The Evolution of the Global Risk Financing Facility to the Global Shield Financing Facility
In 2017, faced with escalating natural disasters and climate shocks that were imposing huge financial and debt burdens on countries, the World Bank collaborated with key partners from Germany and the United Kingdom (UK) to establish the Global Risk Financing Facility (GRiF). More than just an initiative, GRiF emerged as a vehicle that offered specialized technical assistance and expertise but also championed the cause of innovative financial solutions. The aim was to bridge the protection gap and empower nations to manage the financial impacts of unpredictable catastrophes.
In the vulnerable countries where GRiF has financed projects, its objective has been to transform countries’ financial readiness to withstand shocks, in part by integrating financial planning into core development processes. The program has supported the expansion of ASP by pre-arranging finance for social protection programs—in vulnerable and fragile countries. It has also piloted financial solutions in new areas, such as financial protection of firms. One lesson stands out from the journey with GRiF: real progress in disaster risk financing (DRF) requires persistent political commitment, long-term dialogue, strong technical expertise, and predictable finance that can bear some of the up-front risk associated with designing and implementing new financial solutions.
The Global Shield Financing Facility (GSFF) is a new program that is an evolution of GRiF. GSFF will support poor and vulnerable countries and people with increased access to financial protection against climate shocks, disasters, and crises. It will provide technical advisory services and integrated financial packages to address protection gaps and will also work to build strategic partnerships. The program is well-positioned within the World Bank’s corporate priorities, particularly in the context of the World Bank’s Evolution Roadmap*, which has a strong focus on mobilization of private risk capital, protection of jobs, and crisis preparedness.
The GSFF is informed by some of the lessons learned from GRiF:
- Protect the real economy against climate shocks: While it is important to develop sovereign and sub-sovereign financial solutions that protect the poor and vulnerable through adaptive social protection programs, resilient and sustainable development also relies on the protection of the real economy and especially its micro, small, and medium enterprises (MSMEs). Improving MSMEs’ access to credit, including in the aftermath of a disaster, can help the economy, and ultimately the population, recover more quickly. For example, GRiF has supported the establishment of a bridge lending window in Rwanda with an insurance backstop mechanism to lower the risk exposure of financial institutions when they lend to MSMEs.
- Move from financial instruments to integrated financial strategies: As climate risks and other complex interlinked shocks are increasing, most countries need integrated financial strategies in place to protect their budget, economy, and population. Such strategies combine policy reforms, cost-effective financial instruments, and appropriate delivery channels and systems to ensure rapid, targeted, and effective response and recovery after a disaster. For example, GRiF contributed to the preparation and launch of the national disaster risk finance strategy in Mozambique and the establishment of a dedicated disaster fund backed by (parametric) insurance, which is a core instrument in the country’s strategy.
- Complement financial instruments with policy reforms: The design and implementation of financial instruments against climate shocks and disasters can support and even incentivize policy reforms to strengthen climate adaptation and resilience. GRiF-funded analytical work has informed policy reforms implemented through World Bank projects. For examples, GRiF is supporting the Ministry of Finance in Indonesia in setting up a national-level pooling fund as a state budget protection mechanism and the complementary regulatory environment needed to ensure the instrument’s sustainability.
- Facilitate access to private risk capital for recovery financing: The scale of resources needed to fund actions for climate adaptation and recovery is immense. Private capital should be enabled, mobilized, and executed to effectively support recovery financing. For example, GRiF has supported DRIVE (De-risking, Inclusion, and Value Enhancement of Pastoral Economies in the Horn of Africa), a regional program in Djibouti, Ethiopia, Kenya, and Somalia that builds the financial resilience of poor and vulnerable pastoralists against climate risks by facilitating easier access to financial services, including savings and insurance.
- Engage with nontraditional partners: The climate and disaster risk finance landscape has changed dramatically with more public, private, and civil society actors are engaging on this agenda. It is important to ensure that partner countries receive coordinated and consolidated support to further implement policy reforms and customized financial instruments, complemented by risk reduction investments. For example: GRiF has supported the design and development of the Start Network’s financing facility, Start Ready, one of the most advanced financing facilities developed by a civil society organization (CSO) and one that includes a joint reserve fund and insurance for humanitarian response by civil society.
As an “evolved” version of GRiF, GSFF will build a larger number of strategic partnerships and work with a wider range of implementing partners. This evolution reflects an increasing ambition—emerging globally—to see transformation at scale. The launch of programs like the Global Shield against Climate Risks, spearheaded by the G7 and V20, is proof of that. The World Bank is a proud partner of the Global Shield. The GSFF is the World Bank’s flagship program on climate and disaster risk finance and acts as one of the three financing vehicles of the Global Shield. It will support the Global Shield by leveraging the experience of GRiF, and of GRiF programs in 18 countries, with a diverse set of instruments across seven sectors.
GSFF expands the collaboration undertaken by GRiF and engages in transfer-outs to allocate significant funds to eligible multilateral development banks and UN agencies. Within an evolving DRF landscape, GSFF has been set up as a flexible and collaborative vehicle that can provide financial resources to a wide range of partners. This expansion is feasible thanks to the readiness of organizations and the commitment of donors, who are dedicating substantial effort to developing well-defined DRF programs.
In line with the Global Shield’s aim to offer a more coordinated, coherent, and sustained ecosystem of technical and financial support to vulnerable countries, the GSFF sets a priority focus on collaborating with nontraditional stakeholders, including risk pools and CSOs as well as the private sector. Risk pools help strengthen countries' financial protection through affordable domestic insurance markets, which are vital as countries transition to independent pool entities. CSOs and humanitarian organizations bring technical and operational expertise with strong delivery channels. In addition, GSFF's envisaged partnership with the Insurance Development Forum, an insurance sector-led initiative aiming at expanding risk insurance to poor and vulnerable populations, will facilitate technical knowledge exchange on design and implementation of financial solutions, development of global goods, and executive education in partner countries.
The GSFF will play an important role in improving coordination among key DRF stakeholders. GSFF is committed to working with countries and coordinating with other stakeholders as part of the Global Shield against Climate Risks. It is also working with the two other Global Shield financing vehicles, the Global Shield Solutions Platform, and the Climate Vulnerable Forum/V20 Joint Multi-donor Trust Fund, to assess how to collaborate and how to harmonize operational principles and processes.
Empowering Climate Resilience: GSFF Amplifies Impact through Grant Financing Integration
The Global Shield Financing Facility is a downstream financing vehicle, which co-finances the development and implementation of disaster risk finance instruments, either as part of larger World Bank lending operations or as part of transfer outs, under which the World Bank transfers funds from a trust fund to an eligible partner entity.
GSFF has the mandate to work with non-traditional actors including risk pools. It provides support to the Southeast Asian Disaster Risk Finance Facility (SEADRIF), a regional risk pool that provides regional parametric insurance against flood risks, including for startup and operational costs, data and analytics, implementation, and premium support.
The work of GSFF is complemented by that of upstream financing vehicles like the Risk Finance Umbrella (RFU) and the Global Facility for Disaster Risk Reduction (GFDRR). RFU focuses mainly on upstream DRF analytical and advisory work done by World Bank teams to initiate policy dialogue, inform the design of risk finance instruments, and support the preparation of lending operations. Global Facility for Disaster Reduction and Recovery (GFDRR), who jointly forms the GSFF Secretariat with the World Bank’s Disaster Risk Financing and Insurance Program (DRFIP), complements the DRF agenda by supporting countries reduce risk through improved disaster risk management (DRM).
Through collaboration, GSFF aims to shape the development agenda of tomorrow. It will work closely with the G7, G20, V20, and other key international forums to implement initiatives like the Global Shield and to design future initiatives to further strengthen the financial resilience of countries worldwide.