Information on best practices, challenges and lessons learned from existing financial instruments

Information below are submitted in response to a Call for submissions on best practices, challenges and lessons learned from existing financial instruments.

Abbreviations used: European Union (EU), United States of America (USA), CARE International (CARE), Centre for Climate Change Economics and Policy/Grantham Research Institute on Climate Change and the Environment (CCCEP), Centre for International Governance Innovation (CIGI), CINCS LLC, Climate Action Network International (CAN), Climate and Development Lab, Brown University/International Centre for Climate Change and Development (CDL/ICCCAD), Climate Bonds Standard, Food and Agriculture Organization of the United Nations (FAO), Global Facility for Disaster Reduction and Recovery/the World Bank Group (GFDRR), International Actuarial Association (IAA), International Labour Organization (ILO), Loss and Damage Network, Munich Climate Insurance Initiative (MCII), United Nations Development Programme (UNDP), Vivid Economics, and World Food Programme (WFP).

Risk transfer and risk pooling

Risk transfer and risk pooling schemes help risk holders (at the micro, meso, national, and regional levels) to spread losses widely across time, stakeholders, and/or geographical areas in the case of sovereign risk holders. Risk pooling enables risk holders to gain efficiency by bundling risk which can take various forms like funds, reserves, index- based schemes etc.

Financial instrument	Submissions	Relevant page numbers
African Risk Capacity	USA (212 kB) CIGI (1447 kB) EU (128 kB)	pages 3-4 pages 4-6 pages 8-9
Africa Disaster Risk Financing Program	EU (128 kB)	page 11
Caribbean Catastrophe Risk Insurance Facility	GFDRR (242 kB) CIGI (1447 kB)	page 4 pages 4-6
Climate Insurance Fund	EU (128 kB)	page 10
Conditional Cash Transfer	UNDP (296 kB)	page 2
Disaster Risk Financing Analytics	EU (128 kB)	pages 10-11
FoodSecure	WFP (194 kB)	pages 3-5
Global Index Insurance Facility	EU (128 kB)	pages 11-12
Impact Insurance Facility	ILO (117 kB)	pages 1-6
InsuResilience	EU (128 kB)	page 7-8
Livelihood Protection Policy	MCII (800 kB)	page 4
Livelihood Recovery Package	CARE International (497 kB)	page 9
Loan Portfolio Cover	MCII (800 kB)	pages 3, 5-7
Pacific Catastrophe Risk Insurance Pilot	GFDRR (242 kB)	page 3
Turkish Agricultural Insurance System	Turkey (202 kB)	pages 3-4
Village Saving Loans Associations	CARE International (497 kB)	pages 2-3, 6-7

Additional relevant information

Information paper (578 kB) (pages 6-8, 15,17,20)

General description

EU (128 kB) (page 6)
CDL / ICCAD (781 kB) (pages 6-7)

Comprehensive Risk Management

Loss and Damage Network (171 kB) (pages 2-5)

Insurance

CIGI (1447 kB) (pages 3, 6-7)
Vivid Economics (521 kB) (pages 1-20)
UNDP (296 kB) (page 2)

Case studies

CARE International (497 kB) (pages 7-9)
FAO (222 kB) (page 3)

Catastrophe risk insurance

Catastrophe risk insurance at national or regional level protects against low-probability, high cost events. This may take the form of micro and meso insurance which bundles individuals’ loans and insurance, catastrophe reserve funds, and insurance- linked securities.

Financial instrument	Submissions	Relevant page numbers
African Risk Capacity	EU (128 kB)	pages 8-9
Agricultural Insurance Development Program	USA (212 kB)	pages 2-3
Caribbean Catastrophe Risk Insurance Facility	GFDRR (242 kB)	page 4
Climate Insurance Fund	EU (128 kB)	page 10
Disaster Risk Financing and Insurance Program	GFDRR (242 kB)	page 2
Ethiopia Project on Interlinking Insurance with Credit for Agriculture	FAO (222 kB)	pages 2-3
National Agricultural Insurance Scheme	CARE International (497 kB)	pages 4-5
Pacific Catastrophe Risk Insurance Pilot	GFDRR (242 kB) Japan (91 kB)	page 3 pages 1-2
Rural Resilience Enhancement Project	Japan (91 kB)	page 3

Additional relevant information

Information paper (578 kB) (pages 7-10, 20-21)

General description

CDL / ICCAD (781 kB) (pages 7-8)

Insurance

CCCEP (690 kB) (pages 3-7)
IAA (297 kB) (pages 2-4)
EU (128 kB) (page 4)

Contingency finance

Contingency finance is a fast-disbursing finance opportunity, which provides lines of borrowing from which to draw in the immediate aftermath of a natural disaster declared as a national emergency by the government. The funds provide for early response and recovery measures (sometimes contingent on the country maintaining satisfactory ex-ante or ex-post in-country disaster risk management programmes).

Financial instrument	Submissions	Relevant page numbers
Business Continuity Measures	Japan (91 kB)	page 2
Community-based Revolving Fund	UNDP (296 kB)	page 2-3
Deferred Drawdown Options for Catastrophe Risk	GFDRR (242 kB)	page 2
Disaster Relief Fund	EU (128 kB)	pages 4- 5
FoodSecure	WFP (194 kB)	page 3-5
Stand-by Emergency Credit for Urgent Recovery	Japan (91 kB)	page 1

Additional relevant information

Information paper (578 kB) (pages 9-10)

General description

CDL / ICCAD (781 kB) (page 8)

Examples

EU (128 kB) (pages 3- 5)
UNDP (296 kB) (page 3)

Climate-themed bonds

Climate themed bonds are fixed income, and sometimes market-linked financial instruments issued to finance or re-finance climate-change related projects (e.g. mitigation, adaptation or risk reduction). The issuing entity (multinational banks or corporations) guarantees to repay the bond over a certain period of time, plus either a fixed or variable rate of return. Investors can be institutional entities (e.g. pension funds) or individuals. Climate bonds have the same credit risk and return profile as standard bonds.

Financial instrument	Submissions	Relevant page numbers
Climate Bond Standard	Climate Bond Standard(2944 kB)	pages 22-32
Resilience bonds	FAO (222 kB)	page 2
Green bond	CIGI (1447 kB)	page 9

Additional relevant information

Information paper (578 kB) (pages 11-24)

Catastrophe bonds

Catastrophe bonds, also known as cat bonds, are high-yield debt instruments which are usually insurance-linked, in order to secure cash flow in case of a disaster to those most exposed and at risk of severe financial losses as a result of the changing climate. They include a special condition that states that if the issuer suffers a loss from a particular pre-defined catastrophe, then the issuer's obligation to pay interest and/or repay the principal is either deferred or completely forgiven.

Financial instrument	Submissions	Relevant page numbers
Caribbean Catastrophe Risk Insurance Facility	GFDRR (242 kB)	page 4
MultiCat Program	GFDRR (242 kB)	page 2

Additional relevant information

Information paper (578 kB) (page 11)

General description

CDL / ICCAD (781 kB) (pages 9-10)
IAA (297 kB) (page 4)
CIGI (1447 kB) (page 9)
EU (128 kB) (pages 5-7)

Innovative financial instruments

Financial instrument	Submissions	Relevant page numbers
Attribution bonds	CIGI (1447 kB)	page 9
Blue bonds	CIGI (1447 kB)	page 9
District Development Fund	UNDP (296 kB)	pages 1-2
Disaster Risk Financing Analytics single donor trust fund	EU (128 kB)	page 10
Forest resilience bonds	CIGI (1447 kB)	page 9
Fossil Fuels Levy, carbon pricing	CAN (566 kB)	pages 3-8
Natural Capital Financing Facility	EU (128 kB)	page 13
Remote Sensing based information and insurance for Crops in Emerging economies	EU (128 kB)	page 9
Sea level rise bonds	CIGI (1447 kB)	page 9

Additional relevant information

Information paper (578 kB) (page 11)

Examples

CDL / ICCAD (781 kB) (pages 10-17)
CIGI (1447 kB) (page 10)