South Africa’s National Treasury is developing regulations to promote catastrophe bonds and parametric insurance as financial tools to combat climate change. In light of significant recent climate disasters, the government seeks to establish a climate-change response fund and attract private investments. Discussions with pension firms are underway, aiming to create innovative climate-related products for resilience against natural disasters.
The South African National Treasury is actively considering regulatory frameworks aimed at promoting financial instruments that address climate change, such as catastrophe bonds and parametric insurance. Kolisang Molukanele, a senior economist at the Treasury, emphasized the need to engage investors effectively during a meeting organized by the Presidential Climate Commission. He stated, “We are looking at how best we can get investors into the room, how do we make investors more comfortable and confident.” This initiative follows a series of significant climate events affecting South Africa, including a drought linked to El Niño this year and severe rains in 2022, which resulted in over 400 fatalities and approximately $2 billion in damages. To enhance its climate resilience, South Africa plans to establish a climate-change response fund by March and is pursuing private investment opportunities for this fund. Furthermore, discussions with pension funds regarding climate-focused financial products have been initiated. Catastrophe bonds, which are investment instruments offering high returns but pay out only in the event of a natural disaster, and parametric insurance, which provides payouts based on predetermined conditions like insufficient rainfall, are key innovations under consideration. Molukanele noted that “Parametric insurance could speed up the disbursement of relief to provinces.” Additionally, the government is contemplating the issuance of green bonds at both national and municipal levels. To attract private investments into climate-resilient initiatives, municipalities are encouraged to develop more viable and bankable projects, such as enhancing the durability of infrastructure like bridges and roads.
The exploration of catastrophe bonds and parametric insurance within South Africa’s National Treasury reflects a growing urgency to address the country’s vulnerability to climate change. The recent occurrences of extreme weather events have highlighted the need for innovative financial solutions that can provide timely support and funding for recovery efforts. As South Africa takes steps toward establishing a climate-change response fund and fostering partnerships with private investors, it is essential to understand how these financial instruments can enhance resilience against future climate-related disasters.
In summary, South Africa is taking proactive measures to address the impacts of climate change through the potential adoption of catastrophe bonds and parametric insurance. These financial instruments are being considered to provide rapid relief in the wake of natural disasters. Moreover, the government’s initiative to create a climate-change response fund and engage with private investments marks a significant step toward strengthening infrastructure and promoting sustainability within the nation.
Original Source: www.insurancejournal.com
