Some sparks flew and some eyes got opened at the 2016 Forum of the UNFCCC Standing Committee on Finance (SCF), held in Manila last week. The Forum’s exploration of financial instruments for addressing the risks of loss and damage was at the request of the Executive Committee of the Warsaw International Mechanism (WIM) on Loss and Damage (L&D) in service of Action Area 7 of its 2-year workplan. (For some past posts on the WIM, including on this significant SCF-WIM linking, see here.)
The Forum drew nearly 150 representatives of governments, financial institutions, civil society and the private sector. The webcast (which covered much of the meeting) along with informative tweeting (#scfmanila) from a number of participating institutions and individuals offered remote observers some interesting insight. But first a little context/framing:
Addressing L&D – Basically, addressing L&D involves: 1) avoiding it, and 2) meeting it when it is unavoidable. L&D can be avoided primarily through mitigation and adaptation. In addition, reducing the risks of L&D (e.g., through early warning systems and disaster preparedness plans) can help prevent it. Unavoidable L&D can be minimized through certain types of risk management (sharing, savings/credit, insurance instruments, catastrophe bonds). Because L&D still occurs, even if it is minimized, responses to it rely on disaster response and management and climate services.
WIM workplan Action Area 7 – A close reading of Action Area 7 reveals one goal, one objective (how the goal is to be accomplished) and one strategy/action (how the objective is to be met):
- Goal = facilitate finance in L&D situations;
- Objective = “encourage comprehensive risk management;” and
- Strategy = “diffus[e] information related to financial instruments and tools that address the risks of [climate-induced] loss and damage…”
Action Area 7, through encouraging risk management, tends to both avoiding L&D and minimizing unavoidable L&D. As for the SCF Forum, it fit within Action Area 7’s strategy of diffusing information, by covering risk pooling and transfer, catastrophe risk insurance and bonds, contingency finance, social protection schemes, and other instruments.
Throughout the event, however, it was clear that some participants were focused on the goal, while others (predominantly the insurance experts) were focused on the objective and/or strategy. The resulting friction illustrated the philosophical and political tensions that continue to fester in the climate regime in the absence of financial support to directly address loss and damage. The workplan, after all, is devoted essentially to compiling, diffusing and leveraging information. (We wrote about the Paris Agreement/Decision role in this evolving issue in our COP21 Documentation Project.)
The Forum did enhance understanding both of the gaps and opportunities with existing financial instruments, as well as the barriers that must be addressed to reach the most vulnerable with any versions of current and emerging risk instruments. (See the Forum page for presentations and the WIM Financial Instruments page for a well-organized host of relevant resources.)
Among the conclusions was that both cross-sectoral collaborations and integration of approaches are vital to deal with the risks of L&D. Importantly, two significant areas of concern remained unaddressed:
- The absence of actionable approaches for addressing slow-onset processes from the insurance industry and related market players. Not surprising, given that there are generally no dramatic moments of humanitarian focus and no money to be made.
- The absence of financial instruments and tools to address non-economic losses. Without a means to monetize, the financial sector has yet to be effectively engaged toward this cost.
We will be tuning into the WIM Executive Committee’s 4th meeting later this month to learn its response to the Forum and more.