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International climate change frameworks related to managing financial costs of climate change - MCII

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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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International climate change frameworks related to managing financial costs of climate change - MCII

  1. 1. International climate change frameworks related to managing the financial costs of climate change and global good practice in managing climate related financial risk Sönke Kreft
  2. 2. Introduction: 6 June 2017 2 • Munich Climate Insurance Initiative (www.climate- insurance.org) • Launched in 2005 • Non-profit organisation • Includes member from private sector, academia and civil society • Mission: Advancing climate risk management for the most vulnerable through insurance linked approaches • Hosted at United Nations University – Institute of Environment and Human Security
  3. 3. Rationale: Natural disasters on the rise 3 MunichRe (2017) 6 June 2017
  4. 4. Rationale: Developing countries highly affected 4 Worldbank (2014) based on SwissRe Data Munich Re in Worldbank (2014) 6 June 2017
  5. 5. Rationale: Viet Nam among most impacted countries 5 Germanwatch, 2016 • No. of climatic events on the rise • Developing countries most impacted and by large account for increases in global losses • Specific exposures of Viet Nam – one of the most affected countries globally 6 June 2017
  6. 6. Rationale: Climate change – observed impacts/future risks 8/28/2017 6 IPCC, WG II Technical Summary (2014) IPCC, WG I Summary for Policymaker (2013)
  7. 7. Rationale: Public balance sheet & climatic risks 7 Liabilities Direct: obligated in any event Contingent: Obligated in particular events Explicit Government liability (contractual or by law) Foreign and domestic public creditors; expenditures by budget laws and budget expenditure State guarantees for non- souveraign borrowing, public and private sector entities, reconstruction of public infrastracture Implicit A ‘moral‘ obligation of the government Future recurrent costs of public investment projects, pension, health care expenditure, general safety nets Default of subnational government, public and private entities. Specific disaster relief including for the most vulnerable Expanded from Mechler and Hochrainer-Stigler, 2014 Solution. Good public financial climatic risk management Adaptation planning & investments Climatic shocks increasing public financing costs Damaged key infrastructure Post disaster aid 6 June 2017
  8. 8. Rationale: Integrated Climate Risk Management Cycle 8 building back better risk analysis pre- vention ex-ante financing prepared- ness response ex-post financing recovery RESILIENCE Residual risk This phase includes: (i) Arranging the required financial resources for the government to meet its contingent liabilities (ii) Developing catastrophe risk and agricultural insurance markets, building on Public- Private Partnerships (iii) Develop rules and arrange financing instruments for scalable social protection. Recover This phases comprises the reconstruction and recovery policies and ex-ante design of institutional structures. This requires strong learning, monitoring and evaluation Prepare This phase ensures effective post disaster response and recovery by pre-arranging and coordinating institutions with sufficient and timely resources to provide access following a disaster event. Prevent This phase risk assessment for financial protection quantify potential disaster impacts based on historical and simulated data. This often requires investments in the necessary underlying hazard, exposure, and vulnerability data. This also includes the policy makers and building an effective risk communication interface to set priorities and risk reduction measures. Concrete measures include for example inventories of public exposures to climatic risks Respond This phase consist of activating all emergency measures in the residual risk and prepare phases. This includes early warning and actions aimed at saving lives and minimising further financial loss after a disaster. 6 June 2017
  9. 9. Rationale: A risk layering approach 96 June 2017 MCII and GIZ, own design, elaborated from World Bank (2011)
  10. 10. Practice: Good decision making 106 June 2017
  11. 11. Practice: FONDEN – Mexicos subnational disaster management 116 June 2017
  12. 12. Practice: Regional insurance pooling – the African Risk Capacity 126 June 2017
  13. 13. Frameworks: Sendai Framework & UN SDGs • Sendai Framework: International governance of Disaster Risk Reduction 2015- 2030 • Indicators: Reduction in global disaster mortality, No. of affected peoples, economic losses, No. of countries with DRR strategies, global cooperation (incl. support), availability of multi-hazard early warning systems • Sendai Priorities: Understanding disaster risks; Strengthening disaster risk governance; Investing in resilience; Enhancing disaster preparedness and to “Build Back Better” in recovery, rehabilitation and reconstruction. Financial risk management included across the priorities. • UN Sustainable Development Goals. Mainstreaming Resilience 136 June 2017
  14. 14. Frameworks: UNFCCC Adaptation and Loss & Damage • Paris Agreement: Major multilateral success of 2015 to achieve first global climate agreement • Includes mitigation, adaptation and climate finance goals • Builds on Nationally Determined Contributions (NDCs) to be implemented and increased collectively in 5 year cycle through Global Stocktake • Establishes commitments of conduct and cooperation on adaptation (Article 7) and Loss & Damage (Article 8). • Post-Paris: Paris agreement entered into force (October 2016) • COP 23 & 24: Establish the ‘Rule book‘ of the Paris Agreement (including provisions on transparency, process of the Global Stocktake, low emission development strategies) 146 June 2017
  15. 15. Rationale: Integrated Climate Risk Management Cycle 15 building back better risk analysis pre- vention ex-ante financing prepared- ness response ex-post financing recovery RESILIENCE Residual risk This phase includes: (i) Arranging the required financial resources for the government to meet its contingent liabilities (ii) Developing catastrophe risk and agricultural insurance markets, building on Public- Private Partnerships (iii) Develop rules and arrange financing instruments for scalable social protection. Recover This phases comprises the reconstruction and recovery policies and ex-ante design of institutional structures. This requires strong learning, monitoring and evalutation Prepare This phase ensures effective post disaster response and recovery by pre-arranging and coordinating institutions with sufficient and timely resources to provide access following a disaster event. Prevent This phase risk assessment for financial protection quantify potential disaster impacts based on historical and simulated data. This often requires investments in the necessary underlying hazard, exposure, and vulnerability data. This also includes the policy makers and building an effective risk communication interface to set priorities and risk reduction measures. Concrete measures include for example inventories of public exposures to climatic risks Respond This phase consist of activating all emergency measures in the residual risk and prepare phases. This includes early warning and actions aimed at saving lives and minimising further financial loss after a disaster. 6 June 2017
  16. 16. Frameworks: UNFCCC Adaptation regime • Adaptation: Article 7 of the Paris Agreement • Discussions in 2017 & 2018: • Adaptation needs assessments in developing countries; approaches to showcase adaptation in developing countries; clarifying the role of adaptation in the Globale Stocktake (including operationalization of the Global Adaptation Goal); undertaking a review of the adaptation related UNFCCC governance • COP 23: Determining best guidance for adaptation communication • National: Implementation of National Adaptation Plans & NDCs 166 June 2017
  17. 17. Frameworks: UNFCCC Loss & Damage debates • Loss & Damage: Article 8 of the Paris Agreement • Anchors the Warsaw International Mechanism and promotes areas of cooperation • Establishes Clearing House for climate risk transfer and Task force for climate related displacement to agree on international guidance • Warsaw Mechanisms 2015-2017: Work on comprehensive risk management & resilience; Forum on loss & damage finance in Manila 5/6 September 2016; slow-onset events & non-economic loss and damage • COP22: National - Invitation to assign national risk officers for L&D • COP23: 5 year work-plan of the WIM and operationalization of Clearing House for climate risk transfer 176 June 2017
  18. 18. Frameworks: From G7 to G20 • G-7 Insuresilience – Objective to insure 400 million people against climatic shocks until 2020 • Established by G7 Partner countries at Elmau summit in 2015 • G7 Pledges (so far): > USD 500million • Rapid Action Package: Scaling up of ARC, CCRIF, PCRAFI • A G-20 Partnership on climate risk insurance in July 2017? • Call by V-20 towards G-20 • Potential outcome: Establishment of global partnership to enable countries to improve their financial climate risk management 186 June 2017
  19. 19. Thank you Sönke Kreft Executive Director - Munich Climate Insurance Initiative Associate Academic Officer UNITED NATIONS UNIVERSITY Institute for Environment and Human Security (UNU-EHS) kreft@ehs.unu.edu twitter: @soekreft @_MCII_ www.climate-insurance.org 196 June 2017

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