The initiative, christened the ‘Resilience Wrapper’ pilot facility, marks a crucial step towards shielding and mitigating climate risks for private enterprises. This innovative approach aims to foster resilience and de-risk loans extended to businesses, particularly in regions susceptible to climate-related adversities.
Simon Young, Senior Director, Disaster Risk Finance & Parametrics, WTW, said: “Vulnerability to climate change and disaster risk can have a direct effect on the cost of borrowing, particularly in lower-income countries. This adds additional pressure on debt servicing capacity and increases the likelihood of debt default, which can lead to credit rating downgrades.
He continued: “With USAID funding, the WTW parametric solution will be a game changer for building the financial resilience of communities to extreme weather events by helping to unlock much-needed private sector investment in critical adaptation projects in climate vulnerable countries.”
Under the partnership, WTW will leverage the allocated USAID funding to develop a pioneering parametric insurance solution. This solution is tailored to cushion direct loans offered by the U.S. Development Finance Corporation (DFC) to private enterprises against climate-induced shocks.
Following the occurrence of a triggering event such as cyclones, floods, or droughts, the Resilience Wrapper ensures that loan repayments remain shielded by insurance payouts. This mechanism not only safeguards borrowers’ debt servicing obligations but also enables them to sustain operations and avert default in the aftermath of a climate-related crisis.
The collaboration between WTW and USAID signifies a concerted effort to foster climate resilience and stimulate private sector involvement in climate adaptation efforts. This strategic partnership underscores a commitment to fortify vulnerable communities against the escalating threats posed by climate change.
In backing the President’s Emergency Plan for Adaptation and Resilience (PREPARE), the immediate catalytic funding was granted via the USAID Climate Finance for Development Accelerator’s Adaptation Finance Window initiative. This program employs catalytic grant funding to mitigate risks associated with the advancement and expansion of private sector-driven climate adaptation strategies in nascent and developing markets. Additionally, it encompasses an investment from the USAID Enterprises for Development, Growth, and Empowerment (EDGE) Fund.
Gillian Caldwell, USAID Chief Climate Officer, also commented, saying: “A disaster can bankrupt a business overnight. Innovations like the WTW Resilience Wrapper make communities better equipped to withstand disaster by supporting the local companies they depend on, while incentivising lenders to work in places they might otherwise consider too risky for investment.”
She added: “I commend WTW’s leadership in this area as it signals both the need and the opportunity for greater private investment in resilience.”
