Is the Global Shield stealing thunder from loss and damage funding?

The standout achievement of the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change, or COP 27, climate negotiations in November was the announcement of a “loss and damage” fund, which will financially help countries vulnerable to climate change disasters. But negotiations of the fund’s details are riddled with political difficulties, which could trouble future discussions. Paying for the harmful impacts of climate change is extraordinarily expensive, as shown by the $30 billion price tag for this year’s flooding in Pakistan, and fraught with contentious questions around historical responsibility. Separate from the much-vaunted COP 27 loss and damage fund, The Global Shield against Climate Risks is a disaster risk financing initiative that it is hoped could break some of the deadlocks around loss and damage funding. It’s been pitched, in the climate vernacular, as part of a mosaic approach to dealing with loss and damage, but some climate campaigners who favor separate loss and damage financing and institutions are concerned it will be pushed by high-income nations as the dominant mechanism — one they have greater control over. It comes alongside other emerging climate finance initiatives which are gaining momentum, such as Climate Resilient Debt Clauses and the Bridgetown Agenda pushed by Mia Mottley, the prime minister of Barbados. Who is involved? Backed by Germany, the current president of the Group of Seven — the block of the world’s most powerful economies — it was launched jointly in the V20 Group of climate-vulnerable economies in October when it announced the aim to “accelerate pre-arranged financing at speed and scale.” At COP 27, when the Global Shield was formally launched, German Chancellor Olaf Scholz pledged €170 million ($180.6 million) to the project, with €84 million toward the central financing structure and the rest to go to “complementary instruments of climate risk financing.” It will be steered by the Global Shield High-Level Consultative Group, which consists of officials from governments, multilateral organizations, civil society, and the private sector. It’s currently co-chaired by Dr. Bärbel Kofler of Germany’s BMZ and Seedy Keita, Gambia’s finance minister. Three funds will make up the shield: the Global Shield Solutions Platform, which builds on InsuResilience Solutions Fund; the Global Shield Financing Facility at the World Bank, and the Climate Vulnerable Forum and V20 Joint Multi-Donor Fund. The World Bank is also providing technical assistance, policy dialogue, and country lending operations, according to Axel van Trotsenburg, the bank's managing director of operations. “Access to disaster risk finance and insurance solutions for low-income countries is part of the World Bank’s strategy for helping them adapt to the growing risks of natural disasters,” he said. Meanwhile, UNICEF, is running a climate risk financing program focused on youngsters, called Today and Tomorrow, funded by the United Kingdom and Germany under the shield. While a plethora of institutions are involved, by using mostly preexisting organizations, the scheme avoids the lengthy process of creating new United Nations infrastructure for loss and damage funding. How will it work? Despite the extensive spin surrounding the Global Shield’s launch, “I don’t think the design of it has really been discussed in any detail yet,” said Emily Wilkinson, senior research fellow for global risks and resilience at ODI, a think tank. “It’s talked about as if there could be lots of different forms of finance within there, including loans triggered by extreme events.” It was dubbed a “blackbox, which has not been defined” by Harjeet Singh, head of global political strategy at Climate Action Network International. But insurance is most likely to be the main mechanism “because it's more efficient and [able] to trigger payments quickly: the speed of it is undisputed,” said Wilkinson. With governments being able to access finance “in a matter of days” through insurance, it is also “a way of ensuring people can recover from extreme events or replace property or assets they’ve lost,” said Wilkinson. There are existing risk insurance schemes that have been used in the past during extreme events. During the COVID-19 pandemic, additional subsidies for extreme weather policies were provided to African countries through the African Risk Capacity, the continent's sovereign risk pool, according to Wilkinson. “They were given subsidies during Covid to ensure they carried on taking out the insurance policy,” she explained. The Global Shield is “essentially about subsidizing insurance premiums,” so donors feel more comfortable with the system “because there’s an exit strategy,” said Wilkinson. “You can provide a subsidy for a certain amount of time and you can then reduce the subsidy or remove the subsidy, or provide them at particular points of time, like if a country has suffered a weather event … you can subsidize it during that year,” she added. Germany and the U.K., who have championed the Global Shield, are also home to big insurance industries. “We’ve got all this technical, actuarial capacity in the U.K. and the City of London to develop these projects, and the analytics … there’s lots of risk modellers based in London,” said Wilkinson. The project is being trialed in Bangladesh, Costa Rica, Fiji, Ghana, Pakistan, the Philippines, and Senegal. Funding through the shield is also part of the international response to the humanitarian crisis in Somalia, with both the U.K. and Germany pledging £3.8 million ($4.5 million) each for a program improving access to financial services and insurance against drought for pastoralists, according to a U.K. government statement. What are the criticisms? It’s seen by some, including many small island states and NGOs, as “direct competition to the loss and damage fund: donors will either put money into the global shield or the loss and damage fund,” said Wilkinson. “An initiative that involves Northern countries subsidizing Northern-owned insurance corporations should not be mistaken for loss and damage finance that supports communities on the front lines of the climate crisis,” said Teresa Anderson, global lead on climate justice for ActionAid International, who said the shield was a “distraction” from dedicated loss and damage funding. While many campaigners want to see loss and damage funding overseen by the U.N., the shield is outside the U.N. system and doesn’t cover all low- and middle-income countries at risk of enduring harsh climate impacts, according to Singh. “Many vulnerable countries are not part of the grouping,” he said. Creating the Global Shield outside the U.N. gives higher-income nations “better control” than within the U.N. system where things are “more structured and balanced,” according to Singh, with the potential for better coverage and “based on needs and rights of people, not donor led.” Singh also criticized the use of insurance to respond to climate impacts, saying it “doesn’t work,” and questioned its suitability to cover slow onset events such as loss of ecosystems and cultural heritage. Further issues raised with the Global Shield were how the transparency of payouts would be dealt with, and the lack of clarity around the allocation criteria, “which are not the same as ODA.” Additionally, there’s the prospect of rising insurance costs as climate change progresses, according to Wilkinson. “Insurance doesn't work very well when a catastrophic event is frequent and likely to happen,” she said. “The more frequent these high intensity events become, the more expensive insurance becomes. To what extent donors will be able to subsidize insurance premiums is a big question mark … it’s clearly not sustainable.” For that reason, Wilkinson said there would ultimately “have to be grant funding made available for loss and damage.” And as for Global Shield’s ability to work with other funds and mechanisms in response to loss and damage, Wilkinson said it will be important for observers to know “how much money is being committed and what it’s being used for.” For instance, transparency would be needed to ensure payouts are well spent, helping to avoid a case where governments receiving the money might not spend on communities most affected by a climate event — perhaps instead choosing to use it to repair roads around the capital city, according to Wilkinson. She said there was a need to avoid “perverse incentives so donors don't feel like it doesn't make sense to spend money on adaptation because they have to pay out when something goes wrong anyway.”