An event on financing adaptation at the Climate Adaptation Conference (online 25-26 January) highlighted the vast, under-exploited potential for governments and private financiers to invest in climate-related disaster risk reduction, especially in Small Island Developing States and Least Developed Countries. This could avert significant loss and damage from extreme events – before disaster strikes.
The finance event was convened by Andrew Steer, President of WRI, and Emma Howard Boyd, Chair of the UK’s Environment Agency. Reporting by Mairi Dupar, CASA.
“If you think about a hurricane devastating Puerto Rico, governments are going to come in and help them after the fact, but it would be so much better if they came in and helped before the disaster and reduced its scale. Governments are starting to realise that,”— said John Haley, CEO of Willis Towers Watson and Chair of the Coalition for Climate Resilient Investments (CCRI).
The CCRI is working with businesses and governments to “take the standard tools we have and price the opportunity” of disaster risk reduction financing before an extreme event,” he added. “It doesn’t mean that funds don’t flow to the developing world” but means that governments and firms invest what they have in smarter ways.
A 2013 World Bank study concluded that the benefit-cost ratio of investing in resilient infrastructure ranges from $2.5–$11 for every $1 spent on resilient investment across various hazards; the Global Commission on Adaptation more recently found that the benefit-to-cost ratio of investing in climate change adaptation was up to 10:1.
Cyclone-hit Beira – a poignant reminder of risks
As the event on finance was unfolding, a spokesman from Beira, Mozambique had to leave precipitously. The city was in the midst of suffering the destructive landfall of Cyclone Eloise (which, according to UN reports, has to date killed several people and displaced more than 8,000). The speaker is unhurt but his intervention was cut short.
This was a poignant reminder of the impacts of extreme weather being felt the world over, and hitting least developed countries hard.
“ We have seen what’s happened to Mozambique today , said Vera Songwe, UN Under Secretary General and Head of the UN Economic Commission for Africa. “We have to make sure they are at the table when the [disaster risk reduction] standards are set rather than taking two years for them in capacity building to learn the standards.”
We are not starting afresh with disaster risk reduction interventions, she stressed, we are building on knowledge that is already there.
Outlining his ambition for this coming year of climate action and disaster risk reduction, Mr Hayley said that by the end of 2021, then “we should have a broad consensus on standards on integrating physical climate risk into infrastructure.”
Likewise, “we should have at least US$1 trillion of jobs being invested in climate resilient infrastructure in Africa by the end of 2021,” said Vera Songwe.
Indebted small island states: View from Fiji
It is not as straightforward as simply turning on the taps for investment – cautioned Aiyaz Sayed-Khaiyum, Attorney-General, Minister for Economy, and Minister responsible for Climate Change of Fiji.
Small Island Developing States (SIDS) like Fiji are already significantly indebted. Debt affects their ability to invest in higher-standard, disaster-resilient infrastructure, when they are rebuilding from the latest disaster.
“This year our debt to GDP ratio has shot up to 85% – we have to be mindful of our debt levels. Yesterday we put in place policies to ensure downward trajectory of debt-to-GDP levels [but] that has an impact on your ability to build back better,” Mr Sayed-Khaiyum said.
“There is no doubt that if you build back better, you can respond to climatic changes in a more resilient manner, you will have less damage to deal with.”
Mr Sayed-Khaiyum recounted that Fiji has endured 13 super-storms in the past 8 years. During and after a recent cyclone over Fiji, the Government saw that the areas that had been reconstructed with more resilient features after 2016’s Cyclone Winston “were barely damaged at all – structurally they were sound, with some minor water damage.”
The resilient rebuild had cost beyond the bare minimum. However, this experience showed that investing in resilient recovery and reconstruction pays dividends.
It also poses a conundrum for a country like Fiji that is highly exposed to extreme events, said Mr Sayed-Khaiyum: “There has to be a recognition by international public finance agencies that there has to be finance up front for building back better, otherwise we’ll be stuck in a time warp” of indebtedness, poor quality reconstruction and further disaster.
Debt relief from a country’s creditors could be linked explicitly to climate efforts – he said. “We welcome debt restructuring or any other financial restructuring that would enable building back better,” he said.
Kristalina Georgieva: the IMF is listening
Acknowledging the perilous situation of SIDS, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF) agreed:
“We need to find a way to transfer finance to countries where the need is so profound that they cannot carry the burden on their own. We need to look at grants and concessional financing at scale. We have to rethink the concept of concessionality.”
At present, countries can only access highly concessional financing if they have low per capita incomes. However, she conceded: “if a middle income country is highly vulnerable to climate shocks, we have to find a way to factor this vulnerability – in the way we create support for these countries.”
“No way can we sleep on this problem any more.”
“We have to provide incentives more broadly for private sector to move to green investments and we have to help the countries that are at the front end of this climate crisis so they can be resilient.”
A 2019 IMF staff paper and Board of Directors’ response reflects Directors’ interest in flexing the IMF lending toolkit “in non-traditional ways to support resilience building.”
The coming period of Covid-19 economic recovery – in the midst of climate crisis – will provide a test for how attuned to resilience and disaster reduction the IMF and other international financial institutions can be.