A Roadmap for Managing Disasters: How Climate-Vulnerable Countries Can Finance Tech

Technology Policy Net Zero

A Roadmap for Managing Disasters: How Climate-Vulnerable Countries Can Finance Tech

Paper
Posted on: 24th January 2022
By Multiple Authors
Vineeth Murthy
Policy Lead, Tech for Development Policy Unit
Judith Mwaya
Policy Analyst, Tech for Development Policy Unit

    Our Time to Zero In series makes the case for an inclusive transition to net zero that focuses on people, fairness, technology, markets and communities.

    Executive Summary

    Executive Summary

    Climate crises threaten to displace 1.2 billion people by 2050, with the cost of adapting to these new threats estimated to reach the range of $280 billion to $500 billion per year. Vulnerable people and regions, including sub-Saharan Africa will be disproportionately impacted. Yet climate-vulnerable countries have received minimal funding for adaptation to date. Early-warning and early-action systems have an essential role to play in enabling effective disaster-preparedness and response efforts. As we outlined in the opening paper of our series on climate disasters and tech, tech-enabled solutions could potentially help to prevent $66 billion in loss and damage annually.

    Following on from papers in the series that have laid out how to use and access tech in response to climate disasters, this concluding part examines the barriers facing countries in mobilising finance and capital for early warning and early action.

    While the economic and social benefits of investing in early-warning and climate-information systems are clear, climate-vulnerable nations do not invest sufficiently in tech-driven, disaster-risk management (DRM). Much of the investment to date has been concentrated in international organisations, with limited resources channelled to governments. This is a result of three main challenges: 1) low prioritisation of tech-based solutions generally, exacerbated by limited awareness of the solutions and related financing mechanisms, which hinders the ability of governments to access financing; 2) the complex landscape of financing sources, which imposes a burden on capacity-constrained governments in low- and lower-middle-income countries (LMICs), impeding their ability to mobilise finance; and 3) a limited understanding and use of relevant information among policymakers to inform disaster-risk financing strategies.

    To address these challenges, this paper recommends that governments adopt the following two approaches:

    1. Establish a government body to strengthen central governance for DRM. Strong central governance is required to reduce fragmentation, redundancies and inefficiencies by enabling stakeholders to coordinate activities and by allowing government to integrate DRM into a country’s relevant national systems. Improved coordination enables better strategic and budgetary planning, including between ministries of finance, technology and climate, as well as buy-in from across government on financing triggers and long-term investments.
    2. Adopt a robust and data-driven case for investment. Clear requirements and coherent advocacy, underpinned by the use of data to improve risk assessment, are fundamental to unlocking more financing for tech-led DRM. Governments should leverage regional and international resources in the short term to support risk information and analysis, while investing in internal data-processing expertise to enable the development of more robust and context-specific financial-risk instruments and strategies.

    Both these approaches should be complemented by international and regional climate-financing facilities adopting a tech-first approach by integrating tech-led solutions into their requirement guidelines for the application of funds. Requirements should also incentivise the provision of long-term operational financing for technological solutions, covering operations and maintenance, coupled with the necessary human resources.

    Finally, donors and international organisations should ensure that tech-led approaches to DRM are integrated into their funding contributions.

    Mobilising the Finance: Benefits and Barriers

    Mobilising the Finance: Benefits and Barriers

    Investing in technologies that support accurate, timely and robust early warning for climate disasters can yield tremendous economic benefits. For example, a 24-hour advance warning of a climate disaster can reduce anticipated damage to a country’s assets and infrastructure by 30 per cent. Effective early warning has the potential to benefit the wider economy, in particular the labour-intensive agriculture sector that is highly sensitive to climate disasters and supports 525 million people living in extreme poverty. In addition to the direct financial benefits of effective disaster management, projected at $66 billion in avoided losses overall, the value-added socioeconomic benefit to the agriculture sector specifically is estimated to be $33 billion per year. Investing in the technology that underpins early warning and early action can support governments in the provision of other services, too. For example, communication satellites can help bring access to education and medical expertise to remote communities, while predictive analytics can be leveraged to strengthen supply-chain operations and financial management.

    Figure 1 – Quantifying the socioeconomic benefits (both value added and avoided losses) of early-warning weather prediction to different sectors; disaster management represents avoided losses

    Source: Alliance for Hydromet Development

    Despite the economic and social benefits of technological advances made during the past decade, countries are massively underinvesting in technologies that support disaster-risk management (DRM). Much of the existing investment is concentrated in international organisations, with limited resources channelled directly to governments. While many governments in low- and lower-middle-income countries (LMICs) aspire to leverage technology as part of their national climate plans, tech-enabled disaster management remains underfunded.

    These are the three main barriers preventing climate-vulnerable nations, especially LMICS, from mobilising the finance: 1) low priority for technology-based solutions, both nationally and internationally; 2) coordination challenges that hinder the mobilisation of finance; and 3) limited understanding of the information needed for disaster-risk financing strategies.

    Barrier: Low Priority for Tech-Based Solutions

    Limited awareness of technology solutions and financing mechanisms hinders the ability of governments to access financing. This includes how much finance is available and through which channels, the types of technologies to invest in and how to access different financing resources. The global financing landscape is complex (Figure 3) and difficult to navigate. As the technology is evolving rapidly, it can also be challenging for policymakers to keep abreast and determine where they should prioritise their investments. The first paper in our series presented a series of tools to help governments understand the technology available.

    Figure 2 – Breakdown of multilateral climate financing, including negligible funding for tech-based disaster preparedness as highlighted in red

    Source: Climate Funds Update (Note: REDD means "reducing emissions from deforestation and forest degradation")

    National and international policymakers do not prioritise tech-led disaster preparedness in national budgets and international finance. Since 2015, the proportion of multilateral climate-finance grants that went towards tech-enabled disaster-preparedness projects amounted to just 2.7 per cent (Figure 2), compared to other areas of adaptation (31.7 per cent). National funding for hydrometeorological (hydromet) departments tends to be lower than their actual annual operation and maintenance costs. On average, hydromet departments are allocated just 0.03 per cent of national budgets. Policymakers in West Africa have identified that there is a general lack of political buy-in for early warning and early action, posing a major barrier to the region’s overall efforts to invest in and strengthen disaster-risk-management efforts. Consequently, countries have limited tools, knowledge and technical capacity to adequately prepare for and respond to climate-linked disasters.

    Barrier: Coordination Challenges

    A complex financing landscape, with multiple sources, imposes a burden on already capacity-constrained governments in LMICs, impeding their ability to mobilise finance. There are several relevant financing sources, including climate finance, multilateral development finance and humanitarian funding. These sources comprise a variety of disaster-risk financing mechanisms, such as loans and loan guarantees, micro-credit and impact bonds, risk-retention instruments including reserve funds and contingencies, and risk-transfer vehicles such as micro-insurance, risk pools and catastrophe bonds (Figure 3).

    There are at least 29 agencies, and 23 multilateral and 16 bilateral instruments providing grants and implementing climate-finance projects from which financing for disaster-risk management can be drawn. Each fund has a different objective and requirement, applications are lengthy and require technical expertise, and there is no mechanism to coordinate funding between various institutions and mechanisms. This is challenging for capacity-constrained governments in low-income countries, especially when it comes to understanding the external and internal nuances of the disaster-risk-management financing landscape. In turn, this limits governments' ability to apply for and mobilise capital for technologies that enable faster and more accurate early warning and early action.

    Figure 3 – There are multiple disaster-risk financing instruments that range from risk reduction to retention and transfer

    Source: TBI

    Figure 4 – The complexity of the financing landscape is highlighted here by the sectors, channels and ministries involved

    Source: TBI

    Underdeveloped economic structures in LMICs pose barriers to private investment. Private investors and technology companies are crucial to innovation and the deployment of technology in disaster preparedness and response. Barriers to private-sector participation, especially in LMICs, include weak regulatory environments, non-conducive political environments and insufficient economic incentives.

    Internal coordination challenges within government hinder a clear assessment of financing needs. Lack of coordination between departments limits the ability of governments in LMICs to navigate the complex financing landscape, understand requirements and mobilise finance. While environment ministries tend to be primarily responsible for implementing climate policies and representing governments in international platforms such as the United Nations Climate Change Conference of the Parties (COPs), they have limited influence and capacity to lead and coordinate finance-mobilisation efforts. That role usually sits within ministries of finance or planning, which allocate budgets and formulate national plans. Meanwhile, disaster-response roles typically reside in National Disaster Management Authorities (NDMAs). Each of these plays an important role in providing a comprehensive, integrated and robust approach to disaster-risk management but effective coordination between all the relevant intergovernmental stakeholders is crucial for effective finance mobilisation.

    Coordination is also complex when dealing with external bodies. Many governments in climate-vulnerable countries do not have the required coordination mechanisms to engage with the complex network of stakeholders involved in external financing architecture, including the private sector. Specific challenges include lack of leadership mandate, information sharing and the organisational resources required for better coordination. These challenges hinder the ability of governments to navigate the external and internal nuances of the disaster-risk-management financing landscape, and limits their ability to mobilise capital for the technologies required.

    To address this issue, the Ministry of Finance in Ghana established a unit in 2010 to manage climate finances. Despite providing a dedicated resource, the unit failed to substantially increase financing because it did not have the backing from its political leadership to effectively coordinate and mobilise resources within government.

    Barrier: Limited Understanding of Disaster-Risk-Financing Strategies

    Risk information is crucial for governments and donors to develop sound risk assessments, helping to clarify finance needs and appropriate channels of income, as well as to identify vulnerabilities and quantify potential damage.

    Governments face short- and long-term challenges in producing and interpreting risk information as the basis for robust financial decision-making. Risk information, comprising data gathered via global, national and local climate and weather systems, underpins effective early warning and early action. Accurate risk information is crucial for governments and donors to determine appropriate financial instruments, cost potential damage and develop accurate tech-financing strategies. Inaccurate risk models, or incorrect or incomplete data, can cause delays or errors in understanding the likelihood and impact of disasters, and therefore in formulating appropriate financial strategies.

    Governments do not adequately engage with or utilise risk-information products and services. There are several open-source risk models, such as CAPRA and OpenQuake, as well as advisory services provided by international organisations and civil society. These give guidance on how financing instruments, such as forecast-based financing and parametric insurance – which does not indemnify full loss but guarantees pre-arranged payment upon a triggering event – can be leveraged by governments for DRM. However, as policymakers and industry experts have highlighted, governments typically do not leverage the existing risk information that is available. Limited government expertise on disaster-risk modelling, and interpreting and using risk information to inform decision-making, is a key factor in driving low demand for these services. Limited technical expertise and knowledge about how to tap into these products and services is further compounded by insufficient donor and civil-society engagement on the development of the necessary, related technical capabilities.

    Figure 5 – Accurate risk information underpins all financing for effective disaster preparedness and response

    Source: TBI

    Government capacity to handle data processing is low. With rapidly evolving technologies that collect larger and more complicated data sets, disaster-risk agencies need to be equipped to analyse, interpret and communicate risks to stakeholders. Data interoperability and legal frameworks that enable comprehensive data management across climate and financial sectors are critical to tech-led disaster-risk-management efforts. However, in many LMICs, critical input data for risk modelling is held in different formats, and by different departments and other non-government entities. Agencies across government need to be able to use advanced tools, such as big-data analytical techniques, and to process and interpret these data sets to inform their decision-making and develop related financial strategies. Yet many governments lack the technical expertise required. Climate-linked shocks are not bound by national borders so the lack of a legal and regulatory framework for regional data-sharing impedes critical regional projects, such as weather stations like the Trans-African Hydro-Meteorological Observatory.

    Recommendations

    Recommendations

    Locate DRM Within High Office and Establish an Inter-Ministerial Body

    Greater political support helps to increase both national and external financing. In a United Nations Office for Disaster Risk Reduction survey conducted among 16 countries, those in which the office of the president or vice-president directly supervised disaster-risk management (DRM) secured higher national budgetary allocation and sourced more climate financing from external sources. In this case, the national budget allocated to National Disaster Management Authorities (NDMAs) increased by seven times from 0.04 per cent of GDP to 0.28 per cent while external financing for climate change increased by 1.6 times from $65.9 million to $105.7 million. This shows that it is crucial for high-level offices to be directly engaged in DRM efforts, both to ensure a comprehensive cross-government response and to ensure adequate high-level buy-in.

    Elevate DRM to the highest levels by establishing a cross-government coordination body to lead on and champion this policy. Leaders in government must prioritise tech-enabled disaster preparedness in their national agendas by empowering an inter-ministerial coordination body, which should include sufficient technical expertise and capacity. The body should include representatives from relevant ministries such as finance, environment, technology and NDMAs (Figure 5) because climate disasters impact multiple economic sectors, and require careful coordination between both internal and external stakeholders. This body should formulate related policies and provide a platform for implementing DRM activities, with the mobilisation of financing for tech-centred approaches a core component. Another core function must be to align financing strategies across government to better tap into the global climate-financing system. This centralised approach can include four functions: 1) strategic planning; 2) policy coordination; 3) enabling political buy-in; and 4) developing partnerships.

    Figure 6 – Strengthening central governance with an inter-ministerial body that reports to the president or prime minister

     

    Source: TBI

    The inter-ministerial body should:

    • Lead strategic planning on the mobilisation of financing for tech solutions.
    • Align financial planning across government ministries, balancing the priorities of environment, finance and NDMAs, and conveying these requirements to both internal and external stakeholders.
    • Facilitate political buy-in by establishing pre-arranged and pre-negotiated contingency plans and triggers for the financing of early warning and early action. Predetermined action plans and triggers, including finance based on tech-enabled impact-based forecasting, are essential.
    • Champion tech solutions by cultivating partnerships between NDMAs or environment ministries with private-sector tech companies. The body should work with tech companies and other ministries to reduce the market barriers that currently stand in the way of private companies fostering innovation as well as enabling the adoption of existing solutions.

    Establish a Data-Driven Case For Investment

    Clear requirements and coherent advocacy are fundamental to unlocking more finance. Accurate disaster-risk assessments and financing plans lead to greater buy-in and funding for DRM activities from global financial institutions and private-sector tech companies. Comparing the costs of late response to the costs of investment in early warning and early action – often many times greater – can help make the case. Governments must formulate these assessments and strategies to attract national and international finance, and to help unlock larger investments for technologies.

    Governments must use data to improve risk assessments and financial-risk strategies. The latest big-data techniques and risk models underpin robust risk assessments (Figure 6) of potential climate-linked shocks. Data-processing technologies offer greater speed and accuracy in the processing of large and diverse data sets, helping to establish trends, patterns and correlations that give multidimensional analyses of hazards, exposure and vulnerability. These tech-driven data-analysis tools also enable risk assessment through the development of robust models that support a government’s ability to make decisions around risk reduction, retention and transfer, thereby enabling it to determine an effective financial response. For example, in the United States, tech companies use artificial intelligence and machine learning to model climate risks for specific buildings and areas over a period of 50 years. These techniques are utilised by insurance markets and financial-protection risk models in high-income countries. By leveraging such tools, governments in LMICs can transform themselves into disaster-prepared countries.

    Figure 7 – Framework to improve financial-risk strategies and secure greater investment

    Big-Data Techniques
    Speed & Accuracy

    These techniques and tools allow for the processing of huge sets of data at greater speed and with better accuracy.

    Different Data Types

    These tools process structured and (increasingly) unstructured data from a wide variety of sources including sensor data, images and social-network data.

    Data Interpretation

    These tools can be utilised to identify and analyse patterns, trends and correlations.

    Informed Risk Assessments
    Robust Risk Models

    Analysis of historical disasters to develop accurate risk models.

    Informed Decisions

    Provides accurate prediction of future events, and hence informs decisions of policymakers on risk-reduction investment, and risk-transfer and retention options.

    Crowd-In Financing

    This leads to comprehensive and timely assessment of disaster risks, which helps to crowd-in finance for tech-led disaster management.

    Risk-Informed Disaster-Management Agencies
    Short-Term Goals - Engagement with Markets
    National Disaster Strategy

    National disaster strategies should prioritise engagement with open-source risk models, and private and international organisation-led risk services.

    Develop Market Expertise

    Governments should look to develop market knowledge and tap into private-sector expertise.

    Private-Sector Engagement

    Through inter-ministerial committees, governments should actively seek to engage with the private sector.

    Long-Term Goals - In-House Expertise
    Capacity-Building Activities

    Governments can leverage existing capacity-building programmes offered by international organisations.

    Industry Partnerships

    Governments should look to develop partnerships with tech companies to allow for knowledge and skill transfer on data-analysis technologies.

    Source: TBI

    Governments should take the following measures to use data more effectively:

    • In the short term, make a clear case for investment based on data that compare the costs of early and late responses to disasters. NDMAs should engage with open-source risk models as well as private and international risk services. Governments in climate-vulnerable countries and LMICs should work directly with the private sector to close their data-processing and interpretative-capability gaps. At present, risk information and analyses are provided by international organisations such as the World Bank and African Development Bank, and civil-society and open-source tools managed by private-sector tech companies, such as CAPRA and OpenQuake. Disaster-risk agencies must develop partnerships with these organisations to obtain relevant risk information. By leveraging private-sector expertise, NDMAs will have access to accurate models and data, which can be communicated to other agencies, ministries and the international community, and used for more effective risk-informed financial decisions.
    • In the long term, governments should work towards developing in-house data-processing expertise to help with the continued development of financial-risk strategies, formulated using rapidly evolving big-data techniques and predictive analytics. Governments should focus on technical capacity-building efforts through engagement with industry, peer-learning with global networks of disaster-risk agencies, and transforming data analysis into an area of learning within their education systems.
    • In the long term, they should also leverage capacity-building programmes and initiatives offered by the international community, including the Global Facility for Disaster Reduction and Recovery’s Innovation Lab, which engages with governments to use disruptive technologies such as artificial intelligence for DRM. Other similar programmes include the Africa Disaster Risk Financing (offered by the African Development Bank), Climate Risk and Early Warning Systems (CREWS), and InsuResilience Global Partnership.
    • Finally, governments should foster partnerships with tech companies for knowledge and skills transfer. For example, through a partnership between the government of Seychelles and WeRobotics, 34 different government agencies and civil-society organisations received training in operating drones, and collecting and analysing geospatial information. Governments in LMICs would benefit from the private sector’s knowledge and skills in processing and interpreting big data, in particular. Through new peer learning and private-sector / government exchange programmes, governments gain greater understanding that helps to both inform the adoption of accurate models and data, and to strengthen their ability to use the results and communicate them to other agencies, ministries and the international community.

    Encourage the Adoption of a Tech-First Approach at International and Regional Level

    The international community should increase climate financing for tech-first early-warning and early-action solutions in line with ambitions for greater climate adaptation and resilience. As part of a sharper focus on climate resilience, DRM finance grew by 128 per cent from $2.9 billion in 2017 to $6.6 billion in 2018, yet tech-based disaster-preparedness projects account for only 2.7 percent of international climate finance. The transformational impact of investing in early warning and early action is well known, but policymakers should advocate strongly for an increased emphasis on investment in this area.

    Given the significant savings generated by tech-enabled disaster-management systems, the international community should prioritise investment in them. Financing facilities should incentivise countries to incorporate technology into applications for funding in tandem with support for any changes that will be required to existing processes or systems.

    Figure 8 – Integrating technology into existing climate-financing facilities at the regional and international levels

    Scope

    Cost-Effective Solutions in LMICs

    Governments, Donors, Investors, MDBs

    Disaster Prep & Response

     

    Technology

    Business Goals

    Leverage Economies of Scale

    Predictable and Long-Term Funding

    Long-Term Goal - Virtuous Cycle

    Increased financing

    Increased tech adoption

     

    Improved disaster management

    Macroeconomic stability

    Source: TBI

    To do this, the international community must support financing facilities in prioritising long-term investment in technologies. Policymakers have stressed the importance of reliable and long-term financing for the maintenance of tech-enabled early-warning systems and observation stations. This includes the CREWS innovative finance trust fund, which facilitates long-term investments in 3D technology to develop weather-station components at low cost in rural Afghanistan. While private-sector investments tend to focus on short-term returns, financing facilities can make longer-term commitments, allowing for the large-scale investments needed. Donors and international organisations that provide contributions to these financing facilities must therefore ensure that tech-led approaches are integrated into their funding commitments.

    Financing facilities should also leverage economies of scale. Investment in early-warning and climate-information products and services is a public good that governments in multiple countries would be able to utilise. Regional financing facilities, such as the IDB Regional Fund for Agricultural Technology, Africa Disaster Risk Financing initiative and Asian Development Bank’s Climate Change Fund, enable tech companies to reach out to larger markets across several regions. This incentivises the private sector because they can reach out to a wider pool of potential clientele. Greater demand also helps to drive down costs.

    Conclusion

    Technology can transform disaster management, saving lives and livelihoods, and reducing costs caused by damage and loss. Governments should mobilise financing through strong leadership, clearly agreed cross-government protocols, and a concerted plan driven by robust strategies to effectively tap into the climate-financing system. International partners should adopt a tech-first approach to climate financing, and work with tech companies and governments to achieve a tech-led transformational impact on disaster management.

    Acknowledgements

    Acknowledgements

    This paper benefited from the insights of the following experts in disaster-risk management and finance:

    • Donald Singue Tanko at the African Development Bank
    • Samantha Cook at the World Bank
    • Fergus McBean at the Foreign, Commonwealth and Development Office
    • Conor Meenan at the Centre for Disaster Protection
    • James Kivua at the East African Community Secretariat

    Lead Image: Getty Images

    Charts created with Highcharts unless otherwise credited.

    Find out more
    institute.global