Francesca Romanin Jacur Milan University Francesca.romanin@unimi.it The Involvement of Insurance Companies in Climate Finance: Tackling a Global Challenge by Investing in Local Solutions Francesca Romanin Jacur Milan University Francesca.romanin@unimi.it

Plan of the presentation A Dynamic International Regulatory Framework Climate finance The Increasing Involvement of the Private Sector Challenges and Opportunities for (Re-) Insurance Companies Debate shifting from WHETHER climate change is happening to WHAT are the appropriate remedies.

Climate Change basic glossary Mitigation: reducing GHG emissions Adaptation: managing the effects of climate change, reducing vulnerability of human and natural systems The target: the global scientific community (IPCC) calls for limiting global warming to 2o C above 1990 levels Current pledges to reduce emissions meet ½ of the emissions needed Towards a “low carbon economy”…

Climate Change Regime: the UN Framework Convention and the Kyoto Protocol UNFCCC (1992) : Stabilization of greenhouse gases (GHG) concentration KP (1997) : by 2012: global GHG reduction target of -5%. Shortcomings deriving from limited active participation (no USA, no commitments by emerging economies – China, India, BRIC) Post 2012: … ongoing negotiations! COP meetings and the crisis of multilateralism, but what’s the alternative? Climate change regime financial pledges: (nonbinding political agreement) 100 billion every year by 2020 (long term finance) 30 billion of fast start finance in 2010-2012

Climate Change Regime Architecture SB for Implementation UNFCCC COP KP COP/MOP IPCC SB for Technical Advice Compliance Committee World Bank The Special Climate Change Fund (SCCF) was established under the Convention in 2001 to finance projects relating to adaptation; technology transfer and capacity building; energy, transport, industry, agriculture, forestry and waste management; and economic diversification. This fund complements other funding mechanisms for the implementation of the Convention. The Least Developed Countries Fund (LDCF) was established under the Convention in 2001 to assist Least Developed Country Parties carry out the preparation and implementation of national adaptation programmes of action (NAPAs). In the course of preparing NAPAs, the LDCs identify priority activities that respond to their urgent and immediate needs with regard to adaptation to climate change. The Adaptation Fund was established to finance concrete adaptation projects and programmes in developing country Parties to the Kyoto Protocol that are particularly vulnerable to the adverse effects of climate change. The Adaptation Fund is financed from the share of proceeds on the clean development mechanism project activities and other sources of funding.  The share of proceeds amounts to 2% of certified emission reductions (CERs) issued for a CDM project activity. The Adaptation Fund is supervised and managed by the Adaptation Fund Board (AFB).  The AFB is composed of 16 members and 16 alternates and meets at least twice a year ( Membership as of February 2010 (133 kB) ).  Upon invitation from Parties, the Global Environment Facility (GEF) provides secretariat services to the AFB and the World Bank serves as trustee of the Adaptation Fund, both on an interim basis. These interim institutional arrangements will be reviewed in 2011.    CDM Secretariat JI IET GEF 2% of levy on proceeds Adapt. Fund LDC Fund Grenn Climate Fund SCC Fund

Climate finance Working Definition: The channeling of public resources (towards developing countries) (for mitigation & adaptation) through frameworks and mechanisms that leverage private sector capital, and are in line with national development goals. Many sources: 50 international public funds, 6000 private equity funds, carbon markets, taxes, Clean Development Mechanism) Challenges: Catalyze new investment into climate mitigation and adaptation sectors Develop new products with replication potential across markets and geographies Challenges and proposed responses to enhance the effectiveness of climate finance 2010 is the record year for investments in clean energy (234 billion $, BUT only 10% outside G20) The pricing of carbon: cap and trade, carbon taxes and CDM CDM: But faces major challenges amid uncertainties on post-2012 framework CDM to date ca. 3,500 registered projects in 71 countries 760 million CERs issued 3, 500 projects registered 1.2 billion CERs expected by end of 2012

Combining Developing Countries and the Private Sector Needs Gaining the trust of Developing Countries … and of the Private Sector Need of coordination among financial institutions (national, bilateral, international) Trust in institutions and their procedures (Consistency of funding resources, transparency and inclusiveness, legitimacy) The impact of the financial crisis The need to conciliate different interests: Effective mitigation and adaptation action and environmental integrity Economic development and poverty reduction in Developing Countries Economic gain for the Private Sector Bottom up approach/country ownership Direct Access Additionality and consistency of the funding sources by Developed Countries

Financing Adaptation GOALS: TOOLS: Generate new finance Design and distribute goods and services that reduce vulnerability of individuals and communities to climate change Provide risk management tools TOOLS: Drawing on capital markets to raise new finance for adaptation (climate bonds) Direct credit lines to local finance institutions Innovative means: microfinance

The role of insurance companies Risk Reduction and Insurance Catastrophe prevention, Risk assessment, emergency responses Low rate of insurance penetration in developing countries Technical assistance for setting up innovative financial products, programmes or services for the low carbon energy sectors Companies constitute critical target groups for compliance since they partly control the behavior that has to be modified: states depend on the coopertion of non state actors to fulfil their international commitments

Climate Risk Management by the Insurance Sector Public-private partnerships With International Financial Institutions (World Bank) At the country level Index-based insurance solutions Case studies Challenges and opportunities of implementing climate insurance

Dr. Francesca Romanin Jacur Thank you! Dr. Francesca Romanin Jacur francesca.romanin@unimi.it