Climate change is leading to increasing numbers of extreme climate and weather-related events. These cause rising levels of climate risks, leading to loss and damage. Climate risks provoke havoc, lead to humanitarian catastrophes, and stand in the way of achieving the Sustainable Development Goals (SDGs). It is of great importance to prevent and minimize these risks as much as possible.

However, there remains a residual risk that cannot be avoided. This is where risk insurance and risk financing have an important role to play. Climate risk transfer, that is, risk insurance, and risk financing are tools to financially address residual loss and damage by providing financial compensation.

It is not enough to make climate risk insurance available. The extent to which insurance helps to close the gaps in the protection of vulnerable groups against climate risks depends on the way in which insurance is structured.

Recommendations

• In view of the rapidly advancing climate crisis, humanitarian and development organisations should focus more on climate risk management, including risk insurance and risk financing.
• While climate risk insurance is not a magic solution, it can contribute to closing the protection gap of vulnerable communities and countries. However, it cannot be used as a stand-alone, but needs to be integrated in a comprehensive risk management strategy and linked with social safety nets (where applicable), poverty reduction, and the implementation of the SDGs.
• Climate risk insurance and other forms of risk transfer and risk financing, in order to benefit marginalised, resource-poor, and climate-vulnerable people and countries, need to be designed in a pro-poor manner (participatory, inclusive, and transparent) that is accessible, affordable, and valuable to vulnerable communities.
• The climate crisis requires more than business-as-usual approaches. This also applies to disaster risk management and climate adaptation. Transformational pathways are needed to better protect climate-vulnerable communities. Climate-induced havoc and intolerable risk are more than traditional knowledge and community-based adaptive capacities can address.

Higher capital costs caused by climate vulnerability, increasing stranded assets due to high climate risk exposure, and higher economic inequality among nations resulting from climate change are future risks and past and present experiences. Loss estimates of several hundred billion USD per year clearly underline the fact that climate-poor and vulnerable countries are facing a huge protection gap. This will grow further for reasons beyond their control as low-emitting countries.

If ignored by the international community, these countries will be financially over- burdened by tackling current and future climate-induced loss and damage. If the international community does not provide support, climate-vulnerable developing countries are very likely to face constantly increasing economic loss. This will make it almost impossible for them to meet the Sustainable Development Goals (SDGs). At worst, it could increase the risk of these nations ending up as failed states.

Recommendations

• Address information gaps on the financial dimension of loss and damage.
• Establish a financial tracking system so as to present an accurate picture of financial support.
• Regional risk pools and risk insurance, based on mutuality, should widen their approach by introducing solidarity.
• A human rights-based approach should be adopted by all mechanisms that contribute to loss and damage finance.
• From a climate justice perspective, revenues generated by carbon pricing are well aligned with the accountability principle, providing the opportunity to redress loss and damage and to apply compensatory justice.

According to the  Global Commission on Adaptation  2019 report  ‘Adapt now’, by 2030 climate-related impacts will push more than 100 million people within developing countries below the poverty line. Without adaptation, agricultural growth will decrease by 30 percent. Those who lack water one month a year will reach 5 billion by 2050.

ACT Alliance members have ongoing community-based livelihood work with opportunities to mainstream low-carbon, resilient, sustainable livelihood approaches. The following points are suggestions for how the framework components can be mainstreamed in their current initiatives. 

Recommendations

• Facilitate more coordinated and coherent planning and policymaking linking the two agendas. Identify the benefits by closely aligning the two agendas to inform decision making.
• Use the UN system SDGs action online database as the UN system’s repository
  of actions, initiatives, and plans on the implementation of the 2030 Agenda and the Paris Agreement 
• Examine how best to leverage advocacy, policies, and programmes, implementation mechanisms, inclusive multi-stakeholder action, resources, and partnerships for both the SDGs and for climate action so that co-benefits are maximized and trade-offs minimized at all levels 
• Incorporate national planning priorities and objectives when communicating Nationally Determined Contributions (NDCs) to ensure the realization of the potential mutual benefits during the implementation process. Achieve better inclusion of the links between climate action, disaster risk reduction, and the SDGs in Voluntary National Reviews (VNRs) presented at the high-level political forum on sustainable development.

ACT Alliance wants to promote a development in line with the Paris Agreement – a low carbon and resilient development path, where nobody is left behind. Programmes and activities supported by ACT Alliance and its members should address both adaptation and mitigation.

ACT Alliance has initiated activities to promote mainstreaming of climate change in programmes, and to facilitate experience-sharing and best practices. Through these efforts we want to promote the development we are calling for through our advocacy work.