Climate and disaster risk finance: a mosaic of instruments

This publication focuses on financial instruments and financial-management approaches used in Climate and Disaster Risk Finance and Insurance (CDRFI) across the public and private sector. It assigns them to the five phases of CDRFI, while acknowledging that such attributions are not always clear-cut. The same applies to the instruments and approaches, the distinctions between which are not explored in detail for the sake of simplicity and their applicability in CDRFI. The latter phases –preparedness and emergency response – are less focused on raising finance and also incorporate funding channels (money out).

With a few exceptions, we do not cover financial instruments specifically used in mitigation finance, the reason being that, so far, this field is dominated by well-established instruments in energy finance, albeit applied to renewables, and an active international private-sector investor base with a proven track record in this space. Mitigation operates within a triangle consisting of this investor universe (albeit with a focus on developed and emerging markets), research and development (in the form of climate modelling and the analysis of interdependencies between climate parameters) and emission-reduction targets (set by governments on the international level and implemented nationally). Based on a similar justification, we do not include within the scope of this publication instruments for the recovery/reconstruction phase, as these largely serve to rebuild conventional infrastructure, albeit based on the ‘building-back-better’ principle, using common debt and equity instruments either directly or through fund structures. Where we do see major gaps, however, is in financing adaptation and disaster risk. Consequently, this publication aims to map out suitable instruments and approaches with the ultimate aspiration to unlock more financing from a wider range of sources.