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Experts: Need To Make Green Projects More Attractive

Experts: Need To Make Green Projects More Attractive
Participants of the workshop on Sustainable Finance Initiatives at the Holiday Inn on f September 1, 2017. Photo: Monica Aguilar
September 09
11:00 2017

 

Climate change has become a hot topic of discussion in the global arena especially in our shores.

Last week Friday, more than fifty executives from national, regional and international banks converged at the Suva Holiday Inn to attend the Workshop on Sustainable Fi­nance Initiatives, organised by the Reserve Bank of Fiji.

The focus of the workshop was to develop the foundations of Fiji’s roadmap to a sustainable financial system.

Disaster Risk Insurance:

The effects of climate change is becoming more and more intense nowadays, affecting everyone, eve­rywhere in different ways.

It has come to the extent where Governments and agencies are forced to step in.

For us in the Pacific, there has been a lot of activity happening in the insurance and risk manage­ment issues, according to Interna­tional Finance Corporation (IFC) senior disaster risk insurance ex­pert Vijay Kalavakonda.

However, in terms of sovereigns, there is significant risk and loss­es incurred by the homeowners, farmers, private sectors and small and medium-sized enterprises (SMEs).

During the Tropical Cyclone Win­ston in 2016, there was a reported loss of US$0.9 billion (FJ$1.81bn).

How is the risk being mitigated?

Currently we have default solu­tions following any major disasters such as Government providing as­sistance or funds released from the Fiji National Provident Fund.

As for IFC, a management sup­port solution has been put in place whereby solutions are focused on two aspects: insurance and fi­nance.

What we need to do? Find credit worthy projects.

Mr Kalavakonda emphasised the need to have innovative insurance solutions.

To address and fix the whole is­sue in a very sustainable manner in the medium to long term, the quality of insurable assets should be discussed.

When talking about insurance and reinsurance solutions, there is a need to have insurance worthy structures and physical assets that can be insured.

Mr Kalavakonda said otherwise, insurance companies are not going to provide insurance protection.

“When countries in the Pacific become very vulnerable to natural disasters, there is no regulatory or policy environment in place to encourage risk management prac­tices within the financial institu­tions.

“You have those in many devel­oped economies, but you do not have it in developing countries like Fiji and in the Pacific,” said Mr Ka­lavakonda.

In terms of insurable assets, the question to ponder on is whether houses in Fiji can withstand cy­clones such as Category 4.

Finding out whether properties can be regarded as insurable as­sets and how to protect it is a huge part of insurance coverage, he added.

During natural disasters, low in­come households are vulnerable to risks.

Generally, Government assis­tance is provided to them after be­ing exposed to the disaster.

However, the response time and ability to basically provide the nec­essary support is a big issue, said Mr Kalavakonda.

“Access to finance following the disaster and getting the money is also a big issue,” he said.

Another question he posed to the audience is how to protect these vulnerable sections of the commu­nity?

“If you look at their existing phys­ical assets such as their homes, they are not insurable or not in­surable worthy from an insurance perspective but nevertheless they are vulnerable to major disasters and how do you basically provide them with insurance protection?

“That is why we are trying to de­velop parametric insurance solu­tions as a starting point,” said Mr Kalavakonda.

In the short term, according to Mr Kalavakonda, IFC is focusing on insuring the household rather than the house.

Another challenge in the Pacific region is accessing re-insurance at an affordable cost.

“In the absence or re-insurance, the primary or direct insurers would be very coy of in terms of writing the disaster risk because they would require significant capital if they are going to be writ­ing the catastrophic risk,” said Mr Kalavakonda.

In terms of what role the Govern­ment can play in this situation, he suggested the CAT Risk Fund/ Pool.

Other possible solutions that the Government could consider?

By making disaster insurance compulsory when extending mort­gage as part of the mortgage land­ing.

Making green projects attract more investment:

Getting finance for green projects and improving the access to these funds are one of the core challeng­es faced by many.

Why do we need more involve­ment with the finance castor? Why do we need green investment?

“We need more money and fi­nance to meet and reach national­ly determined distribution targets and international obligations.

“However we need to design pro­jects to achieve these targets.

“If we want to get the finance, we need to take into account in­vestors’ perspective,” said Global Green Growth Institute country representative Katerina Syngella­kis.

Ms Syngellakis, based in Fiji, said traditional sustainable projects do not fit the standard that investors are looking for.

“A commercial investor may be looking at the perceived green in­vestments projects as a high risk and low return.

“The returns are spread over a long period of time which do not match with the risk,” said Ms Syn­gellakis.

When developing a roadmap for our sustainable financial initia­tives, it is clear that it has to ad­dress other risks and play a role in minimising those risks by provid­ing policy signals to try and reduce real perceived risk in green invest­ments

Is there enough capital out there?

“There is certainly a lot of capital out there with institutional inves­tors. But the numbers get smaller and smaller as it comes down the Pacific level,” said Ms Syngellakis.

Identifying the potential for in­vestment in the different sectors is about reaching out to those who have not been included in the green investment environment and drive for climate action.

“Bringing all those actors into the mainstream of green invest­ment and involving the private sec­tors is important,” she added.

Asian Development Bank prin­cipal financial sector specialist Arup Chatterjee shared during the workshop that there is under investment in green activities and an over investment in brown ac­tivities.

How to attract investment investors?

According to Mr Chatterjee this is where institutions like the Asian Development Bank and other mul­tilaterals can play a role in terms of bringing up credit enhancement structures by providing guaran­tees, concessional loans, looking at grants and subsidies so that it im­proves the risk and returns.

Feedback: monica.aguilar@fijisun.com.fj

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