Editing IPCC:AR6/WGII/Chapter-17 (section)

==== 17.2.2.2 Global Variation in Portfolios of Risk Management ====

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While many studies assess adaptation trends by geographical region or by sector, the amount of residual risk varies across countries with different income and governance structures. Vulnerability, poverty and inequality, which constitute the human dimensions of climate change, affect how these portfolios of adaptation options are structured around the world (Chapter 8). Figure 17.5 depicts several illustrative ‘typologies’ of how risk is addressed. While no country or location fits any one typology, this illustrates a range of risk portfolios found in different contexts.

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'''Figure 17.5 |''' '''Several illustrative typologies for how risk has been managed.''' The first is ‘extensive protection’, in which the bulk of investments is made in reducing exposure, through protection up to limits (e.g., flood levees) and including retreat. The second category is ‘moderate investment focused on adaptive capacity’, in which the bulk of investment is made in reducing vulnerability (e.g., improved housing). The third category is ‘little adaptation investment’, in which there is little investment in either reducing vulnerability or exposure, and the bulk of risk is residual, borne by the population.

Extensive protection category

The first category in this typology, that of ‘extensive protection’, requires substantial financial investment (Figure 17.5). In higher-income contexts, this is often more feasible than in contexts with limited resources, and adaptation investments are more likely to include structural measures to reduce exposure, complemented by vulnerability-reducing measures and insurance protection ( ''medium confidence'' ). While this typology is not universally representative of high-income areas (within or between countries), expensive exposure-reduction measures tend to be easier to implement in high-income countries. For example, flood protection is largest in countries with larger amounts of public spending and least amounts of corruption ( [[#Scussolini--2016|Scussolini et al., 2016]] ). It is seen as more economically efficient to invest in expensive protection measures in wealthy regions, under different scenarios of sea level rise and river flooding, although these calculations have equity and justice implications ( [[#Peduzzi--2017|Peduzzi, 2017]] ; [[#Lincke--2018|Lincke and Hinkel, 2018]] ). After flood events happen in regions with high levels of protection, damages are comparatively limited, and people tend to continue living in close proximity to the protected river ( [[#Mard--2018|Mard et al., 2018]] ). In contrast, flood displacement is higher in low-income countries ( [[#Kakinuma--2020|Kakinuma et al., 2020]] ).

Risk financing, especially insurance, is also common in higher-income countries with well-developed insurance markets and higher levels of insurance penetration than in lower-income countries, illustrated by the purple bar in Figure 17.5 ( ''high confidence'' ) ( [[#Linnerooth-Bayer--2019|Linnerooth-Bayer et al., 2019]] ). Of climate-related disasters, floods and storms cause the largest amount of reported economic losses; however, at least 40% of these losses are uninsured, even in the regions with high insurance penetration ( [[#Baur--2018|Baur et al., 2018]] ). Government involvement in insurance schemes is associated with higher penetration rates of the general population ( [[#Paleari--2019|Paleari, 2019]] ). While some, predominantly high-income countries can make use of disaster contingency funds or dedicated budget items, these do not exist or are not well endowed to adequately support relief, recovery and reconstruction ( [[#Linnerooth-Bayer--2015|Linnerooth-Bayer and Hochrainer-Stigler, 2015]] ). To help stabilise public finance in regions with little market-based insurance coverage and fiscal response mechanisms, regional public insurance pools have been set up with donor assistance, such as in the Caribbean, Africa and the Pacific for flood and droughts ( [[#Schäfer--2016|Schäfer et al., 2016]] ; [[#Surminski--2016|Surminski et al., 2016]] ; [[#Linnerooth-Bayer--2019|Linnerooth-Bayer et al., 2019]] ).

Moderate investment focused on adaptive capacity

In contrast to the ‘extensive protection’ scenario, many regions of the world bear greater resemblance to the second typology in Figure 17.5 ‘moderate investment focused on adaptive capacity’ ( ''medium confidence'' ). These contexts see greater adaptation funding invested in capacity building activities to reduce vulnerability, rather than structural or ecosystem-based protection measures to reduce exposure ( [[#Biagini--2014|Biagini et al., 2014]] ). Because of limited international and domestic finance for large structural investments to reduce exposure, the most prevalent adaptation choices in low-income contexts are household-level vulnerability-reducing measures ( [[#Koerth--2017|Koerth et al., 2017]] ).

Lack of access to finance can be one of the reasons countries engage more readily in adaptive capacity-building activities. Countries that rank highly on the Corruption Perceptions Index engage less in technological solutions for risk management ( [[#Berrang-Ford--2014|Berrang-Ford et al., 2014]] ). In addition, countries with higher levels of corruption receive less adaptation aid ( [[#Betzold--2017|Betzold and Mohamed, 2017]] ; [[#Weiler--2018|Weiler et al., 2018]] ). Countries are more likely to receive adaptation aid if they import goods from a donor country, or are a former colony of that donor ( [[#Betzold--2017|Betzold and Mohamed, 2017]] ; [[#Weiler--2018|Weiler et al., 2018]] ). In countries with poor governance and limited aid flows, remittances make up a substantial portion of finance available to the local population for risk management ( [[#Samuwai--2018|Samuwai and Hills, 2018]] ).

Risk financing does play a large role in the ‘moderate investment’ category; there are a variety of instruments in use globally. Many countries in the Global South have created national policies and a number of regional catastrophe risk insurance pools, subsidised by international assistance, which make pay-outs to the national government of affected nations when an extreme event happens and have helped to build risk awareness (Clarke et al., 2015; [[#Thirawat--2017|Thirawat et al., 2017]] ). Beyond this, residual risk is often borne directly by affected people ( [[#Andrianarimanana--2015|Andrianarimanana, 2015]] ).

Little adaptation investment typology

In the third typology, there are limited resources for adaptation, and populations bear large amounts of residual risk (depicted by the purple bar in the third typology in Figure 17.5, ‘little adaptation investment’). SIDS can often find themselves in this situation, because small populations, small economies, lack of economies of scale, subsistence livelihoods and other challenges mean risk reduction and risk financing are both costly (Chapter 15).

Another example of this third typology are people living in conflict-affected areas. These populations are highly vulnerable to the impacts of climate change ( [[#Basher--2006|Basher, 2006]] ; [[#OCHA--2011|OCHA, 2011]] ; [[#IPCC--2012|IPCC, 2012]] ; [[#Zommers--2014|Zommers and Singh, 2014]] ; [[#Marktanner--2015|Marktanner et al., 2015]] ; [[#Walch--2018|Walch, 2018]] ; [[#Eckstein--2019|Eckstein et al., 2019]] ; [[#Peters--2019|Peters et al., 2019]] ). In conflict-affected areas similar to the third category of ‘little adaptation investment’, a combination of high vulnerability and relatively less support for adaptation means that there is a large amount of ‘residual risk’, in which residents cope with the impacts of extreme events on a regular basis ( ''high confidence'' ). For example, deaths from ‘natural’ disasters are 40% higher in areas that are undergoing armed conflict ( [[#Marktanner--2015|Marktanner et al., 2015]] ) (Box 17.2).

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