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Climate change is no longer a distant concern — it’s a here-and-now reality, reshaping how we plan infrastructure. Public–Private Partnerships (PPPs), which often span decades, are on the frontlines of this challenge. From highways battered by record floods to energy projects navigating new carbon regulations, PPP contracts must adapt to a changing climate. This article breaks down what climate risk means in the PPP context and explores how to integrate climate considerations into PPP contract design. We’ll look at practical tools – from climate risk matrices to smart contract clauses – that help public officials and private partners manage these risks. Along the way, we highlight Aninver’s real-world experience in climate-smart PPP preparation, proving that this “clause and matrix toolkit” really works in practice.

Understanding Climate Risk in PPPs

Climate risk in PPP projects comes in two forms, physical and transitional, and both can profoundly affect infrastructure deals. Physical climate risks refer to the tangible impacts of climate change on assets – think of stronger hurricanes, heavier rainfall, longer droughts, or rising seas that can damage infrastructure or disrupt operations. These are often acute disasters like floods or storms, but also include chronic shifts (like steadily rising temperatures or erosion) that grind away at an asset’s performance. In PPP terms, physical risks can trigger emergency expenses, service outages, or repairs that neither the public nor private side initially budgeted for. For example, a toll road concession could face months of downtime from an “once-in-a-century” flood – a scenario that is, unfortunately, becoming less rare.

Transitional climate risks, on the other hand, stem from society’s shift toward a low-carbon economy and the policy and market changes that come with it. These include new environmental regulations, carbon pricing, shifts in consumer behavior, or technological breakthroughs that can alter a project’s financial equation. In a PPP context, transition risks might hit projects that rely on high-carbon activities or outdated technologies. Imagine a PPP for a coal-fired power plant signed in 2020: if a carbon tax or stricter emission standards are adopted in 2030, the project’s costs and revenues could be turned upside down. Likewise, an airport PPP could see reduced airline traffic in the future if climate concerns and regulations curb air travel – a risk to revenue that needs to be anticipated. In sum, physical risks threaten the infrastructure itself, while transition risks threaten the business environment in which the PPP operates. Both are critical for public officials to understand because, if unaddressed, they can undermine the value-for-money and viability of long-term partnerships.

Why Integrate Climate Considerations in PPP Contracts?

Integrating climate considerations into PPP contracts isn’t just a nod to sustainability – it’s a safeguard for the success of the project. PPP agreements often run 20, 30, even 50 years, during which today’s climate projections will become tomorrow’s local weather. Infrastructure that isn’t climate-resilient can impose huge costs on both governments and investors. If a bridge fails due to an extreme storm, or a water concession struggles because rainfall patterns shifted, someone will have to pay: either taxpayers (through bailouts or emergency repairs) or the private partner (through lost revenue or asset damage). Early integration of climate risks helps avoid nasty surprises and disputes over who bears those costs.

Traditionally, many PPP contracts treated severe weather events as force majeure – essentially, unpredictable “acts of God” beyond anyone’s control. That might have been acceptable when such events were truly rare. But in the age of climate change, what used to be a 100-year flood might hit twice in a decade. Public authorities are realizing that “unforeseeable” climate events are increasingly foreseeable, and contracts must evolve accordingly. Simply labeling all climate disasters as force majeure (and thus largely a public liability) is no longer prudent. Instead, governments are pushing for more nuanced risk allocation: requiring private concessionaires to design for a higher baseline of climate stress, or to carry insurance for certain risks so that not every weather event defaults to the public balance sheet. In other words, integrating climate considerations is about fairness and financial sustainability – the goal is to ensure the party best able to manage a given risk is the one shouldering it, rather than letting all climate costs fall to the public by default.

There’s also a positive incentive: climate-proofing a project can actually save money over the long run. Proactive resilience measures (like building stronger levees around a road or upgrading drainage systems) might raise upfront costs, but they pay off by preventing bigger losses later. A World Bank analysis found that in 96% of scenarios, every $1 invested in early climate resilience saves more than $1 in future repairs and losses. Over a concession’s life cycle, that means fewer expensive emergency fixes, lower insurance premiums, and infrastructure that lasts longer. Moreover, many development banks and financiers now require climate risk assessments for PPPs. If a project hasn’t screened for climate vulnerabilities or aligned with a country’s climate commitments, it might struggle to attract funding. All these reasons make it clear: building climate considerations into PPP design and contracts is not just altruism – it’s smart risk management and sound economics.

Using Climate Risk Matrices in PPP Preparation

One of the first practical tools in a climate-smart PPP toolkit is the climate risk matrix. This is essentially a structured risk assessment, usually done in the project feasibility stage, that maps out potential climate-related hazards and evaluates their likelihood and potential impact on the project. Think of it as a heat-map of vulnerabilities: for a given project, what could go wrong due to climate change, and how bad could it be? For example, a climate risk matrix for a highway might list hazards like extreme rainfall causing floods, heatwaves causing pavement damage, or wildfires. Each hazard is assessed – perhaps a flood has a medium probability but very high impact (washouts, long closures), while heat damage might be high probability but lower impact. The result is often presented in a two-dimensional matrix (likelihood vs. impact), highlighting which risks are critical.

Why is this matrix so useful for PPPs? Because it directly informs decision-making on design and risk allocation. If a certain climate risk is high on the matrix, the project team knows it needs a plan for it. Some risks can be engineered away – for instance, elevating the road or improving drainage to handle severe floods. Other risks might be unavoidable but manageable through contingency plans or insurance. The matrix essentially forces both the public authority and the private bidder to confront climate issues early, rather than ignoring them. It also provides a common reference during contract negotiations: both parties can agree on the identified risks and discuss who will manage each. In a sense, the climate risk matrix becomes a foundation for the PPP’s larger risk allocation matrix. It ensures that climate factors aren’t an afterthought, but rather baked into the project’s DNA from the feasibility study onward. By quantifying and visualizing the risks, it turns vague concerns about “climate change” into concrete, actionable items that can be addressed in the contract or technical requirements.

Adapting PPP Contract Clauses for Climate Risk

Once risks are identified and design measures are considered, the PPP contract itself becomes the next line of defense. Contracts need to allocate climate risks clearly between the public and private partners, and include clauses that incentivize resilience while providing fairness for unpredictable extremes. Several key contractual provisions come into play: force majeure definitions, change-in-law clauses, performance standards, insurance requirements, and termination provisions. Let’s explore how each can be climate-proofed.

Force Majeure – Redefining the Unforeseeable: The force majeure clause in PPP contracts excuses a party from liability if truly extraordinary events prevent them from fulfilling obligations. Traditionally, things like earthquakes, major floods, or hurricanes fall in this category. But with climate change, we are reconsidering what counts as extraordinary. Rather than a blanket approach, some contracts now refine the definition of force majeure to include only severe climate events beyond a threshold, while expecting the private partner to cope with anything below that threshold. For example, Japan’s PPP contracts have ranked earthquakes by intensity – a moderate quake might be considered a normal project risk (to be absorbed by the operator), whereas a massive quake qualifies as force majeure. Chile has even excluded certain frequent earthquakes from force majeure entirely. The rationale is that a project should be designed and insured to handle a reasonable level of climate stress; only truly cataclysmic, rare events should relieve the operator of responsibility. By tightening force majeure definitions, governments encourage private partners to build robust infrastructure and purchase insurance for plausible events, rather than passively relying on public relief. Of course, if a once-in-500-year super cyclone strikes, the force majeure clause still applies – but fewer events automatically trigger it. Additionally, PPP contracts often spell out procedures if a force majeure event persists: for instance, if operations are halted for, say, 6 continuous months due to a disaster, either party might have a right to terminate the contract. In such a case, the contract will stipulate a fair termination payment (to compensate the private investor for assets built, usually via insurance or government payout). This way, both sides know in advance how an extreme scenario would be handled, avoiding legal battles in the aftermath of a disaster.

Insurance and Risk Transfer: Hand-in-hand with force majeure provisions are robust insurance requirements. A climate-smart PPP contract will require the private partner to maintain appropriate insurance coverage for climate-related risks – for example, property and casualty insurance that covers storm or flood damage, business interruption insurance for downtime, and even parametric insurance for very specific triggers. Insurance ensures that when disaster strikes, there’s an external financial cushion to help cover losses, rather than everything coming out of the project or public pocket. Many multilateral lenders now check that PPP projects have assessed insurable risks and sought coverage where available. However, there is the possibility of non-insurable events – perhaps certain risks become uninsurable or insurance is prohibitively expensive (this can happen as climate extremes worsen). Modern PPP contracts address this by clauses on non-insurability: they define what happens if required insurance becomes unavailable or if an event occurs that insurers won’t cover. Often, if an essential insurance can’t be obtained at reasonable cost, the public authority may step in to shoulder that risk (or provide a financial backstop), recognizing that the private party cannot magically bear an uninsurable risk alone. The key is to proactively discuss insurance at the contract stage: it’s part of the climate risk toolkit. Some innovative projects even explore parametric insurance, where payouts are triggered by measurable events (e.g. a hurricane of Category 5 hitting the area) to get funds released faster for recovery. By mandating insurance and defining responsibilities for insurable vs. non-insurable risks, PPP contracts make sure a climate disaster doesn’t automatically equate to fiscal disaster for the partnership.

Change-in-Law and Transitional Risk Clauses: Physical risks aren’t the only concern – transition risks from climate policies need attention too. A PPP contract typically has a change-in-law clause that allocates the risk of new laws or regulations. For climate matters, this is crucial. If a government enacts a significant new climate regulation (say, imposing a carbon tax, banning certain high-emission technologies, or drastically raising environmental standards), it could either increase costs or reduce revenues for the private partner. Well-drafted PPP contracts anticipate this: they might allow tariff adjustments, cost pass-throughs, or even direct compensation if specific climate-related legal changes occur. For instance, an energy PPP might include a clause that if a carbon price above $X per ton is introduced, the power purchase rate will be adjusted to keep the project financially stable. Similarly, if subsidies or incentives that a project relies on (like a renewable energy credit) are removed as part of policy shifts, the contract could extend the concession term or provide another form of relief. The principle is to share the burden of climate transition in a fair way – the private sector shouldn’t be punished for policy changes that couldn’t be predicted, but at the same time the public shouldn’t over-compensate for changes that are part of a known climate policy trajectory. A balanced change-in-law clause will usually distinguish between general changes (affecting all businesses, where the PPP might have to absorb some impact) and discriminatory or specific changes (targeting the project or sector, where compensation is more clearly warranted). By including climate-related regulatory changes in this mechanism, PPP contracts become more flexible and “future-proof.” They give investors confidence that if they commit to a 30-year project, they won’t be ruined by the climate laws of 2040, while governments retain the right to tighten climate policies knowing that projects have a process to adjust.

Performance Standards and Resilience Obligations: Another way PPP contracts integrate climate considerations is by baking resilience and sustainability into the performance requirements. In a PPP, the private party typically has to meet certain output specifications or service quality standards – this is an opportunity to require climate adaptation measures. For example, the contract may specify that a highway must remain open and safe up to a certain flood level or under certain storm conditions, effectively forcing the developer to build higher embankments or install better drainage. Likewise, an airport PPP might include standards for stormwater management, extreme heat policies (for tarmac and facilities), or backup power for outages, ensuring the facility can handle climate stresses. We’ve seen contracts where climate resilience metrics are part of the key performance indicators – if the infrastructure fails due to a foreseeable climate event that it should have been designed for, the private operator could face penalties or reduced payments. On the flip side, meeting higher resilience criteria might earn bonuses or longer contract terms. Some PPPs also incorporate environmental performance standards tied to transition risk mitigation, such as energy efficiency requirements or limits on greenhouse gas emissions during operations. While these may not be traditional “financial” risks, they ensure the project is aligned with climate goals (and thus less likely to face public backlash or legal challenges in the future). The important point is that PPP contracts can explicitly demand that climate adaptation measures are implemented, rather than leaving it to the goodwill of the developer. By doing so, the public sector ensures that the private partner designs and operates infrastructure with an eye on the next 30 years of climate, not the last 30.

Early Termination Safeguards: Finally, a climate-smart PPP contract will contemplate the worst-case scenario – what if a climate impact so severe occurs that the project simply cannot continue? This is where early termination clauses, paired with force majeure provisions as mentioned, become vital. Contracts define “extended force majeure” events (for example, force majeure lasting more than 6 or 12 months) under which either party can choose to terminate the agreement. The contract will set out the termination payment in such cases, ensuring the private investor is not left with stranded assets without any recourse, while the public sector can regain control to rebuild or rethink the project. Typically, for a termination due to prolonged natural disaster, the payout to the private side is enough to cover outstanding debt and maybe a portion of equity – recognizing that neither side is at fault, and both are taking a share of the loss. Having this “escape hatch” clause is important for climate risk because it provides a legal pathway to unwind the partnership if continuing is impossible or impractical. It’s a last resort – everyone prefers to avoid getting there by building resiliently and insuring well – but it’s crucial to have agreed terms rather than to improvise amidst a crisis. In essence, early termination arrangements cap the downside for both parties and prevent drawn-out disputes, allowing quicker recovery or re-planning in the wake of a catastrophe.

Climate-Smart PPPs in Action: Aninver’s Experience

All these tools and clauses might sound theoretical, but they are already being put into practice in forward-looking projects. At Aninver, we have on-the-ground experience weaving climate considerations into PPP deals to create more resilient and bankable projects. A recent example is our involvement in the Armenia Airport PPP feasibility study in Colombia. In this project, our team conducted comprehensive analyses not only on the financial and operational model of the airport, but also on insurance and risk management aspects. Why insurance for a PPP airport? Because airports are vulnerable to extreme weather – heavy rainfall can flood runways, heatwaves can strain air conditioning and even deform tarmac, and changing climate patterns might affect flight operations. By assessing insurance and reinsurance requirements across all project phases (construction and operation), we helped ensure that climate and disaster risks would be covered by appropriate policies. We also benchmarked international standards from lenders and insurers, including those of multilaterals, which increasingly demand climate resilience measures. This meant that from day one, the Armenia Airport PPP was structured to meet high sustainability and resilience criteria – a selling point when it comes to attracting investors and satisfying government stakeholders. The outcome is a PPP concept where both public and private parties can feel more secure: the private operator knows that many risks are mitigated or insured, and the government knows that the airport, a critical asset, is being future-proofed against climate threats.

Another arena where Aninver has championed climate-smart PPP preparation is in renewable energy and energy efficiency projects. For instance, we led a multi-country study on PPP models to expand renewable energy and energy efficiency in Latin America. This was all about leveraging PPP structures to accelerate the transition to sustainable energy services. In practice, that meant identifying how contracts and risk allocation can be tailored for solar microgrids, energy-efficient housing retrofits, or other green investments. We examined legal and institutional barriers and proposed designs where PPP contracts include clear provisions on technology performance, subsidy changes, and even carbon credit sharing – so that both public and private sectors have aligned incentives in a low-carbon transition. By drawing lessons from case studies and global best practices, we helped craft guidelines for governments to attract private investment into climate-friendly infrastructure. This real-world work underscores a key lesson: climate adaptation and mitigation can be built into PPP frameworks without scaring off investors. On the contrary, when done right, it attracts serious partners who appreciate the long-term stability of a well-structured, climate-conscious contract.

Through projects like these – from airports in Colombia to renewable energy across Latin America – Aninver has seen first-hand that a climate risk toolkit is not an academic exercise but a practical necessity. Addressing climate risks early and thoroughly makes a PPP more robust. It avoids headaches down the road, whether those come in the form of freak storms or shifting energy markets. More and more, public sector officials are coming to the table with climate on their checklist, and private bidders are responding with technical solutions and financial plans to match. The result, when guided by experienced advisors, is a PPP that stands a far better chance of delivering value through its full term, come what may in the climate future.

Toward Resilient and Climate-Proof PPP Infrastructure

As we look ahead, one thing is clear: the only PPP worth signing in 2025 and beyond is a climate-smart PPP. Governments and private investors share a common goal in these partnerships – they both want infrastructure that serves the public reliably and generates returns over the long haul. That goal is at risk if climate factors are ignored. But by embracing the tools discussed – rigorous risk matrices, adaptive contract clauses, and forward-looking standards – we can significantly de-risk projects against the climate uncertainties of tomorrow. This doesn’t mean every PPP will be immune to floods or policy shifts, but it does mean we’ve built in the shock absorbers and escape routes to handle them.

Public sector officials, in particular, have a critical role to play. By demanding resilience and climate adaptation in PPP design, they protect their citizens and budgets from future shocks. They also signal to the market that only serious, future-ready proposals will win the day. Private partners, for their part, are innovating like never before – from green bonds financing to parametric insurance, the financing and delivery models are evolving to meet the climate challenge. This synergy between public vision and private innovation is exactly what PPPs were meant to foster.

We invite you to explore more of Aninver's insights, articles, and project experiences on PPPs, climate resilience, and infrastructure development. These real-world case studies and expert analyses offer actionable guidance. They cover everything from effective contract clauses to innovative risk allocation matrices – all aimed at building climate resilience into your projects.

Whether you're a public sector official shaping PPP policy or a development professional working on climate-smart infrastructure, you'll find insights tailored to your challenges. By tapping into this knowledge base, you'll be better prepared to design PPP projects that stand up to climate challenges and deliver lasting value to communities. Together, we can ensure today's PPPs become tomorrow's climate-resilient success stories.