What you need to know about the climate change resilience rating system
From Bangladesh to Mozambique, countries around the world face the accelerating impacts of climate change. Research has found that the poorest people least responsible for rising CO2 emissions are often the most exposed to climate risk, and that climate change could push up to 132 million people into extreme poverty by 2030.
Our development goals are jeopardized by climate change and disasters. Severe rainfall can cause mudslides, road washouts, and floods that can contaminate water supplies. Higher temperatures can reduce the efficiency of electricity transmission and distribution, as well as place stress on grid networks from increased cooling demands. Droughts can harm livestock and crop productivity, while changes in rainfall patterns can increase the risk of crop pest infestations and threaten food security. Considering climate and disaster risks can help improve project design and build communities that are more robust.
In this context, the World Bank Group set a target to increase climate finance to 28% of lending and to systematically factor climate change into projects. This commitment was underpinned by the Group’s first Climate Change Action Plan. As a result, from 2016-2020 the Bank Group provided over $83 billion to developing countries to mitigate greenhouse gas emissions and help people adapt. By 2020, financing for climate change adaptation had risen from 40% of the Bank’s climate finance to more than 50%, driven by the boost in financing and strong demand in developing countries.
In 2019, the Bank launched the Action Plan on Climate Change Adaptation and Resilience to further support countries’ efforts to adapt and manage climate risk and to build resilience -- the capacity to prepare for disruptions, recover from shocks, and grow from a disruptive experience.
The plan included the development of a new rating system to improve tracking of global progress on adaptation and resilience and to create incentives to engage in more and better adaptation. In January 2021, the Resilience Rating System was being piloted in more than 20 World Bank projects across all regions, covering sectors in human development, infrastructure, and sustainable development.
The new rating system provides guidance on developing climate-resilient projects and a way to assess what projects are doing to increase climate resilience. The system evaluates two dimensions of resilience, each one rated from C to A+: the resilience of the project design – the project’s ability to withstand impacts from climate and disasters -- as well as how people are being made more resilient through the project itself.
In this interview, World Bank Climate Change Lead Economist Stéphane Hallegatte explains how the Resilience Rating System will improve development projects and help countries adapt to climate change.
What is the history behind the Resilience Rating System and what problem is it solving?
Monitoring and evaluation of projects have always been part of our work. As we increased our climate financing over the last five years, we introduced a new way of measuring how much of our lending had climate “co-benefits.” But, very quickly, people started to feel that this metric told only part of the story.
One of the big gaps in the metric we currently use is that it aggregates the efforts to make all projects more resilient, what we often call mainstreaming, and the efforts dedicated to improving resilience and supporting adaptation. The Resilience Rating System was designed to capture these two dimensions independently to better monitor and pilot our portfolio and better report on what we are doing.
Another problem that the Resilience Rating helps to solve, is the challenge of monetizing climate interventions. For example, interventions that affect policy change and strategic systems-level planning to increase incentives for climate action may not be reflected in a high financial sum, compared to a large infrastructure project, but could potentially be transformative. The resilience rating system helps recognize these types of projects.
Right now, you can find projects doing a great job in terms of resilience. But because the methodology is very technical (people don't always read the third Appendix to the technical documentation of the project), decision-makers or investors may not be able to identify those projects and give them priority over other, less-resilient, projects. We hope that by making a project rating understandable to the non-expert, with just one letter – such as an A or a B or a C -- it will be easier to see when a team is doing a good job. And I'm not just talking about project teams at the World Bank, but also outside. Good projects will get more visibility, teams will get more rewards for their efforts, and therefore have stronger incentives to do it.
I think the key is, we started from a measurement problem, and in trying to solve that problem, we have created more than just a monitoring system. We created guidance and tools that people can use to design better development projects and we are also generating incentives by making the good job done by the teams more visible.
How does it work? Is it easy to use? How will it change the way projects are designed and implemented?
A key thing to note is, when we were developing this tool, we found some World Bank projects that would be rated A+ using this metric. So, the highest rating is not some crazy, idealistic level of perfection. There are existing examples of best-in-class projects from the perspective of resilience. The challenge is to bring all projects to the same level.
In the piloting of this tool, we are working with a little more than 20 projects that are being designed. Rather than arriving at the end of the project development process and putting a rating on those projects, we are working with the teams to get projects to a high rating, A or A+ in one or the two dimensions: the resilience of the project’s design (whether it is resilient to risks from climate change and natural hazards); and the resilience gained through project outcomes (whether it builds the resilience of people and of the wider system). We want the piloting to show not only that the rating system can provide visibility, but also become actionable guidance that teams can use to build better projects.
There are things that teams should do to get a good rating, and those things happen at different stages. What is particularly critical is to start considering risks and resilience at the very early stages of a project. The concept note stage is when you want to screen the threats that a project might be exposed to and also explore the opportunities to build the resilience of project beneficiaries. A lot of the projects in the pilot are at the stage of project design when you try to transform the information gained from risk screening and exploration of resilience opportunities into actual components of the project. For example, if screening reveals there is a big flood risk, then you probably need to include a flood risk management component in the project. If your exploration of resilience opportunities suggests that you can make the population more resilient by building small scale drainage in a slum, then you will want to add this drainage component in the project preparation phase.
To get the highest rating under the Resilience Rating System, you need to show in the project appraisal and in the economic and financial analysis of the project that climate risks do not threaten the viability of the project. You also have to explain how the project is building the resilience of the population, which means explaining what the population is vulnerable to and how people will be less vulnerable after your project has been completed. If the project documents all of that, then it can get a high rating. That is our objective in the pilot. If it works, the goal is to do that for all our projects.
"At the end of the day, the goal is not to just rate projects, it is to do good projects." - Stéphane Hallegatte, World Bank Climate Change Lead Economist
How will the rating system change the way we design and implement projects?
We don't only want people to think more about climate risk, we also want them to think about it earlier. A common problem throughout development is climate risk is considered very late in the process. Take, for instance, a new urban development that failed to consider flood risk until late in the design. The only thing you can do at that stage is to put in place very expensive protection – you add infrastructure such as dikes, strengthen buildings, increase the drains around the roads – and all of that makes everything super expensive. If you bring that thinking in during the concept phase, you could just build your new development somewhere else and it would not have to cost you more. You can reduce vulnerability and increase resilience very cheaply if you think about risk very early. One objective of this work is to make sure that climate change is at the core of project development and is not an afterthought. Instead of checking for risks at the end, they are considered at every step of the pipeline.
Will the rating system link project teams with the information needed to make good decisions?
Yes. Creating a rating system creates an incentive. There is also the supply side of the equation that calls for tools that are easy for project teams to use when considering climate risk. One should be able to do this without being a climate change expert. That's part of the goal. We realized early on that people typically do not have the tools to achieve the highest rating levels. So, in parallel, we are creating guidance documents and a risk stress test tool to help teams do the work we're asking them to do. The tool provides access to climate information from several portals and puts that information in a format needed for the economic analysis of the project in a way that doesn't require you to have a PhD in climate science to do it. We really hope that by working on those two elements – the rating system itself and the tools needed to get a good rating – we can improve projects and make them deliver better and more robust development gains for beneficiaries. At the end of the day, the goal is not to just rate projects, it is to do good projects.
Can other multilateral development banks or the private sector the Resilience Rating System?
The objective was to develop a rating system that could be used by others and become a standard. For other development agencies, it would be relatively straightforward. They would have to adjust the way it’s done to their own processes and their project pipeline, but the way they look at this issue is very similar. We hope we can all work together to make sure the methodology is adjusted to meet the need and constraints of various organizations.
The way the rating system is implemented by the private sector will likely be a bit different, but the objectives and the needs are similar. Private sector projects also need to consider climate risks in their design, and private investors have been asking for simple standards and metrics to help them select the best projects from a resilience perspective. One big difference is that the World Bank is both the project developer and the investor, which makes it easier to share information. In the private sector, the project developer and the investors are different entities, which create specific constraints. Hopefully our tools can be adapted to their needs, and we are already working with partners from the private sector to make progress in that direction.
The rating system could be used also by governments and local authorities, like municipalities, to inform their own projects and investments. One of the things that we're trying to do is see if this tool can be part of the project investment management systems that governments use to manage their own projects. If we are able to do that, the rating system could be applied to all of the projects in a country, beyond the projects supported by development institutions, and that would be the complete game changer.