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Comprehensive Risk Management


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High-level inter-ministerial workshop held in Hanoi June 6-7, 2017 hosted by the Ministry of Agricultural Development (MARD) of Viet Nam and supported under the Integrating Agriculture in National Adaptation Plans (NAP-Ag) Programme. The meeting was attended by over 75 national and provincial level government officials, including MONRE, MARD, MPI and the Ministry of Finance (MOF), UN and development partners, private sector representatives including insurance companies, as well as non-governmental organisations.

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Comprehensive Risk Management

  1. 1. Comprehensive Risk Management: Tools and Entry Points for Integrating the Valuation of Climate and Disaster Risk into Planning Glenn S. Hodes Climate Policy & Finance Specialist UNDP Bangkok Regional Hub NAP-AG WORKSHOP ON VALUING CLIMATE IMPACTS IN VIET NAM Hanoi, Viet Nam ■ 6 June 2017
  2. 2. Guiding questions • What approaches and tools are used for integrated climate and disaster risk management? • How can NAP process support more comprehensive risk management at different scales and levels? • How can the way climate and disaster risk information is collected, maintained and used be improved? • How can appraisals of public investment incorporate new evidence of CC risk, costs & benefits?
  3. 3. Rough Estimated Ranges of the Effect on Economic Growth of CC Uses 2050 scenarios and models “instantaneous change” Looks at triangulating various sources of evidence by sector: - Government statistics - Research studies - Consultation with Farmers, Extension Officers - Crop Response Models 3 Source of Loss and Damage Reduced GDP growth 2050 Reduced agricultural yields from average temperature and rainfall 0.50 – 1.00% L&D to crops from flood, drought and variable rainfall 0.30 – 0.80% Crop losses from pest and disease, sensitive to erratic climate 0.05 – 0.10% Reduced livestock productivity, mainly from temperature 0.10 – 0.30% Reduced forestry and fisheries productivity 0.05 – 0.10% Higher losses in the energy sector 0.01 – 0.02% Urban flood damage and higher reconstruction costs in infrastructure 0.05 – 1.00% Sea level rise and impact of salinity on crops and water supply 0.00 – 0.30% Health impacts 0.50 – 1.00% Total impact 1.60 – 4.60% Source: Kit Nicholson, “Climate Scrutiny,” April 2017
  4. 4. Typical CC effects on agriculture • Storm surges • Flood and drought impacts • Ecosystem degradation as factor in lower productivity of crop & fisheries (i.e. soil organic matter, water, biodiversity/food chains) • Productivity losses from more erratic rainfall or temperatures • Different seasonality patterns of rains • Growth, fertility and disease burden of livestock • Lost output from pest outbreaks and plant diseases • Flora and fauna biodiversity loss and effect on forestry
  5. 5. Why CRM? • Similar functions, process, and methods between managing climate variability and extremes, and managing disasters and sustainable recovery efforts • Strong basis for a NAP as provides evidence-base • Integrated feasibility and impact metrics ensures that budgets and resource mobilization efforts most efficient. • A goal of integrated risk is to reduce losses and harm to the most vulnerable 5
  6. 6. Policies for DRR/DRM Integrated DRR and CCA approaches to decision-making Ranking (Economic Valuation/ Investment Appraisal Political) CC Scenario Information Mid-. Long Term Planning And Budgeting CC Scenario Probability of Risks Economic Estimate of Expected Future Losses + Damages Identification of Adaptation Options Policies for CCA “NAP” Managing Climate Variability & Extremes Historical information based Risk Assessment Value of Losses + Damages (Historical) Preparedness & Sustainable Recovery Identification of Risk Reduction Options Concrete Actions for DRR/DRM Concrete Actions for CCA (Short Term) Investment Framework (Long Term) Planning Coordination Budgets DRR CCA
  7. 7. Sector Plans Reflect CCA & Policy Targets/Guidance Local Vulnerability Assessments, Adaptation Plans & Budgets Adaptation projects costed & prioritized National Adaptation Plan Implementing adaptation practices Monitoring CCA & DRR interventions Target resources to priority effective measures UNDP Model for National Planning & Budgeting Process & NAP entry points National Development Plans & Budget/MTEF Sector Plans & Guidance Sub-National Plans & Budget Allocations Project Formulation Guidance & Practice Program/Project Implementation Monitoring, Reporting & Evaluation Sector Performance Review & Impact Evaluation
  8. 8. Relevant “NAP-Ag” Components & Plans • THAILAND – Upgrading sector CC policy & Action Plan, links to operational planning & budgeting – Integrating CC risk and appraisal methods in internal project appraisal guidelines and developing more bankable proposals based on MCA & CC risk integrated CBA guideline. • VIETNAM – National workshop on NAPs involving MARD, MPI and MONRE, provincial reps – Work with selected Mekong Delta provinces on CPEIRs and prioritized investment programmes in water supply linked to target programe and budget incentive scheme – Pilot provincial level CCA & DRR public expenditure reviews • NEPAL – Appraisal of key watershed-based CCA measures in sector, w/GCF Readiness Programme – Enhancing project preparation guidelines and CC budget coding, expenditure tracking capacities in MoAD, MoLD 8
  9. 9. Pakistan • Actions/Studies in Punjab government Dept of Agriculture to enhance priority actions under CC strategy – Setting up a risk management system (surveillance and early warning system) as well as new integrated databases for climate variables and disasters – Using drought and flood impact data to argue for improved irrigation and land management techniques in budget – Vulnerability Assessment and Surveys to Incorporate CC into new “Farm Mechanization Programme” 9Source: Action on Climate Today
  10. 10. Sri Lanka • UNDP supported policy assessment undertaken by national TT • Builds on NAP (2016 to 2025) & NAP institutional coordination mechanisms/WGs – Integrates CCA and DRM assessments, Vulnerability profiles – Risks, physical effects, and physical hazards/vulnerabilities catalogued • Looked more deeply at food security and export crops • Scenario-based approach to estimation of effects • Suggested creation of new indices • Proposed CC adaptation cell for agriculture & data sharing mex – Facilitate sector planning w/ relevant ministries and departments, private sector, and community organizations 10
  11. 11. Main conclusion • Sri Lanka needs to develop an integrated loss and damage assessment mechanism using both scenario-based and index- based approaches to capture loss and damages in agriculture due to climate related disasters, anomalies, extreme events, and slow- onset disasters. • The existing methodological approaches developed by iagencies such as UNFCCC and FAO provide a basis to initiate such a mechanism with suitable modification 11
  12. 12. UNDP’s experience in the Philippines – Weather Index-Based Insurance (WIBI) Project in Mindanao Duration: 2015-2017 Funding: Special Climate Change Fund Beneficiaries: 2,500 Amount of cover: Php 20,000($400)/ha Premiums: •Php 1,390 ($28)/ha for low and excess rainfall •Php 694 ($14)/ha for excess rainfall (In the project, it was fully subsidized as a pilot test) Payouts (as of Dec 2016): 144 farmers | Php 1,180,849 ($23,000) Why index-based insurance? Conventional Index-based Payouts Slow: Damage-based payout Fast: No field verification required Transaction High Low Risks with product Moral hazard / adverse selection No MH or AS Risks covered Multi-peril Single peril Key barriers to sustainable insurance delivery ❶ Limited sales outlets • Crop insurance is primarily underwritten by the Philippines Crop Insurance Corporation (100% Govt subsidiary) and sold at local PCIC outlets or local government offices • The “last mile” problem is likely to emerge as the Govt expands the insurance program across the country ❷ High damage rates for rice and corn • Due to inadequate level of extension and widespread rain-fed agriculture, rice and corn farming is a high risk activity  Market-based premium would be unaffordable for most farmers ❸ General accuracy of the product • There are still high “false positive” or “false negative” (i.e. no payouts despite damages in the field or payouts despite no damages in the field) Solutions explored in the project ❶ Improving the prospect for PPP • Administrative order to expand the application of the existing national loan guarantee to those offering WIBI product  Additional incentive for banks to package insurance into the financial product mix • Impact assessment ongoing to verify whether insurance make a farmer a better bank client ❷ New indices for banana, sugarcane, coconut and cacao • Potentially enables the Govt to diversify risks and cross- subsidize ❸ General accuracy of the product • Has developed a new indexing methodology that improves the accuracy of the correlation by >50%
  13. 13. Tools • Spreadsheet-based DSTs and Simplified MCA databases • Economic models (e.g. full or partial CGE) and damage functions affecting productivity [capital, labor, and assets] • Crop response models • Hydrological models 13
  14. 14. Some Entry Points 1. Develop M&E indices for impacts & effectiveness of CCA/DRR interventions 2. Identify Relevant Existing Expenditure: CPEIRs, DRM-PEIRs, CprPEIRs 3. Conduct Prioritization Exercises using MCA, Participatory Approaches 4. For priority projects & programmes, conduct integrated economic appraisal 5. Develop low-cost spatial planning maps incorporating CC risk, hazards, key infrastructure, social and demographic data 6. Use budget tracking and government PFM systems to target allocations to where risk is highest 7. Develop centralized planning guidelines for CC & DRR 8. Include dedicated risk screening criteria in planning templates 9. Integrated risk criteria as basis for mobilization of external climate finance 10.Pinpoint areas for regulatory/fiscal incentivizes & PPPs to mitigate risk 14
  15. 15. Resources • 18 different methods identified in background paper for UNFCCC expert meeting – Current Knowledge on Relevant Methodologies and Data Requirements as well as Lessons Learned and Gaps Identified at Different Levels, in Assessing the Risk of Loss and Damage Associated with the Adverse Effects of Climate Change (Surminski, Lopez, Birkmann, & Welle, 2012) • Agricultural sector models – FAO’s Modelling System for Agricultural Impacts of Climate Change (MOSAICC) – Decision Support System for Agrotechnology Transfer (DSSAT) – International Benchmark Sites Network for Agrotechnology Transfer (IBSNAT) – The IFPRI IMPACT model • NDC Implementation Handbook and UNDP Guidebook to Developing Climate Change Financing Frameworks (forthcoming June 2017) 15