United Nations member countries recalled wording related to the initiative to develop a financial mechanism to protect against loss and damage caused by climate and weather related impacts at last weeks meeting in Lima, Peru.
The climate talks last week were the latest phase in a series of meetings of UN member countries as they approach 2015 and move towards the point where a UN wide agreement on climate measures is hoped to be achieved. Loss and damages and how countries can financially protect themselves against the impacts of climate change and severe weather is a core component of the agreement, but for a while last week it looked set to be dropped.
At the last minute the resolution that was agreed upon at the Peru climate talks last week has had a small section on the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts recalled back into the final text. That sets the stage for further discussion and work on this mechanism at future climate talks next year.
The text added back into the final draft agreement reads:
Recalling decisions 2/CP.19 and X/CP.20 (Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts) and welcoming of the progress made in Lima, Peru, towards the implementation of the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts.
The loss and damage mechanism aims to provide a financial tool that can help poorer nations to cope with the impacts of climate change and any increase in severe weather losses. As a result the mechanism has the potential to be a key facility for the reinsurance and insurance-linked securities (ILS) market, as the capacity will need to be sourced from somewhere and with risk transfer at the sovereign level any mechanism could well draw on ILS and reinsurance techniques such as parametric and index triggers which have been proven to respond to such needs.
The final agreed text is not what had been hoped for, either on the climate change control front or loss and damages. The text is felt to be quite weak and in need of strengthening at future talks. The next round of talks could be critical to have more detail on the loss and damage mechanism agreed upon as the 2015 Sendai, Japan meeting regarding the Hyogo Framework for Action approaches quickly.
This round of climate talks in Peru featured heavy discussion on the subject of how emission targets should be set for advanced versus developing nations and who should support the brunt of suggested reduction targets. That has sidelined the loss and damage discussion a little in this round of talks, but it is expected to be worked on by the UN committee in the run up to the next COP talks in Paris.
The development of this loss and damage mechanism remains on the agenda of the talks and will continue to be pushed by its backers, which include some key players in the insurance and reinsurance market. Alongside the proposal for natural disaster stress tests and disclosure of 1 in 100 year exposure, these measures are key initiatives that could provide an important piece of the insurance, reinsurance and ILS sectors emerging market growth strategies in the future.
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