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Unpacking the World Bank's Resilience Rating System
A credit rating agency-style approach to gauging the resilience of projects could help investors, but has its downsides too
Louie Woodall
July 18, 2024
AI-generated via DALL-E
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TL;DR
The World Bank has developed a Resilience Rating System (RRS) that grades projects on their climate resilience attributes
While designed to guide World Bank investment decisions, it’s also being pitched as a tool for helping development banks and private investors, too
Each RRS rating has two parts, with the grading scale running from CC to A+A+
The first part considers the “resilience of” a project to climate risks, while the second considers “resilience through” — meaning the adaptation benefits that could accrue to the local community
The RRS ratings resemble those given by credit rating firms, and may have similar downsides, too
Change the financial system, change the world. It’s the unofficial tagline of the world’s top development banks this year, which are taking bold steps to improve the quantity and quality of climate finance sent to vulnerable countries — particularly for adaptation and resilience.
In December, the World Bank promised to increase the share of annual financing earmarked for climate projects to 45% for fiscal year 2025, up from an average of 35%. That amounts to a whopping US$40bn. In announcing the change, Ajay Banga, the institution’s president, promised countries “that when they take a hit” from climate disasters, the bank would “have their back.”
The World Bank’s efforts to promote climate resilience and adaptation financing goes beyond turning the money taps on to full, though. As important has been its work to rejig the complex network of norms, standards, and metrics that governs how capital flows around the world.
Ajay Banga, World Bank President. Source: WEF/ flickr.com
An essential plank in this strategy is the Resilience Rating System (RRS), a new approach to grading investment projects based on how their design and outputs contribute to climate resilience. Five years in the making, the RRS was piloted in 21 projects from around the world in 2021 and 2022, with a report on its findings released earlier this year. Its goal is to standardize how investors assess the quality of adaptation and resilience considerations in development projects, and perhaps in future for other kinds of assets as well.
Back in June, I had the opportunity to speak with Jia Li, a senior economist at the World Bank Climate Change Group, about the RRS and how it might unlock more capital for climate-proofing purposes.
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