Climate Risk Management
A comprehensive approach to avert, minimize and address loss and damage
Impacts of climate change can already be felt today. Recent climate projections anticipate a significant increase in the frequency and/or intensity of extreme weather events such as storms and floods as well as slow-onset changes, like sea level rise and desertification. These negative impacts of climate change pose a growing risk to the sustainable development of all countries in general, and to least developed countries in particular.
Despite current efforts for mitigation and adaptation, residual risk of adverse impacts of climate change remain. Risk can lead to economic and non-economic loss and damage. Managing risks in order to avert, minimize and address loss and damage is therefore key.
The topic of growing risks from climate change is reflected in the international policy agendas of the Sendai Framework, as part of the United Nations International Strategy for Disaster Reduction (UNISDR) and the United Nations Framework Convention on Climate Change (UNFCCC). Under the UNFCCC, the topic of L&D has gained growing attention, which led to the establishment of the Warsaw International Mechanism for Loss and Damage (WIM) in 2013. In 2015, the Paris Agree¬ment emphasised its importance by introducing L&D as standalone article. “ Parties recognize the importance of averting, minimizing and addressing loss and damage associated with the adverse effects of climate change….” ARTICLE 8 OF THE PARIS AGREEMENT
GIZ advocates a risk-based approach to manage L&D. By analysing risks and identifying suitable solutions on a technical level, this approach supports decision makers from the public and private sector in forward-looking planning.
To avert L&D, mitigating greenhouse gases and sustainable development at global level remain paramount. To minimise L&D, it combines a smart mix of instruments that are already applied in climate change adaptation and disaster risk reduc¬tion. These tools are complemented by more innovative adaptation tools, such as risk finance and transformational approaches to address L&D. These tools include risk insurance, social protection, human mobility, flexibility in decision making and adaptive management.
Comprehensive Climate Risk Management (CRM) is a systemic approach that seeks to anticipate, avoid, prevent, and finance risks as well as absorb remaining impacts from extreme weather events and slow onset changes. It thus builds on lessons learnt from climate change adaptation (CCA) and disaster risk reduction (DRR), embedded in a sustainable development framework.
Comprehensive climate risk management aims to reduce and address the negative consequences of climate change along the entire risk continuum: averting climate risks through the reduction of greenhouse gas emissions, minimising climate risks through adaptation and risk management to managing residual climate risks. Against this background, climate risks have to be continuously analysed, reduced, addressed and transferred. The concept of comprehensive climate risk management encompasses the following mutually reinforcing steps and should build on the participation of stakeholders from different sectors and scales:
Climate risk assessments build the foundation to analyse risks and to encompass their potential consequences for people, assets and ecosystems. The magnitude of adverse impacts by climate change depends largely on the global level of emissions in the coming years and decades. In order to keep climate change manageable mitigating greenhouse gas emissions is paramount. Hence, keeping global warming below 2 degrees, as agreed to in the Paris Agreement, is an important step for managing climate risk.
CRM proposes a set of instruments for risk reduction and adaptation that enable stakeholders to take timely action for enhancing preparedness to climate-related extreme events and for strengthening overall resilience (e.g. early warning systems and contingency planning).
To tackle residual risk, risk transfer mechanisms such as climate risk insurance and social protection schemes can foster resilience to climate change by spreading risks across different actors, geography and time. Furthermore, in post-disaster situations resilient recovery contributes to “build back better” and prepare for future climate risks.
Climate risk assessment
Climate risk assessment builds the foundation for successful CRM. By identifying risk, assessing the magnitude of impacts on people, assets and ecosystems CRM shows possible options for action and answers the question: How could we respond?
The assessment shows how climate change and extreme weather events interact with socio-economic factors. The interaction of these factors determines the overall risk for the affected population. The assessment includes evaluating the magnitude of the expected impacts and identifying the costs and benefits of the most promising risk management options. Opportunity costs show that anticipatory planning pays off. This integrated evaluation demonstrates effective measures for dealing with risks and forms the basis for the integration of climate policy measures into public budgets and national policies.
To identify the smartest mix of instruments, it is crucial to understand the organisational and economic ability of countries, communities and the private sector to adapt and respond to risk. These factors play an important role for identifying the right measures ensuring climate-resilient development pathways. Due to the partly subjective nature of risk assessment, it is not pos¬sible to identify appropriate CRM measures solely through cost benefit analysis. Many important aspects cannot be quantified and/or monetized but might have a significant impact especially on poor people. Identifying appropriate measures is context-spe¬cific and needs to consider the following factors: a suitable com¬bination of different measures, measures that foster sustainable development and stakeholder participation to include affected and marginalised populations on top of the cost-benefit-ratio of measures. Uncertainty regarding future climate change implies that measures of incremental nature will not always be sufficient. In addition, measures that have transformational character and involve fundamental changes need to be considered to appropri¬ately manage current and future climate-related risk.
Comprehensive climate risk management builds on the strong participation of stakeholders from different sectors and scales. It proposes a set of instruments that enables stakeholders to take timely action for enhancing preparedness to climate-related extreme events and for strengthening overall resilience, including slow-onset events:
Decision making and implementation
Based on the identified CRM measures and related costs, decision makers from the public and private sector are enabled to better prioritise, fund and implement options (How will we respond?).
Monitoring and evaluating the implemented measures leads to continuous learning that feeds into the CRM cycle and informs future decisions.
Mitigation and sustainable development at global level:
The magnitude of adverse impacts by climate change depends largely on the global emissions pathway in the coming years and decades. To keep climate change manageable, climate change mitigation is paramount. Hence, taking action to keep global warming well below 2° C compared to pre-industrial levels, as agreed to in the Paris Agreement, and to even limit it to 1,5° C, is an important step for managing climate-related risk.
Sustainable development at all levels includes using renewable energy or switching to low-carbon transportation and lifestyles. Sustainable development paths offer multiple co-benefits such as better air quality and energy access. Adaptation measures like afforestation of mangroves and agroforestry entail similar co-benefits.
Smart combination of proven tools already applied in adaptation and disaster risk reduction:
Instruments that are already applied in the field of climate change adaptation (e.g. “drought-resistant crops”, “climate-proof cities and infrastructure”, ecosystem-based adaptation) are combined with tools of disaster risk reduction (e.g. contingency planning, early warning systems).
Innovative adaptation instruments, e.g. risk finance and insurance as well as transformational approaches:
Addressing L&D is another critical pillar of adaptation and comprehensive CRM.
Risk finance mechanisms such as climate risk insurance, contin¬gency funds and social protection schemes can foster resilience to climate change by spreading risks across different actors, geography and time. These mechanisms also gain importance for addressing residual risks. To continuously manage remaining risks, two options exist: risk transfer or re-entry of residual risk into the risk management cycle.
Instruments for addressing L&D are not only of incremental character. In addition, transformational approaches such as diver¬sification of livelihoods, flexibility in decision-making and adaptive management approaches are needed in order to adapt to change and to reduce the risk of loss and damage. In addition, human mobility has been and will be an important part of development – with or without climate change. Migration can be an important adaptation strategy. It is already widely used in regions experienc¬ing climate variability, e.g. seasonal labour migration. Migration and planned relocation, as a last resort, can reduce the risk of loss and damage.