ECC Platform Library

 

Insurance Against Disaster - Lessons Learned from the African Risk Capacity

20 March, 2017
Ekhosuehi Iyahen (ARC)

G7 leaders endorsed the African Risk Capacity (ARC) as a model for climate insurance. The organisation works with countries to improve their preparedness for extreme weather events and disasters. In the interview, Ekhosuehi Iyahen, Director of Policy & Technical Services, shares new insights on innovative mechanisms to create climate-resilience, challenges on the way, and next steps.

Our questions were...

1.How would you describe the core vision and objective of ARC?

2.How is ARC structured?

3.What role has the private sector played in the formation of ARC?

4.Potential members must complete contingency planning to participate. What does this involve?

5.What are the main risks to agricultural industries?

6.What methods and technologies does the ARC utilise to map risk and impact across Africa?

7.How does the organisation assist member states in boosting preparedness for extreme weather events and natural disasters?

8.What plans do you have to launch other types of cover and products in the future?

9.In 2015, ARC launched the research and development phase of its Extreme Climate Facility (XCF). How would you describe the structure and purpose of the facility?

10.In February 2015, it was also announced that ARC would be developing insurance for disease outbreaks and epidemics. How is this initiative progressing?

11.How do you see the activities of ARC developing over the next five years?

12.The premium cost is often a challenge for poor states. What are some of the challenges that governments face?

13. Is ARC considering making the premium more affordable?

14.What can be learned from the first two years of using the insurance?

15.What role should InsuResilience play in the future?

 

[The interview is based on an interview conducted in July 2015 by the G7 Research Group and G20 Research Group. It was updated and expanded in March 2017 to reflect most recent developments.]

 

1.How would you describe the core vision and objective of ARC?

Ekhosuehi Iyahen: Currently, the main mechanism to respond to natural disasters relies on ad hoc funding, which is secured only after a disaster strikes. While the international community is working to raise funds to respond, the people who are affected by the crises are forced to make difficult decisions in order to cope, such as selling off livestock, removing their children from school and other negative coping mechanisms. Livelihoods are lost, assets are depleted, and development gains suffer major setbacks – forcing more people into chronic destitution and food insecurity in the world’s least developed countries.

ARC was established as a specialised agency of the African Union to help member states improve their capacities to better plan, prepare and respond to extreme weather events and natural disasters, therefore protecting the food security of vulnerable populations.

The objective is to assist member states to reduce the risk of loss and damage caused by extreme weather events and natural disasters affecting Africa’s populations by providing targeted responses to disasters in a more timely, cost-effective, objective and transparent manner.

2.How is ARC structured?

Ekhosuehi Iyahen: ARC is comprised of two entities, the ARC Agency, a treaty-based international organisation and specialised agency of the African Union, which provides technical and capacity building services to its member states, and the ARC Insurance Company Limited, which is its financial affiliate established to provide insurance to participating sovereigns. ARC Ltd is a mutual insurance company owned by its members. While it is not motivated by profit, the company operates according to solvency standards. Net gains are reinvested back into the pool to grow the reserves for future years.

3.What role has the private sector played in the formation of ARC?

Ekhosuehi Iyahen: As an example, ARC Ltd retained Willis Group for reinsurance brokerage services following a competitive tender process. Willis placed a reinsurance portfolio ($55 million in excess of $15 million retention) for the company in 2014 – 2015 in its first year of operation. The reinsurance programme met with strong interest in the markets, with 11 major global reinsurance markets and Africa participating in the company reinsurance programme. For the 2015 – 2016 pool, these numbers again increased thereby demonstrating an ever increasing appetite of the market/private sector for the risk that ARC is bringing to the table. 

Important to also mention that in September 2014, the Willis Group won the Reinsurance Transaction of the Year award at the Insurance Insider Honours for its work in designing and placing the reinsurance for ARC. The Insurance Insider Honours recognise outstanding achievements in broking, underwriting and claims.

4.Potential members must complete contingency planning to participate. What does this involve?

Ekhosuehi Iyahen: The process requires countries to identify the optimal use of funds from an ARC pay-out given the existing national risk-management structures and the needs of potential beneficiaries. Operations plans must be government-driven and based on in-country priorities for risk management in the context of food security. Contingency planning refers to both the operations plan and a final implementation plan that would be submitted by the national government shortly before an imminent pay-out, and would include detailed information on how the ARC pay-out would be deployed given the specific situation. These plans are developed collaboratively between national governments, in-country partners and, where needed, the ARC secretariat.

Based on a comprehensive study into the cost-saving benefits of early response, the ARC has developed contingency planning standards and guidelines that help countries to link early warning to livelihood-saving early response activities.

Member states must show that activities meet three sets of criteria:

  • Time sensitive and/or catalytic – ARC Insurance Company Ltd pay-outs must be used for time-sensitive activities that would not be possible without ‘first available funds’, ideally implemented within 120 days of an ARC pay-out, and/or activities that prompt or enable other activities to ensure faster and more effective action for the overall response.
  • Livelihood savings – ARC Insurance Company Ltd pay-outs should not be used for general investment activities, but instead should aim to protect livelihoods of beneficiaries who would be more negatively impacted if they need to wait to receive assistance.
  • Duration – Each activity that will be funded by an ARC Insurance Company Ltd pay-out should be completed within six months to ensure that financial resources are utilised in a timely and efficient manner. This will make sure that countries capitalise on the ‘first available funds’ principle of ARC.

5.What are the main risks to agricultural industries?

Ekhosuehi Iyahen: Africa is widely recognised to be the region most vulnerable to weather risks. Weather-related disasters are already undermining record growth across the continent, threatening hard-won development gains and vulnerable populations. Increasing climate volatility will counteract investments being made by countries to mitigate, prepare for and manage current weather risks. The World Bank estimates an adaptation investment cost of $14-17 billion per year over the period 2010-50 for sub-Saharan countries is needed to adapt to an approximately 2°C warmer climate forecast for 2050. Climate change is particularly threatening to the future of African agriculture, which impacts global food security and the economic livelihoods of hundreds of millions of Africans.

6.What methods and technologies does the ARC utilise to map risk and impact across Africa?

Ekhosuehi Iyahen: The technical engine of ARC is a software product called Africa RiskView, which uses rainfall data to estimate the number of people affected by a drought event during a rainfall season and then the dollar amount necessary to respond to the affected people in a timely manner. Through the agency’s capacity-building programme, countries are able to model their historical drought response costs and select rainfall-based triggers to determine when they would receive a pay-out in the future, if they take out an insurance policy. We are working to add cyclone and flood risk to the model with these likely to be ready by 2017 and 2018 respectively.

7.How does the organisation assist member states in boosting preparedness for extreme weather events and natural disasters?

Ekhosuehi Iyahen: ARC helps its member states to manage risk, instead of the traditional way of managing disasters only after they strike. Member states receive risk-transfer training and other capacity-building services to ensure that operations plans are ready and approved by a technical working group and a peer review committee, prior to a disaster striking. This way, countries are ready and prepared for a disaster before it strikes, ensuring that early intervention activities can be rolled out right away.

8.In just three years of existence, ARC has made pay-outs totalling over US $34 million in drought insurance claims. What plans do you have to launch other types of cover and products in the future?

Ekhosuehi Iyahen: In addition to drought insurance, ARC is expanding to offer both tropical cyclone and flood insurance, which will be made available to member states in 2017 and 2018 respectively. ARC is also looking to launch what we refer to as Replica coverage in 2018.

Through Replica Coverage, UN Agencies and other humanitarian actors can leverage ARC’s country-built risk management architecture to scale up coverage and boost timely response capacity through purchasing Replica Coverage from ARC Ltd.

The goal is to extend the same coverage purchased by African Governments to these organisations in order to boost insurance coverage on the continent and to drive collaboration on contingency planning and response. This is timely for the humanitarian community which is also itself faced with serious financing constraints given global demand.

9.In 2015, ARC launched the research and development phase of its Extreme Climate Facility (XCF). How would you describe the structure and purpose of the facility?

Ekhosuehi Iyahen: The Extreme Climate Facility (XCF), which is still in the research and development phase, is designed to help ARC member states adapt to an increasingly volatile climate. The XCF will be a data-driven, multi-year vehicle that will provide financial support to eligible African countries to help them build climate resilience and be financially prepared to undertake greater adaptation measures, should extreme weather event frequency and intensity increase in their region. The XCF will be an African-led initiative that is designed to access private capital, diversifying the sources and increasing the amount of international funding available for climate adaptation in Africa.

ARC provides an ideal platform from which to develop and operationalise such a new facility. The XCF will use both public and private funds and facilitate direct access to climate adaptation finance for eligible African governments based on the demonstrated need for enhanced adaptation measures. Its financial obligations to African countries will be securitised and issued as a series of climate change catastrophe bonds. Once established, the bonds will provide additional climate change adaptation financing to participating AU countries, in the event that weather shocks, such as extreme heat, droughts, floods or cyclones increase in occurrence and intensity. The bonds will be financed by capital provided through private investors, with donors supporting the annual bond coupon payments. XCF will be structured so as to issue more than $1 billion in African climate change bonds over the next 30 years.

10.In February 2015, it was also announced that ARC would be developing insurance for disease outbreaks and epidemics. How is this initiative progressing?

Ekhosuehi Iyahen: The outbreak and epidemic (O&E) insurance product is currently also in the research and development phase, with a goal of insuring its first member states in 2018. While the basics of O&E are similar to ARC’s drought insurance, ARC will need to build a new parametric model for O&E to underpin the insurance contracts and work with countries to define the appropriate contingency plans for responding and hopefully containing an epidemic. The most challenging part will be building the underlying parametric model – this has never been done in Africa at the national level before. A lot of work is currently being undertaken in partnership with other African institutions such as the African Union Centre for Disease Control to think through some of these issues. Some interesting results are emerging. 

11.How do you see the activities of ARC developing over the next five years?

Ekhosuehi Iyahen: One main focus will be on portfolio growth and adding new weather risks to ARC’s coverage options. In May 2014, ARC Ltd issued drought insurance policies totalling $129 million for a total premium cost of $17 million to a first group of African governments for five rainfall seasons – Kenya, Mauritania, Niger and Senegal – marking the launch of the inaugural ARC pool. This number increased for the 2015 – 2016 pool and we are seeing increasing demand from our countries. We have a target of up to 20 countries receiving coverage for drought, flood and cyclones totalling more than $600 million in the next five years.

However, in step with portfolio growth, ARC’s core focus will be on improving the national-level contingency planning and learning from each insurance pool and the implementation of pay-outs when they occur. At the end of the day, while timely funds are critical, ARC’s insurance instrument will only be as valuable as a county’s ability to convert an early pay-out into a rapid and effective response to those affected. For ARC to deliver on its promise to strengthen national capacities to manage and reduce risk defining the best practices for more effective and coordinated early interventions will be key and critical to building a more disaster-resilient Africa.

12.The premium cost is often a challenge for poor states. What are some of the challenges that governments face?

Ekhosuehi Iyahen: Despite the recognition of the value of the insurance offered by ARC there are real challenges we face in growing the pool. These include:

Fiscal Constraints – Premium payment is often not prioritised by governments who are facing, in some instances, unprecedented fiscal constraints. As a result of this, although there is recognition of the value of ARC insurance, governments have to make difficult trade-offs and are often unable to pay their premiums given other pressing needs. This means that in some instances although the demand exists, there is a challenge in actually capitalizing on what ARC offers. We are however working to address this issue.

Payment Fatigue – A sense of fatigue for countries to pay premium from their own resources when they have not received pay-outs in prior years is increasingly a concern. This speaks to the need to continue to work on the development of a culture and associated disciple required for efficient risk management. It is an issue which is exacerbated by the moral hazard that can sometimes be presented by the traditional humanitarian response system.

Political Instability – Civil unrest often leads to inaction and changes in government. For ARC, this results in a loss of momentum and a need to repeat key activities that would lead countries to an improved risk management system including financing through ARC insurance. In addition, elections have often disrupted the normal decision-making processes in government and can be a major challenge.

Shifting Priorities – ARC’s programme creates consensus around the importance of index-based weather insurance and the need for better disaster risk financing mechanisms. Consensus is built through working with policymakers and technicians. However, a change in decision makers results in policy changes and a shift in government priorities. A potential shift in a sovereign’s approach to building disaster resilience can reduce appetite for ARC products.

13.Is ARC considering making the premium more affordable?

Ekhosuehi Iyahen: Despite the challenges that I have mentioned above, ARC is taking concrete steps to support its members and address these issues. We have set out to reach 150 million people through $1.5bn in insurance coverage by 2020 by focusing on four key resource-dependent areas as follows:

Premium financing for Member States:  Premium financing over a limited period for those countries that have operational capacity to use a pay-out but lack funding to pay premium will sustain pool growth in the early years and can be tied to commitments on embedding risk management in sovereign systems in the medium term. We are also considering premium financing potentially over the longer term, to allow high-risk countries with low resilience and/or highly limited fiscal space to join ARC.

Currently, no countries in the ARC pool are supported through external resources in their payment of ARC premium. Risk pools in other regions have received premium financing to ensure the engagement of those countries as premium is built in to the natural budgeting processes. There is a need to work with African governments through such a process to ensure that disaster risk financing is mainstreamed into government processes. We have been actively working on such a partnership with the African Development Bank (AFDB) on this issue and recently signed a memorandum of understanding with the ADB and ADF towards getting to this point.

I have also mentioned our effort to keep innovating and developing new products. ARC has also been actively working to ensure that the cost of the products offered to members is kept to an absolute minimum. This has been central in guiding our work to date with ARC products being several magnitudes cheaper than if countries were to approach the market independently for similar products.

Investment in ARC for staffing and to drive pool growth:  In order to meet the targets identified, there is a need to scale up the activities of ARC to meet the demands of growing the pool to the identified target of 30 countries by 2020. One of the critical lessons we have learned from the implementation of ARC is that demand must also be actively cultivated alongside the development and provision of appropriate and relevant products. This does not happen automatically or overnight. It requires investment that is built on working with governments to meet their needs.

I have also shared information on the new products being offered by ARC such flood and tropical cyclone and replica coverage as well as Licensing for Development (L4D). The goal is to ensure that we have products which are responsive to the needs of our members and to find innovative ways to keep premium cost as low as possible.

14.What can be learned from the first two years of using the insurance?

Ekhosuehi Iyahen: There have been a lot of lessons learned from the implementation of ARC since its inception in 2012 as a Specialised Agency of the African Union, through to the launch of the ARC insurance Company Limited in 2014 and the 4 pay-outs to date.

My earlier response spoke to the challenges we have encountered in growing the pool but there are many lessons learned in other aspects of our work. In terms of the pay-outs, ARC has made pay-outs of US $34.4 million to 4 affected countries as a result of drought (Senegal, Niger, Mauritania and Malawi) in just 3 years. These pay-outs have gone towards assisting over 2.1 million people and 600,000 livestock. Activities implemented included targeted food distribution, subsidized cattle feed, conditional cash transfer and food procurement. 

Important to note is that for all of our pay-outs, despite delays in some instances, overall, the countries managed to implement response activities and ensure beneficiaries received assistance in a timely manner, when compared to the status quo. This meant that the impacts of these drought events on beneficiaries were significantly reduced.

We also observed better coordination of response in the countries which received a pay-out with these governments being empowered to take a leadership position in defining the response process. This is in stark contrast to the usual scenario, where international partners often lead. This is of course an important lesson for us as an institution and one which is central to the change we want to see in our countries.

Another lesson which can perhaps be seen as more administrative was the recognition that transfer of off-budget funds is procedurally extremely difficult. Recognising this constraint with our member states has however allowed us to develop alternative mechanisms to assist our governments in ensuring the smooth flow of funds to identified implementing agencies to support faster response to disasters when they occur. This effort to understand the constraints faced by our governments and a willingness to develop solutions will be useful in ensuring that going forward any delays from the pay-out to the implementation phase are reduced to a minimum.

After all, one thing which is clear is that as an institution we need to continue to exhibit flexibility and efficiency in our engagement with our countries. We also need to ensure that innovation through continuous research and development stays at the heart of our work and that we respond to the actual needs of our countries. This will be reflected in the improvements we will make to Africa RiskView model as part of its ongoing iteration and working with our countries to improve their actual response implementation capacities through our contingency planning efforts. This also means working with various partners, who are equally engaged in this space to support the efforts of our member states.

15.What role should InsuResilience play in the future?

Ekhosuehi Iyahen: InsuResilience has a tremendous role to play going forward. This role involves not only maintaining the momentum and advocacy around the role of insurance in supporting resilience, but also actually supporting the scale up of mechanisms such as ARC, to ensure that the most vulnerable are indeed protected.

Coming out of COP 22 in Morocco and with Germany at the helm of the G20 this year, it is clear that there is the political will to move this forward, but we must all be proactive about ensuring that it delivers.  

[The interview is based on an interview conducted in July 2015 by the G7 Research Group and G20 Research Group. It was updated and expanded in March 2017 to reflect most recent developments.]

 

Ekhosuehi Iyahen is the Director of the Policy & Technical Services Department at African Risk Capacity. She has more than 10 years of diverse experience in disaster risk management and financing, reinsurance, risk modelling and climate change adaption and mitigation. @ARCapacity

 

ArticleClimate Diplomacy
Topic
Adaptation & Resilience
Climate Change
Early Warning & Risk Analysis

Region
Sub-Saharan Africa

Topics

Adaptation & Resilience

All countries will need to adapt to some of the environmental, social and economic impacts of climate change that are already unavoidable. Food security, livelihoods, water resource availability and public health are some affected areas. People living in poverty are more vulnerable, having a lower capacity to adapt. Thus, it is essential to promote resilience building. The adaptation and resilience aspects need to be mainstreamed into planning by policy makers and the private sector as well as integrated into development strategies.

Biodiversity & Livelihoods

Nature protection is most sustainable if it essentially contributes to the long-term stability of human needs. Today many regions around the world are confronted with increasing destruction of the natural foundations of life. The consequences of wide-ranging resource destruction are no longer regionally limited, but rather represent a global threat. Those affected are mainly rural populations, who find the sources of their income and the foundations of their way of life swept away. The depletion and destruction of natural resources goes hand in hand with decreasing agricultural yields and increasing poverty, which in turn forces the affected populations to deplete the remaining resources.

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Capacity Building

On the one hand, conflicts are caused by structural factors, such as economic and social inequality or environmental destruction. On the other hand, conflicts are fuelled by a lack of democratic structures, deficient mechanisms of non-violent conflict settlement, inadequate rule of law, the destruction of social and cultural identity and the disregard of human rights. Against this backdrop, development policies have been dedicated to a broad concept of security, which comprises political, economic, ecological and social stability. As a consequence, development cooperation agencies and actors have developed a broad spectrum of approaches for conflict prevention and transformation as well as for sustainable use of natural resources.

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Cities

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Civil Society

Civil society is the first victim of environmental pollution, under-development and conflicts. Economically disadvantaged and politically marginalized population groups are particularly affected by violent conflicts as well as increasing resource degradation. Simultaneously, civil society is a fundamental pillar for implementing sustainable development. It contributes in many ways to strengthening conflict prevention and plays a significant role in the peaceful and democratic development of states. It must be supported to strengthen civil rights, adherence to human rights in general and democratic participation.

Climate Change

Climate change resulting from the emission of greenhouse gases represents one of the vital challenges for international environmental policy. Flooding, droughts, shifting of climate zones and increasingly frequent and intense extreme weather events will have serious economic and social consequences for entire regions. The climate problem is also directly linked to the question of future energy generation.

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Climate Diplomacy

To address the challenges posed by climate change, a new profile of climate diplomacy is evolving. This utilises a full range of policies, including development cooperation, conflict prevention efforts, and humanitarian assistance, in addition to more traditional measures of climate change adaptation and mitigation. Moving from a risk analysis of climate-related threats to well-timed preventive action requires a greater commitment to integrating climate change concerns into development, foreign, and security policies. Examples include strengthening diplomatic networks, building new alliances with partners, and raising awareness – not only of potentially negative climate change impacts, but also of opportunities to embark on a sustainable transformation of our societies.

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Co-Benefits

Climate action entails an array of economic, social, political and environmental co-benefits. It provides an opportunity for economic growth and new jobs. Many investments can take into account climate considerations without becoming more costly. Further important co-benefits include: improved energy security, less local air and water pollution, health benefits as well as ecosystem and biodiversity protection.

Conflict Transformation

In order to overcome the structural causes of violent conflicts and thus bring about an improvement in the framework conditions for peaceful and fair development, it is essential to have long term and broadly planned peace development and peace advancement. Various governmental and non-governmental, national and international actors and groups are involved in these processes.

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Development

Climate change and development are inextricably linked. Climate change endangers the development agenda and has the potential to reverse development goals. Furthermore, successful mitigation of climate change heavily depends on development choices around the world. Therefore, development strategies need to be climate-compatible to provide long-term success, and there are viable policy options that support this compatibility. Many mitigation and adaptation activities can present development opportunities to developing countries and avoid the lock-in to environmentally damaging technologies.

Early Warning & Risk Analysis

The reasons for the development and escalation of conflicts and the incidence of risks are multifaceted and complex. Simultaneously, the assessment of the specific causes in the form of risk and conflict analyses can contribute to a better understanding of these processes and make it possible to provide warning of negative developments, or ideally help prevent them. In the context of natural resource use, risks and conflicts have gained increasing attention in the past years. The debate on possible future water wars is merely one example.

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Energy

The well-being of individuals, communities and nations depends on the availability of energy resources. The gap between energy supply and demand appears to be growing, making the world vulnerable to serious economic shocks. At the same time, the burning of fossil fuels causing climate change is one of the vital challenges of international environmental policy. So far, only rudimentary approaches exist for shaping climate and energy security in a sustainable way. The components of a strategy that can contribute to reducing vulnerabilities related to climate change and energy policy include a greater role for renewable energies, the improvement of energy efficiency and a stronger decentralisation of energy supply.

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Environment & Migration

The economic, social and environmental consequences of climate change aggravate the breakdown of eco-system-dependent livelihoods and are likely to become dominant drivers of long-term migration. Natural disasters already cause massive shorter-term displacement and the number of temporarily displaced people is likely to further increase with climate change. For vulnerable populations in vulnerable regions, such as the Sahel zone or the Ganges delta, migration often becomes the sole survival strategy. In order to address climate-related displacement and migration successfully, knowledge of effective adaptation and an improved understanding of how environmental change affects human mobility is essential. 

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Finance

Climate finance, from all sources, plays a key role in supporting and enabling adaptation and mitigation action as well as climate and energy innovation. The Paris Agreement ensured that the Green Climate Fund and the Global Environment Facility are at the core of climate finance architecture as entities entrusted with the operation of the Financial Mechanism of the UNFCCC. Increasing climate finance from all relevant public and private sources is crucial. Furthermore, much needs to be done to redirect finance flows to sustainable paths, e.g. reducing fossil fuel subsidies, introducing maritime and air transportation taxes. The conditions for green investment in developing countries should also be improved.

Forests

Forests are disappearing at an alarming rate. Competition for forest resources triggers, exacerbates, or finances numerous crises and conflicts in tropical developing countries. Illegal logging and timber trade foster instability and sometimes violent conflict by strengthening illegal and armed groups, increasing corruption and exacerbating use and claim conflicts among local communities, the state and the business sector. Forests are a vital resource to poor people but they can also become areas of conflict. Sustainable management of forest resources is therefore key to preventing violent conflict over and within forests.

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Gender

Gender plays an important role as a category of conflict for many reasons. The interlinkages between gender, environment and conflicts are complex and much research is still needed. Existing insights suggest that conflicts may worsen gender inequalities that existed before the outbreak of violence. The unequal distribution of land property rights in many parts of the world serves as an example. Moreover, women (and children) are among those most affected by both violent conflict and natural disasters. At the same time, women carry much of the burden of trying to implement rehabilitation measures after crisis events.

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Land & Food

Increasing water scarcity, desertification and crop failures due to extreme weather events are becoming more and more of a threat to global food production. While the world’s population continues to grow rapidly, food production is unable to keep pace. Due to the global food crisis in 2008, the number of hungry people reached the symbolic one billion threshold for the first time – corresponding to about 16 percent of world population. Food insecurity may be a consequence or cause of conflicts. Violent conflicts often lead to the destruction of agricultural infrastructure and means of production, as well as to the displacement of local communities.

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Minerals & Mining

In the past, the discovery and tapping of valuable or strategic resources like valuable minerals, oil and natural gas, particularly in developing and emerging countries, has often led to large scale environmental contamination and negative development. The "resource curse" of some countries shows that the wealth from resource yields is frequently unfairly distributed; instead of serving development it advanced the formation of corrupt elites and in some cases even led to conflicts and civil wars. Measures in various sectors and at all levels are important in order to use the potential of these natural resources in a manner that is sustainable and prevents conflicts.

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Private Sector

The spread of violent conflict not only affects people but also companies located in such regions. Destruction of investments and infrastructure, collapse of markets and trade partnerships, flight and expulsion of employees are phenomena of conflicts and environment-induced crises that directly affect companies in unstable regions. Almost all branches of the economy thus have a clear interest in a stable and peaceful environment for their activities. Conversely, the business sector plays an important role in the interaction of economic growth, social development and a healthy environment, all of which can advance peace and sustainable development. 

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Security

Environmental issues have a significant security dimension. Access to, and overuse of, natural resources often play a key role in civil wars or other forms of internal domestic conflict. This is compounded by climate change and environmental degradation. Climate change is now widely recognised as a non-traditional, risk-multiplying threat that will have increasing security impacts. Key risks with possible implications for human and national security include water scarcity, food crises, natural disasters, and displacement. More preventive diplomacy and advocacy is needed to address the strategic implications of climate and environmental change.

Sustainable Transformation

Sustainable Transformation allows societies to profit from a growing, environmentally sustainable and socially inclusive economy – especially in emerging and developing countries. This requires a higher up-front investment, but the benefits of a sustainable transformation in the medium and long term are significant. For instance, energy cost savings and reducing the impact of price volatility offer major incentives for deploying renewable energies and promoting energy efficiency. Such benefits exist in all key sectors of the economy.

Technology & Innovation

Innovations and technologies are already readily available and affordable but their global diffusion and uptake remains a challenge. Innovation and technology are crucial to achieving ambitious climate change mitigation and adaptation targets. However, research and development often do not receive appropriate public support. Developing countries can leapfrog high-carbon industrialisation phases by adopting, deploying and improving existing innovations and technologies. For this, it is essential to minimise financial, administrative and political barriers.

Water

The availability of freshwater resources in sufficient quantity and quality is essential for the preservation of human health and sound ecosystems. The use of water resources is also vital, however, for economic development: whether for agriculture, industrial production or for electricity generation. The world's freshwater resources are distributed very unevenly in terms of geography and seasons. In addition, water shortage is becoming more prevalent in several regions due to population growth, economic development, urbanisation and increasing environmental pollution. Thus, water resources can hold potential for conflicts between parties who have different interests and needs.

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Regions

Asia

The environment in Asia is already under tremendous pressure as a result of the unsustainable use of land, forests, water and even air in many regions. Climate change will only exacerbate these challenges. Rising sea levels will likely endanger densely populated areas, changes in the monsoon patterns can strongly impact agriculture, melting glaciers will increase long-term water scarcity, and extreme weather events such as heavy rainfall and cyclones can pose further hazards.

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Central America & Caribbean

Natural disasters and water scarcity are key challenges for most of Central America and the Caribbean. These challenges will become even more pronounced as the climate changes. Weak resource and disaster risk management and land disputes pose additional security challenges for large parts of the region. Several countries of Central America and the Caribbean have limited adaptive capacities as they face political instability caused by high social inequality, crime, corruption, and intra-state conflicts.

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Europe

As one of the most developed and most densely populated regions in the world, Europe makes heavy use of its resources, resulting in difficult trade-offs and negative consequences for the environment and ecosystems. Land is used for settlements, agriculture and dense infrastructure, creating problems of soil degradation. Water resources are stressed due to unsustainable agricultural practices. Despite nature protection policies, Europe continues to lose biodiversity at an alarming pace. Some of these trends are exacerbated by climate change, which is expected, for instance, to lead to shifts in water availability.

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Global Issues

Resource scarcities, environmental pollution and climate change are not limited by national borders, but often have a transboundary or even global impact. These issues interact with political stability, governance structures and economic performance, and can trigger or worsen disputes and violent conflicts. Exacerbating some of these trends, climate change is likely to lead to the degradation of freshwater resources, declines in food production, increases in storm and flood disasters and environmentally induced migration. All these developments pose potential for conflict.

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Middle East & North Africa

The geopolitical position of the Middle East and North Africa (MENA), its fossil fuel resources, high population growth and the political changes spurred by the Arab Spring all make the region one of the most dynamic in the world. Nevertheless, it is also one of the most arid and environmentally stressed. Dwindling water resources, limited arable and grazing land, high pollution from household and industrial waste, remnants of conflicts and increasing desertification are key environmental challenges.

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North America

Climate change has various impacts on the three North American countries of Canada, Mexico and the US. Canada and the US have well-developed adaptive capacities and foster the strengthening of capacities in other regions as well. With high per capita emissions, these two countries also bear a greater responsibility for a changing climate. Mexico has a sound national strategy for climate change adaptation, yet fewer capacities than Canada and the US. The poorer and rural populations of Mexico are especially vulnerable to climate change, due to an increased sensitivity and a lower adaptive capacity.

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Oceania & Pacific

In Oceania, population growth and economic development trends put a strain on oceanic and island ecosystems. Freshwater scarcity, overexploitation of fisheries, loss of land biodiversity, forests and trees, invasive species, soil degradation, increasing levels of settlement, poor management of solid and hazardous waste and disproportionate use of coastal areas are some of the problems. Climate change exacerbates most of these trends, while also raising questions about the future sovereignty of some island states.

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South America

South America has diverse and unique ecosystems and is very rich in biodiversity. Weak natural resource management, land disputes and extreme weather events bring about significant challenges for the region. While South America accounts for relatively few CO2 emissions, the changing climate will alter its ecosystems and greater climate variability will lead to more hurricanes, landslides, and droughts.

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Sub-Saharan Africa

In many African states, environmental security issues rank high on the political agenda. Throughout the continent, countries suffer from water scarcity, food insecurity and energy poverty. These chronic and worsening resource scarcities have severe livelihood implications and are exacerbated by political conflicts over access to and control over these resources. Climate change may seriously threaten political and economic stability in Africa. It may also put a severe strain on the capacities of states and societies to co-ordinate activities, to communicate and to organize.

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