Author: Antoine Bavandi
It was evident from the narrative at COP 29 last month that climate change can only be tackled if climate finance and insurance are firmly on the agenda.
As discussions concluded, important agreements were reached, but not without a resounding sense of disillusion. Despite this, Gallagher Re believes there are some key issues that remain worth fighting for.
Here are my top three takeaways from Baku:
Climate finance: front and center
COP 29 saw multilateral development banks commit to boost their climate financing, while advanced economies tripled the annual New Collective Quantified Goal (NCQG) to USD300 billion. While this sum falls significantly below levels required for developing countries to adapt to climate change and includes loans and guarantees (i.e., debt) in addition to actual grants, this remains a significant commitment and will help mobilize private financing and other capital sources where they are needed most.
The critical role for the Loss and Damage Fund
While the NCQG will help fund climate change adaptation, risk reduction and prevention efforts, there is a greater need than ever to scale up financing for rising extreme, residual, and unavoidable risks. To that end, the Loss and Damage Fund, which was established at COP 27, is now operational and has received in Baku financial commitments of nearly USD800 million.
The appointment of Ibrahima Cheikh Diong as executive director to the fund was also announced. The Gallagher Re team knows Ibrahima well, as he is former group director general of our client, the parametric risk pooling and insurance facility, African Risk Capacity (ARC). In his new role, we expect that Ibrahima will continue to promote the crucial role of disaster risk finance and (re)insurance within the Loss and Damage Fund.
Disaster risk finance and (re)insurance
Center stage at COP 29 was the increasingly recognized value of risk financing and insurance in disaster response.
The private sector is rising to the challenge, with proven approaches such as risk pooling, public-private partnerships, parametric insurance, and cat bonds. We expect sovereign risk transfer and the (re)insurance sector will continue to benefit from those developments, as premium financing increases and the uptake of (re)insurance in developing countries accelerates.
Gallagher Re's annual COP event saw several of our clients, partners, and industry players come together to discuss the benefits of taking a more holistic approach to climate and disaster risk finance. The group unanimously agreed that subsidies alone will not enable this: connectors, comprising entities as well as individuals, must marry premium subsidies with solutions and on-the-ground impact. We shared case studies of our public sector clients' engagement with reinsurance, which has not only presented clear business opportunities but, importantly, been effective in developing countries.
Our guests debated the value of parametric (re)insurance for humanitarian risk response. Our thanks to those who joined us at Baku: we look forward to working with you to replicate our recent successes in new regions and applications.
Other major achievements
Despite the odds, we reached a critical milestone at COP 29: a global UN-backed carbon market was formed, thereby finalising Article 6 of the Paris Agreement. This is expected to further increase carbon credit trading by incentivizing countries to reduce emissions and invest in climate-friendly projects. While agreement was reached, the details surrounding this remain a work in progress.
We also saw the agreement of a "Baku to Belem roadmap to USD1.3 trillion", which aims to increase climate finance contributions from wealthy nations ahead of COP 30 next year. The synergies between existing climate financing mechanisms were also addressed for the first time, as was the need for all parties to be more flexible and collaborative in future. This left us hopeful that the Loss and Damage Fund might eventually directly help finance premium subsidies and reinsurance programs in the future.
Looking ahead
In the face of the unprecedented damage caused by the climate crisis, the cost of inaction has never been as clear.
As COP 29 concluded, our attention shifts to COP 30 in Brazil, which is set to be a pivotal moment in global climate diplomacy. The stakes are high, as participating countries must submit their updated national climate targets for 2035 ahead of the meeting in Belem. This is a critical step for reaching consensus in our collective global warming targets, and a significant challenge, and we all need to take action.
For our part, Gallagher Re is actively supporting clients in developed and developing countries to help strengthen climate resilience. Through public-private partnerships, parametric risk solutions, and sovereign risk financing advisory, we are committed to fostering partnerships, sharing knowledge, and driving collective action in the most impactful way.
To read more about Gallagher Re's approach to climate resilience and closing the protection gap, please visit Public Sector and Climate Resilience Solutions
