Reflections from the Financing Resilient Infrastructure Project: A new approach is needed to finance resilience at the local level

Building the infrastructure we need for a prosperous future

Every corner of Canada has been touched by climate change in some way — by storms, floods, heatwaves, and droughts — damaging infrastructure and, in tragic cases, claiming lives. While climate change is getting costlier to Canadians and our economy, it is also disrupting health and quality of life. The 2023 wildfire season alone broke records with nearly 18.5 million hectares of land burning resulting in mass evacuations. 

“This is a new reality and one municipalities need to prepare for now more than ever while simultaneously shifting towards a net-zero future to lessen these impacts and their tragic consequences,” explains Megan Meaney, Executive Director at ICLEI Canada. 

Investing in climate-resilience is a must, but it comes with challenges. For one, the impacts of the increasing frequency and severity of climate-related events are set against Canada’s pre-existing infrastructure gap. In fact, the Federation of Canadian Municipalities estimates that adapting infrastructure just at the municipal level to avoid the worst impacts of climate change will require investment of $5.3 billion per year in Canada (that’s right, per year!). However, despite the strong economic case for investing in climate adaptation, public funds are significantly limited. This challenge is particularly acute for municipalities which own and operate 60 percent of Canada’s public infrastructure, have limited capacity and revenue sources to address climate impacts, and are facing a large price tag for infrastructure adaptation.

“While efforts to mitigate climate change are underway and expanding — with governments and businesses setting net-zero targets and ramping up investment to reduce emissions — investment in climate adaptation is lagging woefully behind the projected costs, which are poised to worsen over time,” explains Don Iveson, Executive Advisor of Climate Investing and Community Resilience at Co-operators. “Importantly, even those mitigation investments are at risk if they are not themselves resilient to the changing conditions in the decades ahead. There can be no smooth transition to a net-zero future without enhancing resilience along the way.”

It is clear that resilience must be incorporated into municipal planning and growth, but this must be done in a way that is sustainable and financially viable. Put simply, we need new and innovative financing approaches to build resilience at the local level. Such approaches need to include mechanisms that can be used to acquire, structure, govern, and allocate financial resources towards resilient infrastructure. In addition, financial resources must come from a variety of sources including financial institutions, private investors, and institutional investors to support and complement traditional sources of public funding.

Exploring innovative financing 

Over the course of 2023, ten Canadian municipalities worked in partnership with ICLEI Canada, Co-operators, and Co-operator’s asset management arm, Addenda Capital, on the Financing Resilient Infrastructure Project (FRIP) to identify a suite of possible resilient infrastructure projects that private investors could help finance. A core component of FRIP was to connect municipal practitioners with financial experts from both the private and public sectors. 

“Outputs from the rich dialogues that occurred through this FRIP will support municipalities as they consider innovative approaches involving private finance, as a complement to public funding, in the spirit of accelerating and scaling the mission-critical work of building communities that are resilient to climate change,” explains Chad Park, Vice President of Sustainability & Citizenship at Co-operators. 

The opportunity for project participants and financial experts to exchange insights on topics related to project feasibility and bankability (i.e., cash flows) and explore finance-related questions proved to be immensely valuable in identifying municipal resilient infrastructure projects that could be realized with the help of innovative financing. In addition, the following learnings emerged from this work.

Getting all hands on deck

Thinking about innovative financing requires all hands on deck. Bringing in colleagues from climate divisions, engineering, and finance early in the process is the most likely way to yield success. Each of these professions approach resilient infrastructure from a different perspective and bringing folks together early on when they can ideate and design projects together is a critical success factor.

Considering direct and indirect benefits 

When thinking about resilient infrastructure, we must consider who benefits both directly and indirectly from that protection. When the benefits can be targeted, and many co-benefits can be integrated into project design, we create the most opportunities to identify cashflow sources that can either be recouped by municipalities and/or directed back to private investors. 

Building a collective language

We need to get onto the same page in the way we talk about funding. In investment terms, this is referred to as the taxonomy. We need to build collective language around risk, risk transfer, financing, private capital, and all such terms. If we want to make progress on innovative financing, we need to be speaking the same language. 

Integrating resilience thinking into all aspects of municipal service delivery  

In order for resilient infrastructure to become common place, there is a need to integrate resilience thinking into all aspects of municipal service delivery, from road maintenance and building design to capital planning. 

Approaching innovative financing with courage and openness

The common adage “hard things are hard” seems appropriate here. While the work accomplished through FRIP was difficult at times, we also learned that it is doable. By bringing the right people together early in a process while also opening our collective minds to doing things differently, innovative financing for resilient infrastructure becomes achievable. It takes courage and it takes an openness to collective learning, but it can be done. 

Helping municipalities finance resilient infrastructure projects

Through FRIP, municipal practitioners examined a range of possible projects that could be implemented in their communities and worked to identify possible financial instruments that could be used to finance their implementation. These projects, along with the tools that were used to identify and prepare them for financing, have been compiled into the Getting Ready to Finance Toolkit — a toolkit designed to help municipal practitioners prepare their own resilient infrastructure projects for financing. 

“Building resilient infrastructure at the pace and scale needed to address the climate challenge requires innovation, agility, and new ways of thinking”, explains Ewa Jackson, Managing Director at ICLEI Canada. “It is our hope that by sharing the work we accomplished and the tools we developed through FRIP, we will inspire others to explore innovative ways to finance and implement resilient infrastructure projects in communities across the country.”

The Getting Ready to Finance Toolkit will be available Tuesday, March 5, 2024. A free webinar event will take place from 2:00 to 3:30 pm ET to launch the Toolkit and further discuss how municipal practitioners and financial experts can work together to finance resilient infrastructure projects. Participants will also have the opportunity to ask questions in a Q&A session. 

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