OTTAWA — The Canada Infrastructure Bank is hoping to put some of its billions of dollars to work on climate-change adaptation projects like protection from floods and wildfires, its CEO says, a sharp change of direction from just a few months ago.

The hard part is figuring out how to make those projects pay back the federal agency’s investments, Ehren Cory told The Logic in an interview.

“The benefits accrue to homeowners, to insurance companies and reinsurers, to the federal government—to the extent that emergency services are called in [and] the army’s called into work,” Cory said. “They’re measured as a cost avoidance—like when it rains really hard, it just drains, and so it’s hard to say, ‘Ah, that investment saved me.’”

The costs are real: the Insurance Bureau of Canada estimated (using numbers from consulting firm Catastrophe Indices and Quantification) that severe weather caused $2.1 billion in insured damage in 2021, including $515 million for floods in British Columbia, $102 million for the wildfire that burned down Lytton in that province, and $500 million for a hailstorm in Calgary.

That figure only includes damage from specific major weather events, and only if it was covered by insurance. It doesn’t include the costs for emergency services, to repair roads and bridges, or of lost productivity.

But it’s a tricky problem to take a hard-to-estimate amount of money that a large number of people will not have to spend at an undefined point in the future and turn it into a bookable financial return on a real-money investment in, say, a particular drainage network.

Until recently, the bank thought that problem was somebody else’s. Last winter, a spokesperson told The Logic that participating in the multibillion-dollar effort to proof Canada’s infrastructure against damage from wetter, warmer weather isn’t in the bank’s mandate, so wasn’t on the bank’s agenda.

But things have changed. Climate-change mitigation (which primarily means cutting greenhouse-gas emissions to try to reduce future global warming) is the priority, but adaptation (getting ready for the warming we can’t head off) is on the bank’s horizon, Cory said.

“There’s a national adaptation strategy now that’s been released. The government has been pretty clear in signalling this is a priority for them,” he said. “More importantly, from the CIB’s perspective, the market has been signalling to us a lot that it’s a place they would like to see us active.”

At the Globe Forum climate conference at the end of March, Cory said, he heard from municipalities, insurance companies, project developers, even construction companies proposing flood-protection projects. “We heard from the market, both private-sector financial markets and municipalities, of their need in this space. We listened to that.”

The bank’s work on this is “nascent,” he said, but it’s connected to thinking about how to accelerate, and then get a return on, projects that don’t make money in themselves.

Contrary to a recommendation to disband the bank—from a House of Commons committee dominated by opposition parties—the federal Liberals’ last budget announced a “broadened role for the CIB.” They told it to invest in private-sector-led projects that support a low-carbon economy. That includes targets like small modular nuclear reactors, clean fuels and carbon capture.

Most projects in the CIB’s portfolio are fairly straightforward: when it lends a city government money to buy electric transit buses, everyone is fairly confident that those will be cheaper to operate over the long run than diesel models, and the bank will be paid back out of the savings. Its job is to take a bit more risk than private lenders might or wait longer for payback, but how the deal works is plain enough.

But one project it’s helped fund, in Saskatoon, is different. Kahkewistahaw Landing is a commercial real estate play led by the Kahkewistahaw First Nation, on property near the Diefenbaker airport. It’s eventually to include a medical centre and offices for Saskatchewan’s Federation of Sovereign Indigenous Nations, but the first phase of development includes a gas station and car wash, a fast-food restaurant and a couple of stores.

The bank isn’t underwriting those, though. It’s putting $15.4 million toward “enabling infrastructure,” like road improvements, utilities and broadband connections, through a $1-billion funding stream for Indigenous community infrastructure. The roads and utilities won’t make money, but the idea is the commercial development will, and that’s how the bank will get paid back.

“In the critical minerals, same thing,” Cory said— the infrastructure bank could finance the infrastructure needed to make a mine work. “I wouldn’t invest in the mine. But that might be the source of repayment. As the economics improved, as the mine ramps up, it can then pay for the road and the telecommunications connection and the energy.”

Another example: Few rapid-transit lines pay for themselves through fares and side revenues like advertising. But they can promote property development near stations.

“The question is, how long is it going to take and who captures the benefits?” Cory said. “Historically for us in Canada, [as] in many places, it takes forever, like decades upon decades, and when it does happen, the main beneficiaries are private developers.”

With a sufficiently clever financing arrangement, and patience, that’s money that could pay for at least some of the transit line.

Patience is key to understanding what the Canada Infrastructure Bank is up to, its CEO said. 

When then-finance minister Bill Morneau proposed it in a fall 2016 economic statement, the idea was to pull in $4 from the private sector for every $1 in public infrastructure money. It’s not close to that: in its most recent “market update,” the CIB reported it had invested $7.2 billion of the $35 billion the government seeded it with, against $6.1 billion in other public money and $7.6 billion from private and institutional investors (which include some public pension funds).

The most generous possible cut of the numbers, weighing the $6.1 billion in public funding for CIB-backed projects against the $7.6 billion in outside investment, makes for a ratio of about 1.25 to 1. If you count the bank’s money as a public expenditure, it’s well under 1 to 1.

That calculation doesn’t account for returns on the bank’s outlays, Cory said, which haven’t really started. Some of those are loans at below-market rates, some will be bad bets. But he expects much of the bank’s money will come back—it’ll just take a while.

“If on that $7.2 billion we’ve lent out, ultimately, that costs taxpayers $1 billion or $1.5 billion. … That’s a function of whether risk manifests or not,” he said. “When you think to yourself how much private capital was crowded into those projects relative to the taxpayer money used, which is the capital at risk, there I would say we’re tracking very much in that initial concept.”