2021 Climate Adaptation Action Plan - U.S. International Development Finance Corporation
Executive Order (E.O.) 14008, Tackling the Climate Crisis at Home and Abroad, requires that each federal agency develop a draft Climate Action Plan (Plan) that responds to the climate crisis.
The United States’ vision for climate action is fundamentally driven by the extraordinary opportunity it presents for economic revitalization and equity—through job creation, healthier communities, the dismantling of gender inequities and driving forward inclusive growth. DFC’s leadership recognizes the critical role it must play to equitably address climate change and ensure a just transition through its approach to climate finance. Building a sizeable and impactful portfolio of climate financing is key to demonstrating and furthering DFC’s commitment to address climate change head on. Achieving this goal will require DFC to refine its process and adopt a climate lens through which it will view all its financing activities (see box below). Revisiting, improving upon, and diversifying DFC’s project sourcing approaches is critical to ensuring that its climate portfolio is innovative and responsive to the dynamic landscape of climate finance. The ability for DFC to integrate climate change adaptation and climate resilience across its portfolio is a key part of the work that will make DFC a more resilient agency.
DFC Investment Tools to Support Climate Investments:
- Debt financing. Direct loans and guaranties ranging from $1 million up to $1 billion
- Equity investments. Our new Office of Equity Investments will provide critical support to projects that may be unable to access debt financing but offer strong potential for development impact
- Support for emerging market private equity funds. DFC support as a limited partner and a co-investor helps address a shortfall of investment capital in emerging markets
- Political risk insurance. Coverage of up to $1 billion to protect against losses from government interference, political violence, and other political risks
- Feasibility studies. Support for the analysis of a potential DFC project
- Technical assistance. Support to increase the developmental impact or commercial sustainability of existing DFC projects or to develop potential DFC projects
Prioritizing Adaptation Actions
We know that developing countries are experiencing some of the worst impacts of climate change. While investments in mitigation actions such as renewable energy will reduce emissions over time, developing countries also need investment today that will help them adapt to climate change impacts. Adaptation investments can produce significant benefits including avoided losses, risk reduction, increasing productivity and social and environmental benefits. Increasing or strengthening the capacity of a human or natural system to cope with and/or recover from shocks while retaining the essential functions of the original system is essential to DFC’s approach to climate adaptation. Furthermore, adaptation measures can be an enhancement to other types of critical activities, including mitigation which is also central to DFC’s climate portfolio as DFC will build on its strong track record in investing in mitigation projects to combat climate change.
The resilience of DFC’s active portfolio impacts the agency’s ability to achieve its mission. The impacts of climate change will increasingly undermine DFC’s ability to promote sustainable development and inclusive growth, especially in the food security and agriculture, water, critical infrastructure, global health, and financial inclusion sectors. Supporting climate adaptation and resilience is complementary to DFC’s work to strengthen U.S. manufacturing and supply chains in clean energy; by stimulating demand and new opportunities to compete and win in emerging markets, we can also position American companies to create jobs and prosperity at home.
Therefore, this plan prioritizes adaptation actions that allow DFC to incorporate adaptation and resiliency considerations throughout the lifecycle of DFC’s projects to maximize the development impact and minimize the financial risk of DFC investments. DFC will prioritize adaptation efforts that have the development objective of strengthening the capacity of individuals, communities and/or systems to withstand current or future climate-related shocks or stressors by focusing on the following five priority actions:
- Drive DFC Investments Toward Adaptation and Resilient Climate Objectives
- Mobilize Additional Private Climate Finance Capital
- Enhance Portfolio Diversity to Reduce Risk
- Integrate Climate Risk Analysis When Developing Deals
- Embed Climate Lens into Transactions and Impact Measurement