Germany, G7 launch 'Global Shield' climate finance at COP27
Germany will provide €170 million ($172 million) to a "Global Shield" insurance initiative to help low-income and vulnerable countries to rebound in the event of climate calamities.
It aims to strengthen social protection schemes and climate risk insurance , so when an extreme weather event like flooding strikes, communities can access aid quickly and recover, said Germany's ministry for economic development and cooperation (BMZ).
"If there is no protection scheme in place, a drought can mean that a smallholder farmer loses not only her harvest but also her entire livelihood because she cannot afford to buy new seeds," said the ministry in a statement.
A protection scheme that "kicks in automatically in the case of a crisis" frees up money for new seeds immediately, limiting the damage, the statement continued.
Countries like Canada, Ireland and Denmark have so far pledged a further €40 million to the initiative.
Is insurance the best tool to address loss and damage?
But critics question whether an initiative with insurance at its core makes sense when places could become "uninsurable" due to worsening extreme weather and multiplying disasters.
"The insurance product will not be feasible. If I get into car accidents every other day, I will be blacklisted by the company," said Harjeet Singh, head of global political strategy at Climate Action Network, an organization that brings together thousands of NGOs.
Details on how the initiative will work, where the money will go, and how it will get to the people who need it are so far "very vague and very opaque," added Singh.
The initiative was officially launched by the G7 and the V20 group of 58 climate vulnerable nations at the COP27 climate summit in Egypt. US President Joe Biden announced the US would support the "Global Shield" during his COP27 speech on Friday.
Global Shield addresses loss and damage
The BMZ said Global South countries have contributed little to global emissions yet face the worst consequences of a warming world. At the same time, they don't have the resources to protect citizens.
At the same time, said the BMZ, industrialized countries like Germany need to "honestly address" climate-related loss and damage as major emitters.
"Germany stands by its responsibility to support poor and vulnerable people and countries in dealing with loss and damage," said Germany's development minister Svenja Schulze in a statement.
Countries most vulnerable to destructive consequences of climate-related disasters, like the deadly flooding that hit Pakistan in the summer, want top polluters to pay for loss and damage.
"My country, Pakistan, has seen floods that have left 33 million lives in tatters and have caused loss and damage amounting to 10% of the GDP," said Munir Akram, outgoing chair of the G77 group of 134 developing countries at the COP.
After years of resistance from big emitters worried about being held liable for too much money, a special loss and damage fund is on the official summit agenda for the first time.
The "Global Shield" initiative is one step to address such funding, with Ghana finance minister and V20 chair Kenneth Nana Yaw Ofori-Atta calling it "long overdue."
"It has never been a question of who pays for loss and damage because we are paying for it," said Ofori-Atta. "Our economies pay for it in lost growth prospects, our enterprises pay for it in business disruption, and our communities pay for it in lives and livelihoods lost."
Since 2000, V20 states have lost around $525 billion to climate impacts. As those disasters escalate, the V20 risks getting further into debt because much of the climate financing ear-marked for low-income countries comes in the form of loans.
V20 research also found that 1.5 billion people in their countries do not have any financial protection like insurance. Ofori-Atta said that focusing on insurance would help those countries avoid increasing their debt.
The V20's debt payments alone are about half a trillion US dollars over the next four years.
Sara Ahmed, finance advisor to the V20, told DW that subsidies for premiums make insurance more affordable.
"But at the same time, climate change is accelerating the risks," Ahmed said from the summit. "They're getting a lot worse, which means we have to shift our instruments and improve our instruments. And this is what the Global Shield intends to do."
Insurance is not a 'silver bullet' for climate vulnerable nations
But Singh from Climate Action Network said what countries need is a clear loss and damage funding mechanism. Insurance doesn't cover slow onset events that cause serious damage like sea level rise or desertification, he added.
It also often pays out too little in a disaster, or doesn't pay out at all, said Singh. According to a DW analysis from 2018, climate risk insurance in Africa payouts covered 9.4% of climate-related damage.
Insurance alone also won't be enough to cover the yearly economic costs of loss and damage that could run into trillions by 2050.
"In case of responding to climate disasters, the role of insurance is very, very limited. Insurance takes a huge part of a huge space in these discussions," said Singh. "I'm not against insurance, but it is being projected as a silver bullet."
'Global Shield' is a 'good start' on loss and damage
David Ryfisch from Bonn-based environmental NGO Germanwatch said that the "Global Shield" is a "genuine attempt to really move the needle on finance."
He added that while insurance is a key component of the initiative, it also includes a natural disaster clause that will kick in to pause a country's climate loans in certain circumstances. The repayment money could be used for disaster relief instead.
Additionally, the V20 nations have established a loss and damage funding program and some "Global Shield" finance will flow into that.
"That's an interesting and important development because lots of NGOs were critical about the fact that this is an insurance scheme," said Ryfisch. "But it has become a way more diverse set of instruments that the Global Shield is supposed to cover."
The money dedicated so far is a "good start," added Ryfisch, but in terms of the "magnitude that we're looking at of expected loss and damage, it's really just a kick-starter."
Tim Schauenberg contributed to this report from COP27 in Sharm el-Sheikh, Egypt.
Edited by: Tamsin Walker