Bridging the Gap: How EMDEs Can Attract Private Funds for Climate Adaptation Projects

The World Bank, in collaboration with the Global Facility for Disaster Reduction and Recovery (GFDRR), the Public-Private Infrastructure Advisory Facility (PPIAF), and Jacobs Engineering, has produced an urgent and timely report examining how emerging and developing economies (EMDEs) can scale up private sector financing for climate adaptation and nature-based infrastructure. These regions, facing the harshest impacts of climate change, such as intensified flooding, heatwaves, droughts, and coastal degradation, are also grappling with biodiversity loss driven by economic development. Despite growing technical know-how around adaptation solutions, a persistent financing gap remains. The report zeroes in on this shortfall, identifying viable business models, cost recovery approaches, and enabling environment strategies that can attract private participation in what has traditionally been considered the public domain.

Cracking the Revenue Challenge for Public Infrastructure

One of the most fundamental obstacles in financing climate adaptation and nature-based solutions (NbS) is the lack of clear revenue models. Infrastructure like levees, restored wetlands, and urban greening projects often generate benefits for broad populations but not necessarily profits for investors. To address this, the report outlines four cost recovery strategies. The first is the “user pays” model, most feasible in sectors like water, where service tariffs are common. A second model is “government pays,” typically used in flood risk and public safety infrastructure, involving availability or performance-based payments. Third is “land value capture,” in which governments reclaim part of the value added to land through infrastructure improvements, as seen in projects like Mission Rock in San Francisco. Finally, the report explores “climate-related funding,” such as carbon finance, which channels revenues from the sale of emissions reductions or resilience outcomes.

Financing Models: From PPPs to Blue Bonds

With cost recovery mechanisms in place, several financing routes become accessible. Public-private partnerships (PPPs) are widely used, particularly in water and wastewater projects. Jordan’s As-Samra Wastewater Treatment Plant exemplifies how viability gap grants and performance-based government payments can make PPPs viable even in water-scarce nations. In Timor-Leste, the Tibar Bay Port combined mangrove restoration with port development under a PPP, reducing erosion and maintenance costs. Capital markets are also emerging as powerful tools. The Netherlands has issued sovereign green bonds to fund its Delta Programme, a national climate adaptation initiative focused on water security. Washington, D.C., financed a green infrastructure project through Environmental Impact Bonds, linking investor returns to environmental performance. Belize took an innovative leap by executing a debt-for-nature swap with “blue bonds,” refinancing its national debt under conservation conditions. Meanwhile, Colombia partnered with IFC to issue the world’s first biodiversity bond, aimed at funding ecosystem restoration, sustainable agriculture, and reforestation.

Nature-Based Solutions: Cheaper, Greener, Smarter

Case studies from across the globe demonstrate how investing in ecosystems can be more cost-effective than traditional engineering solutions. In South Africa, the Greater Cape Town Water Fund removed invasive plant species in catchment areas, freeing up 34 billion liters of water annually, at a fraction of the cost of building new dams or desalination plants. In Ecuador, the Quito Water Protection Fund (FONAG) receives steady revenue through a share of water utility fees, enabling sustainable watershed management that benefits both biodiversity and urban water supply. Colombia’s Vida Manglar project restored thousands of hectares of mangroves using revenues from blue carbon credits, while Mexico’s Quintana Roo region pioneered the use of parametric insurance to fund coral reef restoration, with premiums paid by a tourism tax. These models are not just environmentally sound—they're financially pragmatic.

The Road Ahead: Building an Enabling Ecosystem for Investment

System-level reforms must match innovation at the project level. Successful projects often exist in countries with strong institutions, mature financial markets, and clear climate or biodiversity policies. For EMDEs to unlock the same potential, they must improve access to climate and ecological data, create incentives for private investment (such as tax credits, results-based payments, or guarantees), and foster multi-stakeholder coordination across government, NGOs, utilities, and private developers. The role of development finance institutions is also critical in bridging risk gaps, especially at the pilot stage. Moreover, green and blue taxonomies, disclosure frameworks, and outcome verification tools will help legitimize nature-positive investments and draw in institutional capital.

This report paints a hopeful yet realistic picture: the solutions exist, the need is dire, and the private sector is willing, provided the right conditions are in place. With global climate finance still falling short, EMDEs cannot rely solely on public resources. Unlocking private investment through innovative financing mechanisms and enabling environments is not only possible—it is essential for a more resilient, inclusive, and sustainable future.