Glasgow, 9 November 2021: The Vulnerable Twenty Group of Finance Ministers (V20) — comprising 55 climate vulnerable economies with a combined population of 1.4 billion people — reached one of their key milestones during a high level event today, and launched the V20 Sustainable Insurance Facility (SIF). The high level meeting was jointly convened at the sidelines of COP26 by the V20, the UN Environment Programme’s Principles for Sustainable Insurance (PSI), the Munich Climate Insurance Initiative (MCII) and the G20+ and V20-led InsuResilience Global Partnership.
According to the latest IPCC report from August 2021, severe climate impacts, originally thought to be more long term, will materialize much sooner than expected. Climate change is now in a constant state of acceleration and this can only spell economic and financial disruption and destruction while leaving behind devastation for the world’s most climate vulnerable developing countries, and are beginning to impact developed countries.
Announcing the launch of the SIF, H.E. Brenson Wase, Minister of Finance of the Republic of the Marshall Islands, member of the V20 Troika and Co-Chair of InsuResilience highlighted that “the SIF has come a long way” and how “the need for comprehensive and climate-smart insurance solutions for micro, small and medium-sized enterprises (MSMEs) has first been highlighted in 2017, at our V20 Regional Consultation in the Asian Development Bank in Manila.”
According to Minister Wase, the V20-led SIF will now be operationalized as a Project Pipeline Facility and represents “the first vulnerable country-led implementation mechanism in this space to date.” He also specifically thanked the SIF’s technical partners, including MCII and the Asian Development Bank, and the German Federal Ministry for Economic Development and Cooperation (BMZ) for being the first G20+ member of the InsuResilience Global Partnership that has publicly confirmed its support. Dr. Maria Flachsbarth, Parliamentary State Secretary to the Federal Minister for Economic Cooperation and Development, Germany emphasized that “Germany is pleased to support the V20-led Sustainable Insurance Facility starting in 2021, as it will enable V20 countries to submit tailor-made project proposals to better protect small enterprises against extreme weather events.”
The SIF is a Project Pipeline Development Facility which will assist the members of the V20 in scoping the financial protection needs of MSMEs in the context of climate change, and in facilitating concept and proposal development for submission to risk financing vehicles. As such, the SIF aims to mobilize international financial and technical assistance, with the objective of stimulating climate-smart insurance offerings by domestic and regional insurers to protect MSMEs and the people that rely on them. The overall goals include building local and regional insurance markets to improve risk sharing and absorb financial shocks, developing resilient business models, and freeing up public and private resources for investment in resilience and growth.
In V20 countries, MSMEs contribute between 20 and 70 per cent of GDP, constitute more than 80 per cent of all businesses, and contribute to the countries’ export revenues. Vulnerable developing countries suffer from a 90 per cent protection gap for climate risks and non-life insurance penetration in V20 economies, usually indicative of the degree to which private sector is covered, mostly lies below one or between one to two percent. MSMEs and cooperatives aggregate large population parts and thereby provide the potential to reach many people — owners, employees or small, family-owned businesses — directly or indirectly with insurance. Moreover, and as emphasized by Mr. Amal Krishna Mandal Joint Secretary, Economic Relations Division, Ministry of Finance, Bangladesh, the SIF is intended to help countries “protect their asset base, secure supply chains and maintain output and price stability in line with a future-proof economy as set out in Bangladesh’s Mujib Climate Prosperity Plan.” Together with the recently announced strategic collaboration on open access to risk analytics between the V20 and the Insurance Development Forum (IDF), the SIF is sought to address gaps in the current disaster risk finance architecture and add to a more strategic and systematic approach of protecting economies from climate risk.
Over the course of 2022, the SIF will now be operationalized through a dedicated Project Office, hosted by the UN Environment Programme’s Principles for Sustainable Insurance (PSI) Initiative — the largest collaboration between the UN and the insurance industry — and supported by the MCII. The tasks of the SIF Project Office will focus on developing project concept notes and proposals under the leadership of V20 Finance Ministries in line with the five SIF Action Areas; the identification of interested implementing partners to translate such proposals into action; their submission to financing vehicles dedicated to addressing disaster risk; and accompanying in-country implementation in an advisory capacity. Butch Bacani, who leads the PSI at the UN Environment Programme, host of the SIF Project Office, welcomes the new initiative as “The creation of the V20 Sustainable Insurance Facility is a clarion call for leadership, determination and innovation from all actors to ensure that adaptation and resilience cease to be the forgotten half of the climate equation as we strive to achieve a just transition to a net-zero emissions economy.”
Yet, building domestic insurance markets in parallel to strengthening MSMEs’ demand for insurance through targeted financial and climate risk advisory as envisioned by the SIF will be no simple task. Minister Wase, who also commended MCII, UNEP’s PSI Initiative and InsuResilience for their continued support, underscored that “we must accelerate action at an unprecedented pace.” Over the coming months further synergies with additional potential partners, including the US and the UK which also reflected upon the value of the SIF during the event, will be explored.
While completing the set-up of the SIF Project Office in 2022, the V20 will further expand SIF activities across Asia-Pacific, including to Fiji, Bangladesh and the Marshall Islands. Simultaneously, the V20 will also bring the SIF to V20 members from Africa and the Middle East, Latin America and the Caribbean as well as build collaboration with relevant regional actors, including multilateral development banks, and other risk financing vehicles such as the World Bank IFC’s Global Index Insurance Facility (GIIF). Other organizations that attended the SIF event and expressed preparedness to collaborate include the African Risk Capacity, the InsuResilience Solutions Fund, Global Parametrics, ICEA LION, and Swiss Re.
Such inclusive and widespread collaboration is expected to foster regional learning and mobilize finance to those who need it the most. As highlighted by Mr. Sabiti Fred, National and Technical Advisor on Environment and Climate Change, Ministry of Finance and Economic Planning, Rwanda, there is a need to “better streamline our efforts by linking the international financial protection agenda more strongly with ongoing efforts around strengthening financial inclusion and access to credit for households and businesses.” Ultimately, investing in the resilience of the most vulnerable is not only an urgent humanitarian need. It is also a sensible strategy for building a more resilient global economy in today’s highly interconnected world.
Applauding the efforts of the V20, H.E. Kwaku Afriyie, Minister of Environment, Science, Technology and Innovation, Ghana, summarized that “bringing down global greenhouse gas emissions to the 1.5-Centigrade limit of the Paris Agreement is urgent for our survival, and the accelerating of climate-fueled impacts and disasters means that we need adaptation and risk management strategies. Key to the success of the two is climate risk data and financing, including for resilient investment and financial protection”.
Formed in 2015, the V20 Group of Finance Ministers is a dedicated cooperation initiative of economies systematically vulnerable to climate change. It is currently chaired by the People’s Republic of Bangladesh. The V20 membership stands at 55 economies including Afghanistan, Bangladesh, Barbados, Benin, Bhutan, Burkina Faso, Cambodia, Colombia, Comoros, Costa Rica, Democratic Republic of the Congo, Dominican Republic, Eswatini, Ethiopia, Fiji, the Gambia, Ghana, Grenada, Guatemala, Guinea, Guyana, Haiti, Honduras, Kenya, Kiribati, Lebanon, Liberia, Madagascar, Malawi, Maldives, Marshall Islands, Mongolia, Morocco, Nepal, Nicaragua, Niger, Palau, Palestine, Papua New Guinea, Philippines, Rwanda, Samoa, Saint Lucia, Senegal, South Sudan, Sri Lanka, Sudan, Tanzania, Timor-Leste, Tunisia, Tuvalu, Uganda, Vanuatu, Viet Nam, Yemen.
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