A Joint G7 and V20 Ambition: Working towards a Global Shield against Climate Risks
Updated as of 25 October 2022
- Climate-fueled risks have driven up the cost of capital and debt to unsustainable levels, especially across climate vulnerable economies, worsening financial protection gaps. Increasing pre-arranged finance which disburses quickly and reliably before or just after disasters happen, and expanding instruments of financial protection for governments, communities, businesses, and households can lower the impact of disasters, make vulnerable countries’ economies more resilient, safeguard sustainable development, and protect lives and livelihoods of poor and vulnerable people.
- The G7 in partnership with the Vulnerable Twenty Group (V20) of Finance Ministers from the most climate vulnerable countries want to help close the protection gap for poor and vulnerable people against climate-related losses and damages.
- Critical to the Global Shield’s success is the building of local and regional risk markets across climate vulnerable economies and to build local and regional institutional resilience.
- The Global Shield is not the only response needed to addressing loss and damage – it aims to make considerable and effective progress towards providing and facilitating more and better pre-arranged protection against climate and disaster related risks.
- New and additional resource mobilization is critical to the success of the Global Shield, going beyond current ODA targets.
Leadership of V20 and the G7
The call by vulnerable countries within and outside UNFCCC for an adequate response to the climate crisis is loud and clear. In partnership with the V20, the G7 therefore committed to jointly work towards a Global Shield against Climate Risks. The Global Shield (GS) will start delivering soon and contribute to the international efforts to avert, minimise and address climate-related losses and damages.
The GS builds on recent years’ substantial progress on enhancing financial protection against climate-related disaster risks for poor and vulnerable people and countries. Through the joint efforts under1 the V20/G20 InsuResilience Global Partnership (IGP), which builds on the G7 InsuResilience Initiative (Elmau 2015), 150 million poor and vulnerable people benefited from climate and disaster risk finance and insurance (CDRFI) solutions in 2021 alone.
However, funding for disaster response and recovery is still mainly arranged ex-post. Thus, important time to save lives and livelihoods is lost and the cost of disasters and their impact increases. Moreover, climate-fuelled risk has driven up cost of capital and unsustainable debt levels across climate vulnerable economies, which has contributed to worsening financial protection gaps.
We have to address climate impacts by swiftly redesigning existing structures to deliver for impacted vulnerable countries and people. More and better CDRFI can lower the impact of disasters, make vulnerable countries’ economies more resilient, and protect lives and livelihoods of poor and vulnerable people. This includes instruments which pre- arrange finance at the government level, providing quick and reliable funding when disasters happen, and instruments of financial protection for communities, businesses, and social protection schemes for households.
Vision and Objectives of the Global Shield
The GS will increase protection for poor and vulnerable people by substantially enhancing pre-arranged finance, insurance and social protection mechanisms against disasters. Greater financial protection, and faster and more reliable disaster preparedness and response, will help to cost-efficiently and effectively minimise and address losses and damages exacerbated by climate change.
To achieve its objective, the GS will close urgent protection gaps in countries by designing, funding, and facilitating interventions. All interventions will be based on national ownership. The GS will ensure more systematic, coherent, and sustained financial protection through the following building blocks:
How the Global Shield Will Work
- Countries will lead on identifying key protection gaps.
Starting with a systematic analysis of countries’ protection gaps, the GS will facilitate instruments designed to provide rapid financial relief directly to households and businesses to respond to disaster-related losses, or instruments which pre-arrange finance for governments, humanitarian agencies, and non-governmental organisations for disaster preparedness and rapid response. This will also entail strengthening and building shock-responsive social protection systems and other delivery systems to ensure that pay-outs are spent on providing what affected individuals and communities need when they need it the most.
Depending on a country’s readiness for these instruments, the GS will facilitate different types of support from various sources to help countries access the needed instruments sustainably. Technical assistance will be available to support policy reforms, CDRFI strategies, strengthened regulatory frameworks, and capacity building. Financial assistance will be available to build in- country systems like adaptive social safety nets, capitalise risk carriers, and (co)finance insurance premiums. In addition, the private sector will be mobilised to deliver risk analytics, design products and triggers, and underwrite respective risk transfer solutions.
Proposed Structure of the Global Shield
It is the explicit aim to minimize the creation of new institutions and to instead build as much as possible on existing structures. However, in order to deliver on the GS’s objective in a timely, inclusive and efficient manner, existing structures and contributing partners will need to be reformed, endowed with broader mandates and include a wider range of stakeholders. The GS is proposed to consist of the following elements: