Side Event Article: MCII hosts discussion on sustainable global risk financing

At this year’s Opens external link in new windowBonn Climate Change Conference (SB50) the Munich Climate Insurance Initiative (MCII) hosted a side event that brought together experts on risk financing. The discussion was moderated by MCII’s Executive Director, Soenke Kreft, and focused on the importance of risk financing in achieving the Sustainable Development Goals (SDGs) and supporting countries vulnerable to the consequences of climate change in building resilience.

The Opens external link in new windowV20 (group of vulnerable countries) span some of the fastest growing economies worldwide, but face barriers attracting investment capital for resilience and renewable energy projects. This is because climate risks are unevenly distributed and most concentrated in the developing parts of the world, explained Thomas Hirsch of Opens external link in new windowClimate and Development Advice (CDA): Nineteen out of twenty countries with the highest climate risks are developing countries. At the same time, “higher risks translate into higher capital cost and higher debt. In the worst case climate vulnerable countries may end up in a financial trap that makes it impossible to achieve the SDGs,” Hirsch said.

This is a problem that the V20 is addressing through two ambitious initiatives that seek to strengthen the financial architecture to address climate risks and their implications for investment and socio-economic development: the Accelerated Financing Mechanism for Renewable Energy and Maximal Resilience (AFM) and the Sustainable Insurance Facility (SIF).

The AFM is a financial mechanism that aims to increase access to financing for large-scale investments such as climate-proof infrastructure. As the V20 Finance Advisor, Sara Jane Ahmed, highlights, innovative mechanisms like the AFM will be crucial to demonstrate the potential and importance of creating markets for resilience.  The purpose of the SIF, on the other hand, is to improve access to climate risk insurance for micro, small and medium-sized enterprises (MSMEs). “These types of businesses are the backbones of national growth and development, but they are often particularly vulnerable to climate change,” explained Viktoria Seifert, a project manager at MCII. “Climate risk insurance can be part of an integrated solution for MSMEs. It can increase access to credit, for instance, but needs to be paired with other strategies such as investment in infrastructure.” The Munich Climate Insurance Initiative hosted at UNU-EHs is a technical partner of the V20 and advises the group on climate risk financing, particularly with regard to the development of the SIF, with the support of GIZ.

A third initiative that was presented was an example from a member of the V20, the Philippines. Kairos de la Cruz of the Opens external link in new windowInstitute for Climate and Sustainable Cities (ICSC) introduced the Philippine’s People’s Survival Fund (PSF), a programme that funds projects which increase climate resilience. “We are proud of the fact that most proposals are coming from local governments and organizations, especially those affected by the cyclone in 2009,” de La Cruz said.

While many initiatives seek to add to a sustainable global risk financing architecture, Hirsch remarked that these examples are different from many others. “What makes these initiatives stand out in particular is that they are excellent, innovative and driven by vulnerable countries themselves.”


Side Event: Financial Sustainability and Climate Risks: Towards a Just and Sustainable Global Risk Financing Architecture

 

Time & Location: 24 June, 15:00-16:30 (Room: Bonn, WCCB)

Theme:

Vulnerable developing countries keep facing disproportional socio-economic and financial risks from continuously intensifying climate impacts. In context of the most recent V20-G20 Ministerial Meeting and the second Meeting of the High-Level Consultative Group of the InsuResilience Global Partnership in 2019, the Vulnerable Twenty Group of Finance Ministers (V20) maintain their call for strong, integrated solutions that work to protect their people, economies, and financial stability. To further these objectives, the V20 have put forward two ambitious and innovative insurance and investment initiatives – The Sustainable Insurance Facility (SIF) and the Accelerated Financing Mechanism for Renewable Energy and Maximal Resilience (AFM).

Both work to strengthen the finance architecture for addressing climate risks: The SIF seeks to complement existing risk financing arrangements for governments and individuals through adding a concerted approach to increase the uptake of climate-smart insurance for micro, small, and medium enterprises (MSMEs). The AFM aims to increase access to financing for large scale investments, such as climate-resilient infrastructure. On the national level, the People Survival Fund (PSF) of the Philippines, one of the founding members of the V20 Group, demonstrates how countries can drive forward integrated solutions at grass-roots level.

As the V20 highlight, the just, sustainable and effective realization of the V20 implementation initiatives and the building of a similarly characterized global risk financing architecture will also depend on the financial instruments made available to support the work of both initiatives. This side event will explore the currently existing risk financing landscape, explain the rationales and added value of the SIF, AFM, and PSF, and discuss the pragmatic and ethical arguments for convertible concessional finance (CCF) to support their objectives.

Objectives:

Update on V20 implementation initiatives in the run-up to the UN Climate Action Summit and in context of strengthening the debt sustainability of V20 countries through integrated risk financing solutions and their sustainable support.

Panel:

  • Soenke Kreft (MCII): The current risk financing landscape: Risk financing arrangements for sovereigns and individuals [explained in context of MCII‘s work in the Caribbean.

  • Thomas Hirsch (CDA): Vulnerable countries‘ issue of intensifying (public) debt in the context of climate risks.

  • Viktoria Seifert (MCII): The rationales for the V20 Sustainable Insurance Facility and the pragmatic and ethical arguments for convertible concessional finance.

  • Sara Jane Ahmed (V20 Finance Advisor): The Accelerated Finance Mechanism and instruments of convertible concessional finance.

  • Kairos de la Cruz (ICSC): The Philippines People Survival Fund as country-led example of integrated solutions and sustainable financial support.