Workstream 1: Strategic Guidance & Convergence
Guide the integration of Climate and Disaster Risk Finance and Insurance solutions in global climate change and resilience frameworks
Integrating Risk Finance in National Adaptation Planning
Enhancing decision-making and risk-informed investments
Climate resilience building and emissions reduction are critical to avoid the worst-case scenarios projected by the Intergovernmental Panel on Climate Change (IPCC).
National adaptation planning and corresponding investments are vital to make societies resilient to the impacts of climate change. A Policy Note was developed by the CVF-V20¹ Secretariat, the InsuResilience Secretariat, the Munich Climate Insurance Initiative (MCII), the NDC Partnership Support Unit and the United Nations Framework Convention on Climate Change (UNFCCC) Secretariat in order to examine how risk-financing considerations can enhance national adaptation and investment processes in vulnerable countries.
This Policy Note makes references to three instruments under the UNFCCC: Nationally Determined Contributions (NDCs), National Adaptation Plans (NAPs) and adaptation communications (adcoms).
Based on an MCII background brief and drawing from an analysis of vulnerable countries’ needs by the NDC Partnership Support Unit, the Policy Note suggests that integrating risk-financing considerations in adaptation planning can enhance investment decision-making in the context of climate change. Countries that integrate risk-financing considerations in adaptation planning may therefore reap extensive resilience benefits.
Risk analytics and pricing techniques help finance ministries and other decision-makers to set resilience baselines, understand investment risks and gaps, and assess the cost-effectiveness of different resilience-building options, which ultimately help capture the true value of investment activities. This is in addition to strengthening countries’ financial resilience and closing the protection gap for vulnerable people to climate shocks and disasters.
¹ The Vulnerable Group of Twenty (V20) Ministers of Finance from 48 countries of the Climate Vulnerable Forum (CVF) is a dedicated dialogue and action platform that works on financial responses to maintain and strengthen fiscal stability and economic resilience in the face of climate change. This includes addressing investments to enable climate-proof growth, reduce exposure to transition and climate risk, carbon pricing, and tackling increasing cost of investment capital due to climate vulnerability.
De-risking investments through the integration of risk-financing into national adaptation strategies!
However, countries still face many challenges when it comes to integrating risk finance into their national adaptation planning. The lack of access to recognized and standardized methodologies and decision-making tools, as well as limited country capacities for their application, represent a persistent barrier. Effective adaptation planning requires a prior understanding of the losses associated with the materialization of climate risk and the gains from avoiding or reducing climate-risk exposure and the magnitude of impacts.
Currently, the risks, the associated financial losses, the measures for addressing these losses and the cost-effectiveness of such measures are mostly unknown to vulnerable countries and development partners. To address these challenges, the Policy Note suggests concrete Action Areas for the InsuResilience Global Partnership to be taken forward in cooperation with other partners and initiatives. These Action Areas were endorsed by the InsuResilience Global Partnership’s High-Level Consultative Group on 15 September 2020.
UNFCCC instruments discussed in the Policy Note:
NDCs are at the heart of the Paris Agreement adopted at the UNFCCC conference in 2015. The goal of the Paris Agreement is to transform countries’ development trajectories towards limiting global warming to 1.5°C above pre-industrial levels and to increase their long-term ability to adapt to the adverse impacts of climate change. As such, NDCs can provide a blueprint for countries’ development and complementary investment strategies.
NAPs are action plans that guide national adaptation actions across sectors and inform the preparation of adaptation communications, including when communicated as components of NDCs. The process to formulate and implement NAPs (NAP process) serves to help developing countries to identify medium and long-term adaptation needs and to develop and implement strategies and programmes to address those needs.
Adcoms are country-driven communication instruments in which countries may provide an overview of adaptation priorities, implementation and support needs, plans and action, and progress and results achieved.