
and interventions in everything from transportation fi nance to disaster
recovery grants and from life-cycle asset management to structured fi nance
( CNRA 2009 , 2016 , 2018a ). The 2018 update to the state adaptation plan
has called for not only advancing innovation in fi nancing models but
also the incorporation of climate adaptation into existing funding sources
( CNRA 2018a , p. 88).
Advanced in coordination with the California Integrated Climate Adapta-
tion and Resiliency Program (ICARP) Technical Advisory Council (TAC)
and the Federal Reserve Bank of San Francisco, this guide seeks to provide
insight into how local governments, as well as private enterprises, may stra-
tegically develop financial models based on a variety of funding sources,
analytical methods and strategic motivations. In this regard, the challenge
is not only to fund “climate” projects but also to fund every day projects
that seek to incorporate some aspects of resilience and/or adaptation perfor-
mance into their design standards and investment underwriting criteria. From
another perspective, this guide helps provide a methodology for underwrit-
ing resilience and adaptation considerations in projects that serve a variety
of interests and social equities over a variety of time horizons. Consistent
with the principles of the ICARP-TAC and its authorizing legislation, it is
incumbent upon stakeholders to evaluate the distributive costs and benefits
that shape the social, economic and environmental welfare of vulnerable
communities. As such, this guide provides methods for ensuring that social
equity considerations help shape fair and equitable investments.
The broad intent is to develop a sensitivity in underwriting and managing
investments that provide transparency for investors and the general public
about the nature of trade-offs by and between different options and strategies.
As will be discussed, these trade-offs may be between investing in short-term
resilience and long-term adaptation or simply between the conflicts that may
arise between the built and natural environments. The intent is to empower
local governments to not only develop innovative finance models but also to
communicate the value of such investments to the general public, as well as
those who are the stewards of managing assets. As such, this guide attempts
to think beyond the immediacy of return-on-investment (ROI) analysis in
favor of a multitude of quantitative returns and qualitative benefits.
How to use this guide
This guide is intended to provide a survey of issues, considerations and
sources of funding that can help guide strategies and tactics for investing
in adaptation and resilience in California. While this guide is primarily ori-
ented for asset management, public accounting, risk management and trans-
actional fi nance actors within local governments, it may also be insightful
for actors engaged in community development and investment; state agen-
cies interested in developing adaptation fi nance products or conduits; and,
private sector fi nanciers and underwriters who recognize the opportunities
associated with responsible investing in climate change. The intent of this
guide is not to provide a prescriptive pathway or underwriting process but to
challenge the assumptions and values of existing modes of analysis, as well
as to highlight novel ideas and developments that are likely to have bearing
on future investments. By orienting adaptation fi nance to existing conven-
tions, the guide is intended to refl ect on the proposition that the “fi nance”
in adaptation fi nance is relatively straightforward. The more fundamental
challenge is in identifying the sources of funding that will allow for new
capital stacks that account for the divergent interests and returns associated
with a new form of investment.
Momentum shaping adaptation finance
This guide builds off of the work of a variety of California-specifi c resources
that have sought to mobilize greater analytical sensitivity and issue aware-
ness associated with current and future climate adaptation investment
Climate Adaptation Finance and Investment in California by Jesse M. Keenan