Increasing Flood Resilience Through Innovative Finance: Utility of Bonds?

11:15 Tuesday 28 May


Room S11


Aparna Shrivastava (United Kingdom) 1; Zinta Zommers (United Kingdom) 1

1 - Mercy Corps

This presentation explores options for financing increased flood resilience through innovative financial instruments. The recent IPCC Special Report on 1.5 degrees highlights risks from increased urban and coastal flooding. Without adaptation, up to 4.6% of the global population will be flooded annually in 2100 with associated losses of up to 9.3% of global gross domestic product. The global costs of protecting coasts alone are estimated to be 12-71 billion in 2100 (Hinkel et al. 2013).

Unlike transport, waste, and energy infrastructure that can be monetized to pay back any debts taken for their development, financing flood resilience infrastructure is challenging. Tolls, user fees and subscription fees are typically not viable options for flood infrastructure despite the scale of investment capital required often being higher than other types of infrastructure. This is unfortunate given that collectively the economic benefits from resilient investments exceed the additional costs of resilience by a ratio of at least 4 to 1. These benefits include reduced damage, lower repair costs, reduced injury and loss of life.

This presentation will focus on efforts to design an innovative form of finance for Semarang, Indonesia. Semarang city is located on the northern coast in Central Java and acts as a strong comparison to many other major cities around the world situated near coastlines.

This presentation first examines available finance options for flood resilience. Relevant examples from practice in other regions will be highlighted including a development loan-financed embankment project, national flood defense system designs, and a floodwall made of oysters. Understanding existing options helps elucidate ways to marry financial options and existing practice for flood resilience.

Three specific resilience-increasing interventions will then be proposed with discussion of their structure, important considerations, and financing mechanism: First, is a traditional green bond issued to finance a waste collection and management service since such a project is easily monetized to generate returns that pay back bond holders. Second is a resilience impact bond whose pay-for-success financing structure allows for funding the development of green infrastructure – an outcome that otherwise would be difficult to monetize. Third is a resilience bond that monetizes the reduction in insurance premium to pre-finance infrastructure that quantifiably reduces risk of damage.