20/09/2017 - LSE Research:

This report was commissioned by Partners for Resilience as a consultancy project for students of MSc Development Management at the London School of Economics and Political Science. It seeks to answer the question of how to make investments robust and informed to social and environmental risks. This topic is of vital importance because responsible investments are fundamental for a consistent and sustainable process of development, and ultimately contribute to building/strengthening resilience of people and their societies. Hence, to ensure robustness and responsiveness in investments, risk minimisation is a must. The report answers this question with a focus on investments in water infrastructure.  The focus was deemed appropriate due to its high relevance to social and environmental protection and management, and because it has been confrontating new dynamics and uncertainty due to trends like climate change, intensifying competition for water, and incommensurate levels of water governance capacities.

Six key lessons are drawn from this research:

1. a checklist alone is insufficient to adequately manage risk and uncertainty;
2. a holistic approach is necessary: risk management must involve multi-scale, multi-stakeholder, and multi-risk considerations;
3. community participation and collaboration that reflect social learning is vital;
4. livelihoods must be focused on, rather than simply the risks themselves;
5. in addition to acknowledging uncertainty in the project as a risk itself, strategic utilisation of uncertainty in project preparation facilitates the robustness of project design;
6. trade-offs between different stakeholders and sectors are inevitable; therefore, some instruments to incentivise cooperation are desirable.

Cases of best practice in the management of social and environmental risks are presented. Since risk is context-specific, they are not meant to be translated into a blueprint. Nonetheless, they highlight important insights and ways in which the presented key lessons are accounted for when managing investment risk. 

The report concludes by proposing recommendations to identified common limitations on managing investment risk. These recommendations emphasise that by refining the investment process itself, investment projects planners and operators can mitigate risks for the investors, the community, and the environment.

The report advises the following:

• embrace a holistic and adaptive approach;
• apply social learning and iterative reflection (strengthening communication pathways and applying multi-looping learning);
• account for stakeholders and their vision for the future (applying backcasting in scenario building);
• accommodate risk management approaches in investment process according to results of uncertainty evaluation (impact-/vulnerability- driven or a mixtur
• integrate information-sharing platforms on and from various level
• create multi-criteria analyses, benefit-sharing mechanisms to enhance robustness of decisions; and compensation schemes to facilitate cooperation. 

Partners for Resilience echoes the assertion that responsible investments have incentives for all involved: the governments, the investors and the communities who are often at the frontline of dealing with disasters when they strike. This research will support existing positive dialogues with governments, the private sector, multilateral banks, communities and academia to promote investments that benefit all interested parties. This research will certainly strengthen our learning as well.

For the full report, please click here