Global Shield: a key tile in the mosaic of funding for loss and damage?
Author: Shakira Mustapha
Photo: Shutterstock
In this blog, Shakira Mustapha dives into the stormy landscape of funding arrangements aimed at addressing climate-related losses and damages – and the crucial role of the Global Shield within it.
The Centre for Disaster Protection’s Insight Paper ‘Addressing Loss and Damage: Insights on the Fund and the Global Shield’ explores opportunities and underlying tensions of the evolving ‘mosaic’ of funding arrangements to address climate-related losses and damages.
Though not the central arrangement within the mosaic, the Global Shield against Climate Risks has a clear and important role to play. It seeks to channel the technical expertise and financing of the disaster risk finance community to address loss and damage through pre-arranged financing, which disburses quickly and reliably before or just after disasters happen. Intelligent design and cooperation amongst the various arrangements within the mosaic is in all parties’ interests to minimise duplication and identify critical gaps.
A mosaic approach of new and existing arrangements for addressing loss and damage
The way the world currently responds to and pays for the impacts of climate change is inadequate, slow and unpredictable. At the 2022 COP27 summit in Egypt, an international agreement was finally reached on a new Loss and Damage Fund and funding arrangements for addressing losses and damages in “developing countries that are particularly vulnerable to the adverse effects of climate change”. These new arrangements are framed as part of a mosaic, within and outside the United Nations Framework Convention on Climate Change (UNFCCC) and the binding Paris Agreement.
The rationale is that while new arrangements are urgently required to address gaps within the current funding landscape, significant scope exists to enhance the existing arrangements that fund activities in response to climate change impacts. The latter can be done more quickly and efficiently than setting up new initiatives. At the same time, the immense scale and complex nature of the climate crisis also necessitates new solutions.
However, the discussion around including existing programmes is a source of tension. In the context of past opposition of developed countries to a new fund and the failure of donors to honour existing climate-finance commitments (for mitigation and adaptation), some actors fear that focusing on improving existing arrangements distracts from operationalising the long-awaited Loss and Damage Fund.
Urgent need for more and better pre-arranged financing against climate-related disasters
The Global Shield against Climate Risks is currently the largest coordinated attempt to improve existing solutions outside the UNFCCC. Officially launched at COP27 last year, the Global Shield is a joint initiative of the Vulnerable Twenty (V20) Group and the Group of Seven (G7), with a current donor commitment of 270 million euros. The stated objective of the Global Shield is to “increase protection for poor and vulnerable people by providing and facilitating substantially more and better pre-arranged finance against disasters”.
The distinguishing properties of pre-arranged financing are that they are arranged before a shock, with funds released or triggered based on pre-agreed conditions. It is part of the wider disaster risk financing (DRF) toolkit, which includes financing to prevent and reduce disaster risk and to prepare for and respond to shocks. The Centre for Disaster Protection’s forthcoming research shows that pre-arranged financing accounts for just 2.7% of total crisis financing flows in 2021, the majority of which concentrates in middle-income countries.
The Global Shield is not starting from scratch. It builds on and consolidates financing from three existing vehicles in the DRF space under one financing structure: the World Bank’s Global Shield Financing Facility, the Climate Vulnerable Forum (CVF) and V20 Joint Multi Donor Fund, and the Global Shield Solutions Platform in the Frankfurt School. Given concerns that improving existing solutions is a distraction, the designers of the Global Shield should take steps to manage expectations about its respective role and contribution in the mosaic, and in doing so, help build trust.
The role of the Global Shield against Climate Risks within a functioning mosaic
Based on its mandate and institutional set-up, the Global Shield is well-positioned as a critical player in the Loss and Damage funding mosaic – while ensuring that pre-arranged financing is not seen as a panacea for addressing loss and damage. In particular, there are three constructive roles it can play: acting as the focal point for disaster risk finance; speaking truth about what DRF can do; and establishing transparent and accountable processes.
1. Acting as the focal point for disaster risk finance
One of the tricky questions facing the Transitional Committee (established to operationalise the new Loss and Damage Fund) is how to best coordinate the multitude of actors that make up the funding mosaic, each with different incentives, objectives and governance arrangements. The Transitional Committee, as acknowledged by several of its members, lacks the authority to instruct bodies outside the UNFCCC – meaning that any recommendations it may make that relate to non-UNFCCC entities may simply be ignored. The Global Shield similarly lacks the mandate and capacity to coordinate the full mosaic. Any new fund is likely to face a similar challenge in the absence of a more formal relationship with other arrangements (for example, the creation of a high-level coordination mechanism).
In creating such structures, the Global Shield is well-positioned to act as the focal point for DRF in the Loss and Damage space, providing access to a wide range of DRF actors from countries, civil society, international organisations, the private sector and academia. This role is within the scope of the Global Shield given it was created by the main implementing and technical players in the field of DRF (via the InsuResilience Global Partnership) to create a more systematic, coherent and sustained global DRF approach.
2. Speaking truth about what DRF is and what it can (and cannot do) in addressing loss and damage
Significant political and technical sensitivities surround the use of DRF for addressing loss and damage. The issue is partly related to a perception that DRF and pre-arranged financing are just another way for developed countries to sell insurance to developing countries for developed countries to avoid their financial and mitigation responsibilities. This tension is further complicated by the lack of consensus on what counts as Loss and Damage finance, with discussions attempting to agree on a definition, principles or scope remaining highly politically charged.
Given the definitional quagmire and blurred boundaries, the Global Shield should be as clear as possible on its definitions and underlying principles and what piece(s) of the bigger picture it is primarily engaged within the mosaic. For example, based on the currently publicly available information, the Global Shield states that it will support a wide range of instruments in the DRF toolkit, not just insurance, via a tailored country support package determined by a country-led in-country process (which has started in Ghana).
Despite the name, DRF is about more than just the set-up of financial instruments. The Global Shield seeks to develop and strengthen systems to ensure that pre-arranged financing reaches affected communities and households on time. This can include supporting shock-responsive social protection systems that can be scaled up quickly during shocks and crises. This type of institutional strengthening may benefit other arrangements in the broader Loss and Damage mosaic seeking to use country systems to channel funds.
Finally, DRF is unlikely to be the most cost effective and politically feasible way to address all climate-induced loss and damage in all countries. DRF is largely event-based and focused on the economic losses and damages from rapid-onset (in climate science terms) shocks such as tropical cyclones, agricultural droughts and floods. The Global Shield should monitor and report on DRF’s progress (or lack thereof) in addressing other types of losses and damages, for non-economic loss and damage and slow-onset processes.
3. Establishing processes that are transparent and accountable
Legitimate loss and damage solutions require decision-making processes that are transparent and accountable. While the most recent Transitional Committee meeting included some sessions closed to the public, the process has been fairly transparent, with real-time webcast meetings which include an exchange of views with representatives from NGOs as a formal agenda.
In contrast, given its development predated the UNFCCC-mandated Transitional Committee intergovernmental consultative process, the design process of the Shield is perceived as less open. However, decisions to date on several substantive aspects of the Global Shield, including its governance arrangements, the in-country process and country prioritisation framework, were made by a body comprising of representatives of the V20, G7, G20, think tanks, civil society, multilateral organisations and the private sector (via the InsuResilience High-Level Consultative Group). Furthermore, the approved composition of the soon-to-be-established Global Shield Board that will provide political and strategic oversight to the Global Shield is not skewed in favour of developed countries, comprising of equal representatives from vulnerable countries and countries providing support to the Global Shield, and co-chaired by a representative from each group. However, this alone will not ensure transparency and accountability.
As DRF is scaled up, there are growing questions about how to ensure stronger accountability – not just to the contributors and implementers, but ultimately to the risk-affected people whom it is designed to serve. And while the Global Shield’s in-country process is expected to include representatives from the ‘country’s most vulnerable groups’, experience shows that putting these commitments into practice has remained less common and less straightforward in the DRF space. The Global Shield is a potential game-changer with its decision to make all its outputs from the in-country process publicly available. More broadly, the Global Shield should also pilot new approaches and provide practical guidance that helps stakeholders to design, implement and monitor accountability throughout the DRF process. Ultimately, all funding arrangements within the Loss and Damage mosaic must be accountable to the at-risk communities they seek to serve.
Although the world is moving in the right direction in creating a more effective financing architecture to address loss and damage associated with climate change impacts, we have a long way to go to ensure that it is fit for purpose. Stalled progress and lack of coherence and coordination will be detrimental to those on the frontline of climate change and for whom climate change is already destroying their lives, livelihoods, culture and ecosystems. The upcoming COP28 summit in Dubai later this year will see the spotlight back on loss and damage – and it's vital to have progress on solutions that address one of the most pressing global issues of our time.