Mounting scientific and empirical evidence suggests that climate change drastically amplifies both the frequency and intensity of devastating natural disasters around the world.
However, the impacts of rising temperatures are not spread evenly: the lion's share of the socioeconomic burden falls on the world's most vulnerable communities in the developing world, including the least developed countries (LDCs) and small island developing states (SIDS).
As the world confronts the challenge of climate change, an urgent need to build new climate-resilient infrastructure and to strengthen the existing one is indisputable. But there is a $3.5 trillion gap between current infrastructure investment in developing countries and what is required to ensure climate resiliency. The following are common obstacles in relation to infrastructure investment in the developing world:
Lack of long-term fixed-price climate insurance coverage due to underdeveloped insurance markets;
Constrained access to capital markets for sovereigns and municipalities with sub-investment grade ratings;
Lack of incentives to build resiliency into existing and new infrastructure as such initiatives are considered expensive by the affected cities/municipalities;
Lack of planning capacity and technical/management expertise in complex infrastructure project development;
Absence of methodology to measure the positive impact of climate-resilient infrastructure, which could be monetized;
Scarcity of private sector financing for climate adaptation due to the small scale of the projects;
Investors are hesitant to finance infrastructure projects due to uncertainty over the impact of climate change, diminishing the appetite for long-term risks.
What is CILRIF?
The CILRIF cross-industry working group, comprised of the world's leading experts from climate science, (re-)insurance, development, impact assessment, investment management, sustainability and other fields, has been brought together by the UNCDF to collaborate on a comprehensive climate insurance product for stakeholders in developing countries.
The first CILRIF meeting took place in September 2020 after a 6-month consultative process. We are set to convene formally on a regular basis over 2020-2021, with smaller sub-working group meetings (that address specific issues and themes in detail) to be held in between. Our goal is to develop and implement a viable long-term fixed-price insurance solution as a way of incentivizing investment in much needed climate-resilient infrastructure. The working group has adopted a phased approach via 3 sequential workstreams as listed below:
- Initial design of the long-term insurance product;
- Identification of the potential pilot geographies and consultations with the shortlisted cities/municipalities;
- Customization of the insurance product and identification of specific financing requirements for 3-5 pilot cases.