The World Bank Group will double its financing of climate change adaptation and resilience related projects, with one area of focus being the delivery and facilitation of financial protection instruments that can help countries respond early to, and recover faster from, climate and disaster shocks.
Under the new Action Plan on Climate Change Adaptation and Resilience, the World Bank aims to increase its direct financing of climate change adaptation and resilience to $50 billion over fiscal years 21–25.
Averaging $10 billion a year, this is more than double the level of financing ploughed into climate related initiatives by the Bank in FY15-18.
As part of the new Action Plan and spend, the World Bank said it will pilot “new approaches to increasing private finance for adaptation and resilience.”
Given the World Bank’s work in using risk transfer and insurance related tools for disaster risk financing, it will be intriguing to see how the organisation can leverage these techniques and the liquidity of the reinsurance and capital markets to support its expanded ambitions in this area.
“Our new plan will put climate resilience on an equal footing with our investment in a low carbon future for the first time. We do this because, simply put, the climate is changing so we must mitigate and adapt at the same time,” World Bank Chief Executive Officer Kristalina Georgieva explained. “We will ramp up our funding to help people build a more resilient future, especially the poorest and most vulnerable who are most affected.”
Notably, the World Bank said its new Plan will include, “delivering higher quality forecasts, early warning systems and climate information services to better prepare 250 million people in at least 30 countries for climate risks.”
These enhanced systems, forecasts and warning systems can often provide the data and analytics to underpin index insurance or reinsurance, parametric triggers that can be used for catastrophe bonds, as well as newer forecast-based financing opportunities.
All of these financial instruments can help to transfer climate change adaptation risk away from sovereign entities, to those better able to bear the risk in the reinsurance or capital markets.
While these same risk transfer and financing instruments can also be used in hybrid structures designed to support the enhancing of resilience against climate related exposures.
In addition the World Bank says it will support efforts for early response to and faster recovery from climate and disaster shocks through the use of additional financial protection instruments in at least 20 countries over the five-year term of its new Action Plan on climate.
This sounds like it could include a broader roll-out of instruments such as index-insurance, weather derivatives, catastrophe bonds and swaps, backed by insurance, reinsurance and ILS capital could be on the cards, should the World Bank see fit to direct its larger climate adaptation financing commitment into these activities.
“This Action Plan is a welcome step from the World Bank,” commented Ban Ki-moon, former Secretary-General of the United Nations and co-chair of the Global Commission on Adaptation. “The world’s poorest and most climate vulnerable countries stand to benefit from its increased finance and support for longer term policy change.”
The plan aims to build on the links between adaptation and development, through the promotion of effective and early actions that provide positive development outcomes. It will rollout from June 30th 2021 through July 1st 2025.
If nothing else, the heightened focus on adapting to and becoming resilient to climate change and related climate risks, means weather and natural catastrophe risks cannot be ignored.
This will increase awareness of the World Bank’s work in risk transfer instrument facilitation and highlight the ability of the capital markets and ILS investors to work on innovative financial structures that can help to transfer climate related risks and finance recovery from disasters.