World Bank pushes city climate resilience, with role for risk transfer

by Artemis on January 4, 2018

The World Bank has collaborated with the Global Covenant of Mayors for Climate & Energy to provide technical assistance and $4.5 billion in funding to help cities around the world better prepare for and respond to the impacts of climate change, under the World Bank’s City Resilience Program (CRP).

World Bank logoRecently launched by the World Bank, the Global Facility for Disaster Reduction and Recovery (GFDRR) and the Swiss Economic Secretariat (SECO), the CRP is designed to assist local governments’ efforts at improving resilience and evolving to the ever-changing impacts of climate change.

Under the umbrella of the CRP, the World Bank has collaborated with the Global Covenant of Mayors for Climate & Energy, which combines the Compact of Mayors and the EU Covenant of Mayors and which is led by UN Secretary-General’s Special Envoy for Cities and Climate Change, Michael Bloomberg, and European Commission Vice President, Maros Sefcovic.

While disputed by some, generally, the belief is that climate change is intensifying global natural disasters, with more frequent and more severe events expected to occur in the future. As a result, the World Bank has, in recent times, worked with numerous global and regional organisations to develop initiatives that improve the resilience of cities and countries against the impacts of extreme weather and climate-related events.

Its latest initiative, in collaboration with the Global Covenant of Mayors for Climate & Energy, includes an investment of $4.5 billion to ensure 150 cities have the funds to develop and implement initiatives to increase both the sustainability and resilience of cities in their fight against climate change.

“Cities are preparing today for the risks of climate change by increasing their resiliency and sustainability – and the World Bank’s financing will help them do more of this work,” said Bloomberg.

Jim Yong Kim, President of the World Bank Group, added; “As the force of natural disasters intensifies, we need to better plan and build more resilient cities. We are proud to partner with the Global Covenant of Mayors to do just that. With the World Bank’s investment of $4.5 billion in cities, we can support local leaders to protect people from the impacts of climate change.”

The new partnership is designed to help countries leverage the private sector to establish public-private sector partnerships that bring in investments, as well as assist with the designing and implementation of credit enhancement mechanisms to enable commercial financing.

The $4.5 billion of lending will take place over the next three years, and will utilise resources from the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) to provide both financial and technical assistance.

Furthermore, the partnership will be open to all types of investors, including institutional investors, private investors, and local commercial banks, explains the World Bank.

Speaking to Artemis, Niels Holm-Nielsen, Global Lead, Disaster Risk Management, The World Bank, discussed the organisations focus on improving resilience with the use of risk transfer, as well as the initial aims of the CRP.

“The World Bank is a leading global development actor on issues of disaster risk financing and insurance, and is currently working with national and subnational governments to support them in their access to and use of risk transfer instruments as part of improving their resilience.

“However, it typically requires well-functioning fiscal decentralization for it to make sense for a city to hedge disaster risk, which means that the number of cities currently prioritizing these kinds of solutions for their resilience challenges in World Bank client countries is limited. This is also why the City Resilience Program initially focuses on planning, risk reduction investments, and municipal governance and finance,” said Holm-Nielsen.

The World Bank’s efforts to help cities become more climate resilient will in time result in more use of risk transfer, including instruments from the ILS and catastrophe bond space.

As noted by Holm-Nielsen, The World Bank has supported a number of initiatives in recent times that see the global risk transfer industry, and specifically the insurance-linked securities (ILS) space, provide places vulnerable to the impacts of natural disasters and climate change with much-needed protection.

In 2018, the World Bank and the Pacific Alliance trade bloc in Latin America have agreed to issue a catastrophe bond transaction to protect against natural catastrophe events, and this kind of solution could also be used by cities to address their climate change threats.

Another example can be seen with the World Bank’s $360 million Mexico cat bond transaction, the IBRD / FONDEN 2017 deal, which provided the region with protection against Mexico earthquake and named storm risks.

For ILS investors, the new partnership represents an opportunity to enter new and potentially diversifying markets, in terms of peril and geographical location, while also providing cities with the financial support they need to tackle the ever-changing risk landscape and the growing threat of climate change.

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