SOFF looks for funds to improve global weather forecasting
The UN-backed Systematic Observations Financing Facility is working with the World Bank on an innovative impact financing designed to help plug gaps in climate and weather data in developing countries and improve global weather forecasts.
SOFF is looking at a range of structuring options for the deal, which highlights the challenges in funding infrastructure and systems for the "global public good" that will generate billions of dollars of economic benefits but lack a clearly defined revenue stream.
The World Bank is closely involved with SOFF and has expressed interest in potentially structuring a deal that could emerge as an impact bond or a series of private placements.
"The market route and the alternative investment route are both still on the table," said Markus Repnik, director of the SOFF secretariat, which is hosted by the World Meteorological Organization and based in Geneva.
"Perhaps our thinking is now evolving towards a private placement arrangement. We're realising that we need to mobilise alternative investors and this could potentially be done with two or three private placements."
SOFF provides long-term financial and technical assistance to support the acquisition and international sharing of basic weather and climate observations.
It aims to raise US$200m by the end of 2026 to close the observations data gap in countries with the most severe shortfalls by prioritising least developed countries and small island developing states, improving the quality of global weather forecasting in the process.
There are very few weather stations reporting in LDCs and SIDS. Germany has more reporting weather stations than Africa.
SOFF is talking to banks in an effort to access clients focused on impact deals. It is also talking to funds including the Green Climate Fund and the Adaptation Fund.
It is aiming to announce the financing at the COP30 climate meeting in Brazil in November.
The World Bank has been closely involved in SOFF's design and development and is an implementing entity for its financing in seven countries.
Philanthropic capital
SOFF hopes funding will combine public and private capital with blended finance from sovereigns, climate funds, philanthropies and commitments from banks and investors willing to forgo some interest or principal, similar to some recent sovereign debt swaps.
Finding a cost-effective financing tool is becoming increasingly difficult as geopolitical tensions and the disastrous collapse of global donor USAid put traditional sovereign resources under pressure.
This is placing more emphasis on philanthropic capital and frontloading donor commitments. However, SOFF lacks the history of clearly defined contributions that has allowed institutions such as the International Finance Facility for Immunisation to issue billions of dollars of bonds against sovereigns' capital pledges to smooth its donor funding.
"The areas in which it’s most challenging to fund global public goods is for priorities that require outright grants and for which ... a reliable flow of public or private donation" has not been developed, said Ken Lay, chair of IFFIm's board of directors and former treasurer of the World Bank, who is advising SOFF.
"The good news is that the philanthropic community appears willing to make immediate donations, as well as, potentially, forward pledges that could support frontloading in capital markets along the lines of the IFFIm model."
While an impact bond similar to the World Bank's series of outcome bonds could raise SOFF's profile, a more flexible series of private placements could allow a growing number of contributing partners to spread their support over time.
A successful deal for SOFF could be replicated for specific energy efficiency measures, mangrove and other coastal bioshield restoration programmes and watershed restoration, Lay said.
"Each of these thematically consistent 'pure-play' investments can be aggregated across diverse jurisdictions, achieve investment-grade credit ratings and a scale to ensure liquidity," he said.
"It’s a heavy lift to stand up transactions like these, but if we can figure out how to bring the transaction costs under control and otherwise motivate MDBs, investment bankers and others, I think there's a lot of opportunity to accelerate this work."
The Nordic Development Fund is one potential financing partner. A minimum of 60% of its financing goes to climate adaptation and SOFF's combination of physical investment in equipment for weather observation and capacity building in local institutions and maintenance fits its focus on early warning systems.
"The reason why we continue to stay engaged and would like to support this bond initiative is because we see that SOFF is really necessary, it's functioning and delivers very concrete results but the financing needs can't be covered with a more traditional approach," said Satu Santala, a managing director at the Nordic Development Fund.