Climate risk pooling mechanism Philippines leads global fund for natural disasters

MANILA, Philippines - A pool of fund working as an insurance for natural catastrophes is targeted to be established by countries vulnerable to climate change, led by the Philippines, in five years.

The Vulnerable 20 (V20) group, led by Finance Secretary Cesar Purisima, concluded Friday its high-level inaugural meetings in Lima, Peru with the approval of an action plan to tackle the changing climate until 2020.

In a major first step, the V20 agreed to set up a “climate risk pooling mechanism,” where both governments and the private sector would contribute and provide insurance funds to help nations absorb the impact of natural calamities.

“We are united in our shared vulnerability and exposure to a changing climate,” the V20 said on its communique issued after the meetings.

“We, the V20, commit to act collectively and decisively to promote the mobilization of public and private climate finance from wide ranging sources, including international, regional, and domestic mobilization,” the group said.

No target fund amount was given, although the group mentioned that contributions will be based on a “risk-determined pricing” system coupled with “index-based” risk transfers from one nation to the next.

The pool, among others, would work as a shared facility where risks are distributed across the 20 V20 member-countries. In such a way, the fund could get activated once a disaster strikes a particular V20 member.

The V20 is chaired by the Philippines with the following members: Afghanistan, Bangladesh, Barbados, Bhutan, Costa Rica, Ethiopia, Ghana, Kenya, Kiribati, Madagascar, Maldives, Nepal, Rwanda, Saint Lucia, Timor-Leste, Tuvalu, Vanuatu, and Vietnam.

Purisima, in particular, has long batted for such risk-pooling efforts, citing the Philippines’ susceptibility to natural calamities. Over-all though, the V20 countries suffer an average of 50,000 deaths every year from climate hazards, according to estimates provided.

Financial losses, meanwhile, reach about 2.5 percent of economic output, equivalent to roughly $45 billion. The V20 said the amount could easily go as high as $400 billion over the next two decades if nothing is done to address climate change.

Hence, more state revenues are needed and the V20 also called for “innovative” fund-raising methods such as the imposition of financial transactions tax, which could put a levy on business dealings in the stock and bond markets.

“The same (tax) can generate additional resources sourced from capital markets while serving as a stabilizing financial measure,” the V20 pointed out.

The inaugural meeting was held in conjunction with the annual gathering of the World Bank and the International Monetary Fund, whose representatives also took part in the negotiations.

“We look for a new international partnership with development partners, business and public-private arrangements to support the realization of the V20 ambitions,” the group said.