Counter Crisis: Can finance save climate-vulnerable countries from drowning?

Author: Centre for Disaster Protection

Photo: Mario Tama via Getty Images

For decades, climate-vulnerable countries, many of which are also developing countries, have been bearing the brunt of climate change despite being the least responsible for its acceleration. As such effects become more severe and frequent, the nations most at risk have been fighting for global solutions to help deal with the local impacts of climate change.

However, their demands in international climate negotiations have been met with strong opposition. That was until COP27 when the world’s wealthiest countries agreed to create a Loss and Damage Fund.

In Episode II of the Centre for Disaster Protection’s podcast, Counter Crisis, the Centre’s Research Lead and development finance expert, Shakira Mustapha, is joined by Michai Robertson, a Research Fellow in climate and sustainability at the global affairs think tank ODI, to discuss the latest break-throughs in the global financing architecture dealing with the climate change: the Loss and Damage Fund and the Global Shield Against Climate Risk. They also explain how prearranged financing has featured in these, and previous efforts, and why it has sometimes been met with controversy.

Guided by Podcast Host Jeevan Vasagar, Editor of Our Planet, the episode begins with Michai explaining the idea of loss and damage, and what the new fund could mean for the climate-vulnerable.

Shakira then elaborates on the role of prearranged financing (a focus of Episode I), a better way of responding to disasters based on prearranged triggers. She highlights that insurance is not always the most effective or politically feasible solution and emphasises the importance of finding alternative prearranged financing instruments like contingent grants and concessional loans.

Both experts draw on their own experience to underscore the importance of the Loss and Damage Fund and the Global Shield learning from past mistakes and be demand-driven and needs-based, aligned with countries’ priorities. “As someone who has been on the side of the recipient government, I can’t tell you how frustrating and time-consuming it is to deal with multiple actors and initiatives who have different ways of doing things despite supposedly sharing the same objective,” Shakira recounts. “The Global Shield can be a focal point for prearranged financing, given that the main actors and technical players in this space [come] from the [multilateral development banks], from the private sector, as well as climate-vulnerable countries themselves.”

Many climate-vulnerable economies are heavily indebted, and as a result their interest payments are swallowing up a large and increasing proportion of their revenues. As Michai explains, during negotiations any proposed solutions that overlooked the debt crisis and risked adding to a country’s levels of borrowing were disregarded.

“[Developing countries] are in a bad cycle of debt… a lot of [which] is legacy debt from colonisers. As these new states work to develop and progress health, education and infrastructure they have to engage with further debt – and now they have to deal with climate change. In the case of Dominica, the country’s gross domestic product was completely wiped out by Hurricane Maria – a hurricane that was intensified by climate change. So, now the country is dealing with legacy debt, new debt, and impending debt that will allow them to rebuild following the disaster.”

Michai Robertson (left) and Shakira Mustapha (right) in the studio with climate editor Jeevan Vasagar.

Debt pause clauses, known as Climate Resilient Debt Clauses, temporarily suspend loan repayments to aid countries in recovering from disasters. While several multilateral development banks have already made such announcements, the experts underscore that there is still some way to go to fully protect the poorest and most vulnerable from the effects of climate change.

The next few years will therefore need to be about “governing loss”, where the focus is on rebuilding trust in the international climate financial system, not only to ensure that it can deal with the broader impacts of climate change but to enable adequate, predictable and transparent funding to support interventions at scale. “Transparency and accountability can’t be a window dressing, it can’t be an afterthought. It is absolutely essential for these two solutions to actually work and do what they promise,” Shakira emphasises.

Click here to listen to the episode in full.

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