22.04.2022

Towards an Effective Global Shield Against Climate Risks for Climate Vulnerable Countries and Communities

6th InsuResilience High Level Consultative Group sets the stage for more coordinated action on climate and disaster finance and insurance

Globally coordinated efforts to provide financial protection to the most vulnerable populations, countries and businesses are critically important to build long term resilience to climate risks. An effective global Climate and Disaster Risk Finance and Insurance Architecture (CDRFI) can facilitate a more proactive, cost effective and reliable response to climate risks for many climate vulnerable countries, including the Vulnerable 20 Group member countries. To make progress on the CDRFI agenda, members of the High-Level Consultative Group (HLCG) of the InsuResilience Global Partnership (IGP) reconvened for their sixth meeting on 7th of April 2022. Under the new co-chairmanship by Parliamentary State Secretary Dr. Bärbel Kofler from BMZ, Germany and His Excellency Mambury Njie, Minister of Finance and Economic Affairs of The Gambia, the HLCG discussed the vision of establishing a Global Shield against Climate Risks for climate vulnerable countries and communities.

Achieving the goal of reducing the 98% financial protection gap in vulnerable countries,  as strongly  highlighted in the V20 climate prosperity plans, urgently requires more coordinated efforts. Further, climate change risks amplified by complex and cascading risks, such as Covid 19, are rapidly reducing the available fiscal space to deal with climate change in many low and middle income countries. For example, between 2010 and 2018, external debt payments as a percentage of the government budget grew by 83% in low- and middle-income countries, including the V20 countries. Recognizing the urgency of the climate crisis, the HLCG focused on ways to reduce the high protection gap among climate vulnerable V20 countries.

Building on the outcomes of the 5th HLCG in October 2021, with the aim to enhance the global CDRFI architecture, the 6th HLCG meeting focused on Global Shield against climate risks.  Following the InsuResilience recommendations on improving the global climate and disaster risk finance and insurance (CDRFI) architecture and the Principles for SMART Premium and Capital Support, the German G7 presidency  proposed to jointly work towards a Global Shield against Climate Risk. Jürgen Zattler, Director-General for Climate at Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) introduced the proposal of the global shield, which consists of three key components: 1) a truly global, flexible, and collaborative financing structure; 2) strong coordination between implementing programmes to overcome fragmentation through a redesigned InsuResilience Programme Alliance; and 3) G7 endorse­ment of the SMART Premium and Capital Support Principles.

As highlighted in the Co-Chair Conclusions, all HLCG members provided their valuable feedback on the proposal to establish a truly effective global shield against climate risks considering the needs of the low and lower middle income countries including the V20 group. Emphasizing the importance of insights from V20 countries, V20 Co-Chair (Minister of Finance and Economic Affairs of The Gambia, Mambury Njie) highlighted the urgent need to establish a global shield that provides the much-needed financial protection against climate-induced risks for governments, micro, small and medium-sized enterprises, and communities. He reiterated that “to respond to V20 needs, the global shield must above all, focus on mobilizing and building access to new financial resources and support the preparation for vulnerable country government institutions.”

As defined and developed by the V20, G20 and the development partners of the InsuResilience of the global partnership, Co-Chair, His Excellency Harifidy Ramilison, Minister of Agriculture and Livestock of Madagascar emphasized the integration of the SMART Premium and Capital support principles into the proposed Global Shield. His Excellency highlighted the need of operationalization and implementation of the SMART principles as part of the Global Shield and called for a mix of finance under the global shield consisting of 1) insurance 2) anticipatory finance 2) disaster finance and 4) social safety nets.

As strongly emphasized in the V20 Senior Officials Meeting in April 2022, many climate vulnerable countries, including the V20 countries, are already suffering from very low access to international climate funds. Focusing on the critical role of financial support, Getahun W. Garedew, Director General of the Ethiopian Environmental Protection Authority (EEPA) reiterated the need for support towards financial protection under the Global Shield. This is especially important in the face of increased debt-stress and the high-cost of capital that also reaches local actors and addresses long term resilience needs. Similarly, the V20-representative from Bangladesh, Joint Secretary and Wing Chief Kabir Ahmed, Economic Relations Division of the Ministry of Finance, stressed that insufficient adaptation responses and the financial protection gap translate to rapidly growing losses and damages, creating pressing macroeconomic concerns for the V20. To counteract this, Joint Secretary Ahmed proposed institutional responses that give V20 countries the opportunity to utilize their fiscal space in a sustainable manner, while having access to immediate liquidity.

To steer effective investments under the global shield, V20 members also stressed the importance of strengthening in-country climate risk analytics capacity to develop greater local ownership of risk analysis. This is “essential to upgrading climate-resilient business models responsive to long-term investment planning”, explained Joint Secretary and Wing Chief Khabir Ahmed. The V20 members welcome the Global Risk Modelling Alliance (GRMA) to make risk analytics accessible. While emphasizing the need for risk analytics capacity building in V20 countries, Joint Secretary Khabir Ahmed highlighted that “gaining country-driven views of risk is fundamental to constructing a responsive risk management system”.

Besides access and mobilization of finance, increased collaboration and coordination between and among delivery partners to decrease global CDRFI fragmentation through the Global Shield was strongly advocated by the V20 members. Creating an effective and appropriate in-country delivery structure that can channel funds with precision and speed to locations of vulnerability as part of the Global Shield, was stressed by the V20 and broadly supported by other HLCG members as well. Further highlighting the importance of demand side coordination to efficiently implement the Global Shield, Assistant State Secretary Paola Alvarez from the Philippines emphasized “that designing supply-side solutions without demand-side coordination will have limited effect, and demand-side engagement is central to the success of such initiatives.

During the meeting, HLCG members also discussed the need to reform the Programme Alliance, the current governance structure of the InsuResilience Global Partnership. The V20 Group welcomed the proposal to redesign the Programme Alliance to be a central platform for coordination and collaboration under the Global Shield and emphasized the importance of V20 representation in decision making structures under the global shield and financial structure. Acknowledging that V20 representation in global governance decisions remains weak and continues to result in outcomes that do not go far enough to protect the interests of the world’s most vulnerable groups or the planet, V20 members urged to enhance the inclusivity of decision-making processes and to include V20 representation in relevant workstreams, ministerial meetings and as observers. HLCG members should strive to further collaborative engagement with most vulnerable economies building on examples such as the InsuResilience Global Partnership.

After insightful deliberations on the Global Shield by all HLCG members, V20 Co-Chair Mambury Njie concluded on his part by calling on everyone to work towards accelerating the implementation of a Global Shield which puts the needs of climate vulnerable economies and communities at its center. G20+ Co-Chair Bärbel Kofler highlighted that the German G7 Presidency will ensure that the valuable feedback of the HLCG members, especially the V20 members, will feed into the further G7 process. The next step in this endeavor will be the meeting of development ministers on 18–19 May 2022. Germany will rally G7 partners to make progress on improving the global climate and disaster risk insurance and finance architecture to better protect climate vulnerable countries and communities.

With important discussions on the need and importance of establishing a Global Shield Against Climate Risks to reduce the fragmentation in the global CRDFI architecture, it is essential to stimulate further actions from G7, G20 and V20 engagement in coming months. An effective and efficient global finance architecture based on the needs and requirements of the vulnerable countries, sectors and communities will be important to establish a responsive and pro-active Global Shield Against Climate Risks.

 

This article was originally published on April 21, 2022 by the Munich Climate Insurance Initiative. To view the original post, please visit the MCII website.