A new climate insurance fund was launched at COP27 for nations affected by worsening disasters

(SHARM EL-SHEIKH, Egypt) — The Group of Seven leading economies launched a new insurance system on Monday to provide quick financial assistance as nations are hit by the devastating effects of climate change.

The so-called Global Shield is backed by the V20, an alliance of climate-vulnerable nations chaired by Ghana, and the G-7 chaired by Germany. The scheme is designed to start with climate-related disaster relief in vulnerable nations. But critics say it does not capture the slower effects of climate change, such as rising seas or the slow loss of arable land, nor does it account for historical damage.

Under the newly created shield, countries will receive more than $200 million in funding, mostly from Germany. Initial recipients include Bangladesh, Costa Rica, Fiji, Ghana, Pakistan, the Philippines and Senegal. Over the past 20 years, the V20 nations are estimated to have lost $525 billion in their GDP due to climate change-related events, according to a report published by the group.

Ghana’s finance minister and V20 chairman Ken Ofori-Atta called it a “groundbreaking effort” that will help protect communities when lives and livelihoods are lost.

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Civil society groups and aid agencies have also warned that the insurance scheme should not be used to distract from much wider efforts to make big polluters pay for the loss and damage they have caused with their greenhouse gases. Vulnerable countries have long called for compensation for climate-related damage, with estimates of financial damages far exceeding the amounts available through the Global Shield.

“We need a solution on the scale of the losses and that means going beyond subsidized insurance,” said Rachel Simon of the environmental group Climate Action Network Europe.

She said that new funds should also be created under the supervision of UN Climate Talks, and not from the side to ensure adequate international oversight. Simon added that financing the loss and damage should be in the form of grants, not debt, which drives poor and developing nations into debt distress.

Speaking from the G7, German Development Minister Svenja Schulze said the shield was not a ploy to avoid more comprehensive funding for vulnerable nations, which remains a key issue in ongoing negotiations.

“Those most affected need action now,” Schulze said. “This is not the kind of tactic to avoid the loss and damage financing mechanism during negotiations.”

Negotiators released the first draft of a landmark settlement on the loss and damage issue on Monday.

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The draft contains two options that reflect the divide between rich and poor nations. Vulnerable countries are proposing that such a fund be “triggered no later than” November 2024, while wealthier countries say funding should come from a wide range of initiatives.

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Frank Jordans in Sharm el-Sheikh, Egypt, and Sibi Arasu in Bengaluru, India, contributed to this report.

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