ROMA – In a time in which climate change only generates thousands of victims and devastating and paralyzing catastrophes, we ask ourselves: who really need the bond catastrophes from the World Banki.e. those high-yield debt instruments designed by insurance companies to raise funds and thus offset the premiums to be paid in the event of natural disasters? The answer is: it depends. One thing, however, seems certain, those who certainly gain – and quite a lot – are the investors, subscribers of the bonds. Jamaica, for example, suffered enormous damage after the hurricane Beryl last July, one of the strongest hurricanes to ever hit the Caribbean island, but there is no trace of the financial resources raised for reconstruction.
The expected results are not there, only investors are favored. “Financial innovations like i cat bond – observes Iolanda Fresnillo of the Belgian Civil Society Organization Euros, a network of 53 NGOs and seven allies from 29 European countries that research and work on issues related to debt, development finance and poverty reduction – are sold by World Bank as solutions to the financing gap for climate action, but experience shows that these financial market innovations lack effectiveness. The outcomes expected from vulnerable states are poor, if not non-existent, as the conditions and triggers are designed to benefit investors, rather than benefit communities suffering from climate impacts and other shocks.”
The broken promises of the World Bank. Today the island of Jamaica is trying to get back on its feet, but the recovery is hampered by the lack of expected financing from bond catastrophe (o cat bond) promoted by the World Bank. He also reports it The Bretton Woods Project, a networker, information provider, media informant and “watchdog” to control and influence the choices of World Bank and of International Monetary Fund.
Yet help should be immediate. These types of financial products would in theory be intended to provide immediate support after catastrophic events. Countries that sign i cat bond However, they have to take into account the cost of the bond – for which they pay interest on the debt – and the probability of receiving a payment, while private investors can still obtain, in any case, very significant profits, thanks to an average return of 15%. %, in the event that the refund for the countries does not take place.
But the failure of catastrophe bond It’s not an anomaly. The weekly newsletter of Polycrisis Dispatch – a hub that helps emerging communities understand and address intersecting crises affecting humanity – claims that the failure of bond of Jamaica is not an anomalous case. THE cat bond they must be profitable enough to attract investors, which means they can be potentially costly for climate-vulnerable countries, which already suffer from a chronic lack of grant- and concession-based climate finance.
The rigidities that protect investors. In a report prepared for the Vulnerable Twenty (V20) Group in July 2024, Sara Jane Ahmed and Jwala Rambarran noted that “the conditions for triggering a payment are rigid and specific. This rigidity protects investors but leaves Jamaica vulnerable to catastrophic risk.” However, according to George Richardson, director of capital markets and investments at the Treasury of World Bank“there is a trade-off”: lower thresholds would mean that i cat bond they would pay out more often, making them less attractive to investors.
So, come on cat bond expectations close to zero. The history of cat bond in helping states deal with environmental and other disasters, it has often fallen short of expectations. In 2020, during the Covid-19 pandemic, the World Bank he eliminated his bond Pandemic Emergency Financing Facility (PEF) after payments to countries holding the bonds were delayed despite the outbreak of a global pandemic, leading investors to try to sell their bonds to avoid losses (see Observer Autumn 2020).
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