Risk sharing for small scale climate projects

I am happy to co-author this article with Beatrice WEDER DI MAURO, President of the CEPR - Centre for Economic Policy Research, reflecting on the urgent need to engage in collective thinking and action to adapt our response to the challenge of insurability in the face of escalating climate risks. This article, which captures key convictions from our joint workshop hosted at Collège de France by the AXA Research Fund and CEPR - Centre for Economic Policy Research, couldn't have been more timely.   Devastating floods in Valencia, the wildfires in Los Angeles, the typhoons in Mayotte and La Réunion... These recent climate catastrophes show a clear reality: climate risks are intensifying and the protection gap for local communities and economies are becoming evident. Global economic losses from extreme weather events reached $320 billion in 2024, while in Europe, only 25% of economic losses were insured - leaving individuals, businesses, and communities vulnerable.    To address this, we need to enhance risk-sharing mechanisms and promote partnerships between public institutions and private companies.   Ensuring insurance accessibility and effectiveness is crucial. This can be done through: ➡️ Hybrid models, combining market mechanisms with public-private partnerships, to help ensure broad coverage and affordability. France’s CatNat regime and Switzerland’s hybrid model offer valuable insights. These models can be adapted to regions facing extreme exposure, such as sea level risks. ➡️ Greater investment in prevention and risk-sharing mechanisms. Initiatives like local municipal risk assessments can help small municipalities assess and mitigate local climate risks. ➡️ Impact underwriting, where insurers incentivize policyholders to adopt risk-reducing measures in exchange for lower premiums. ➡️ Public education on climate risks and stronger coordination between insurers, governments, and consumers to ensure preventive measures are taken seriously.   As we move forward, it's clear that policymakers, insurers, and society must work together to strike a sustainable balance between affordability and fiscal viability. This is not just about who pays the bill. It is about how we manage risk in an increasingly uncertain climate landscape. Let's continue to foster collaboration and innovation to close the protection gap and build a resilient future. 👇 https://lnkd.in/er6BkrtZ

Vietnam has embarked on an ambitious journey to reshape its industrial energy consumption landscape, catalyzed by an $86.3 million funding package. With $11.3 million in non-repayable aid and $75 million in loan guarantees from the Green Climate Fund (GCF), the initiative seeks to promote energy efficiency and cut carbon emissions across the nation’s industrial sector — currently responsible for 50% of the country’s total energy consumption. ⚡ A Multi-Tiered Approach to Energy Efficiency ☀️ The program, dubbed the Vietnam Scaling Up Energy Efficiency Project (VSUEE), runs from March 2022 to January 2026 and is spearheaded by Vietnam's Ministry of Industry and Trade in collaboration with The World Bank. It includes two key components: 1. Risk-Sharing Fund (RSF): $3 million in non-repayable aid will mitigate credit risks for banks, covering up to 50% of loans issued to energy-efficiency projects. Managed by SHB Bank over 15 years, this mechanism addresses a long-standing bottleneck in Vietnam — limited access to medium- and long-term credit. 2. Technical Support: $8.3 million is allocated for building capacity among banks, industrial enterprises, and equipment suppliers. This includes energy auditing, project feasibility assessments, and training programs for over 20 businesses in 2024, as well as certifications like the “Green Credit Bank” to enhance global credibility. 🙌 The Economic and Environmental Equation ♻️ The project doesn’t merely target energy savings; it aims to establish a sustainable financing ecosystem for industrial players to thrive in a greener economy. Participating enterprises will not only cut operational costs but also gain competitive advantages in global markets increasingly prioritizing green certifications. However, challenges persist. For firms with robust collateral, the loan guarantees — carrying a combined fee of 0.95% — may be less attractive than existing credit channels. Additionally, renewable energy projects such as rooftop solar systems highlight funding gaps in areas excluded from loan eligibility, prompting calls for direct interest rate subsidies. 🌎 Global Implications for Sustainable Finance 💰 The VSUEE stands as a case study in pioneering risk-sharing mechanisms for green financing, a model still rare in global markets. But will the initiative catalyze sufficient momentum for broader adoption across developing economies? For business leaders worldwide, this raises critical questions: Can risk-sharing frameworks scale beyond niche applications to redefine sustainable lending? And as energy costs surge globally, how can corporations proactively align operational strategies with the dual imperatives of cost efficiency and climate responsibility? The answers could shape the future of industrial sustainability — not just in Vietnam, but on a global scale. #SustainableFinance #GreenEconomy #VietnamIndustry #ClimateAction #GlobalLeadership #SolarStorageLiveVN

New research from the Cambridge Institute for Sustainability Leadership (CISL)), with risk analysis from global insurance group Howden Group Holdings, demonstrates the transformative economic efficiency of risk-sharing systems to provide vulnerable countries with financial security from climate related disasters. The smallest and most vulnerable countries risk losing over 100% of their GDP from extreme climate shocks next year, according to the findings, which underlines the scale and severity of the risks faced by the Global South. Small Island Developing States (SIDS) and other vulnerable countries bear these overwhelming threats almost alone. This can be solved. The report, which models Loss and Damage (L&D) implementation, reveals these risks are insurable and proposes a solution using the power of (re)insurance and capital markets to dramatically scale up the impact of L&D funding. The modelling shows that the intolerable financial risks faced by this group of countries could be reduced to just 10% of GDP. The research outlines an action plan for L&D implementation across 100 less developed, climate vulnerable countries. It proposes leveraging donor funding to unlock vast sums from (re)insurance and capital markets to provide guaranteed financial protection to exposed communities now, and through to at least 2050.  https://lnkd.in/e-tX4AsP

The project made sense, yet the bank said no. I shared this example during a client climate finance workshop. Picture thousands of small farmers relying on one river for their livelihoods. When the weather patterns shift or if the river runs low, their incomes fall with it. The solutions are practical. Drip irrigation and solar pumps are improvements that could stabilise incomes and strengthen resilience. On paper, it looked like a bankable opportunity. But when it reached a bank’s credit team, it stalled. The loan sizes were small. The collateral was limited and the early defaults were hard for the bank to carry alone. The project made sense in the real world, but it did not fit into a bank’s risk appetite yet. In 2022, ADB signed a $100m loan facility. It had also provided technical help to support coffee, cotton and rice supply chains across Asia. It benefited over 50,000 smallholder farmers. After I finished the story, the room went quiet. “This is exactly what we see.“ one of the participants said. “The need is clear. We need to know how to structure the financing so that it works.” And that is the gap blended finance fills. ✅ It allows risks to be shared, where a public or philanthropic partner takes the first layer of loss. It lowers the barrier for private capital from investors and banks to take part. ✅ It helps convert good climate ideas into projects that banks can support ✅ It creates the confidence needed for investors and banks to step in and scale solutions Blended finance helps capital move. This is especially important in Southeast Asia, where communities and businesses are growing quickly and climate impacts are already visible. Financing needs to keep up with reality. 💭 Where do you see capital ready but unable to move?