UNEP Finance Initiative (UNEP FI) – Climate risk assessment, quantification and financing strategy Consultant

The outcomes of the services will be to strengthen the UNEP FI / PSI V20 SIF’s implementation of its mandate to support the development of climate adaptation projects for MSMEs in V20 markets and to support the UNEP FI's RFM project to scale adaptation and resilience (A&R) solutions and financing towards strengthened A&R outcomes in Kenya.

Working remotely / Home-based

5 months

The United Nations Environment Programme (UNEP) is the leading global environmental authority that sets the global environmental agenda, promotes the coherent implementation of the environmental dimension of sustainable development within the United Nations system and serves as an authoritative advocate for the global environment. The overall objective of the UNEP’s Industry and Economy Division is to encourage decision makers in government, local authorities and industry to develop and adopt policies, strategies and practices and technologies that promote sustainable patterns of consumption and production, make efficient use of natural resources, ensure safe management of chemicals and contribute to making trade and environment policies mutually supportive. It promotes the development, use and transfer of policies, technologies, economic instruments, managerial practices and other tools that assist in environmentally sound decision making and the building of corresponding activities. The United Nations Environment Programme Finance Initiative (UNEP FI) is the strategic partnership between the United Nations and over 500 banks, insurers and investors. For over 32 years UNEP FI has been shaping and driving the international sustainable finance agenda, setting global standards and growing a global network of leading financial institutions. Through its work-streams and regional activities, peer learning, methodology development, training and research, UNEP FI promotes sustainable finance and helps the financial industry align with and contribute to the Paris Agreement and Sustainable Development Goals. This includes driving greater action on climate change, both in terms of the transition to a low-carbon economy and responding to the increasing severity and frequency of climate impacts, across both banks and insurers. UNEP FI’s Adaptation & Resilience team have been working with banks over the past 7 years to support the development of financial institutions’ capabilities in physical climate risk analysis, client engagement, financial product development and institutional governance, culminating in publication of the PRB Practical Guidance on Implementing Adaptation and Resilience for Banks. The aim now is to work with financial institutions ‘in the field’, in collaboration with the V20 SIF (see below) to identify financing pathways for climate adaptation and pilot A&R financing methodologies. The V20 led Sustainable Insurance Facility (SIF) is a project pipeline development facility, convened under the Principles for Sustainable Insurance initiative (PSI) to assist the Vulnerable 20 (V20) membership in scoping the financial protection needs of Micro, Small and Medium enterprises (MSMEs) in the context of climate change and facilitate project concept note and proposal development under the leadership of the V20 Finance ministries. The SIF is operationalized through the SIF Project Office hosted by the UN Environment Programme’s Principles for Sustainable Insurance (PSI) supported through the Munich Climate Insurance Initiative (MCII) and operates under the guidance of the CVF-V20. The work of the Office is included in the V20 Work Plan and currently funded by the German Federal Ministry for Economic Cooperation and Development (BMZ). Hosted by PSI, the SIF Secretariat team builds on PSI’s positioning as a global convener to fulfil the core mandate of the SIF, which is developing country demand-driven proposals and functioning as an impartial matchmaker to link implementation demand and supply. The PSI’s global convening power and industry networks supports the SIF in building regional and local insurance capacities. Moreover, the SIF secretariat leverages the PSI network to identify and realize collaborative potentials between the global and local industry and integrate PSI’s expertise on insurance industry perspectives on climate resilience and low carbon growth. Hosted in PSI, the SIF is also well-positioned to promote the V20’s sustainable insurance interests on a global level, including through the InsuResilience Global Partnership, the Insurance Development Forum, the Task Force on Climate Related Financial Disclosure and the Sustainable Development Goals. MSMEs contribute between 20% to 80% of GDP and about 70% of employment in these V20 countries. However, MSMEs are increasingly exposed to more risks while having limited to no access to insurance or other climate risk financing solutions. Credit is a crucial financial service for MSMEs, provided by banks, multilateral financial institutions (MFIs), and other lending institutions. When extreme weather affects MSME-clients of banks and financial institutions (FIs), this can lead to significant risks in their portfolios, resulting in potential systemic losses. Banks and FIs often aggregate climate risk exposure but lack concrete plans to analyze or assess it, mainly due to competing priorities. However, many banks acknowledge that climate risk related losses and exposures are becoming increasingly urgent with each new event. Potential project partners have been identified in various V20 countries including banks and microfinance institutions focused on MSMEs and agri-business sectors. An assessment in these markets has been undertaken that quantified the losses linked to climate risks and extreme weather over the past 5 years. Initial assessment showed that: (i) Banks and FIs seem to have experienced 5% to 7% reduction in the value of their portfolios due to extreme weather events. (ii) MSME sector credit portfolio is more affected by such events compared to the agriculture credit portfolios. (iii) Banks and FIs often choose to roll over and reschedule affected loans, foregoing interest income and new business opportunities. (iv) Without timely measures, redlining of specific MSME sectors and regions becomes possible, leading to gradual impacts that may affect the broader economy. (v) Parametric insurance solutions have shown effectiveness at the portfolio level. However, involving multiple layers of insurance industry providers and the need for reserves make them expensive. They are often left unimplemented or abandoned without stable subsidies. (vi) When neither the insurance industry nor banks and FIs take measures to analyze and address MSMEs’ climate exposures, it becomes unclear what other agency or industry should lead this crucial action for climate transition. Under the direction and supervision of the Adaptation and Resilience Lead, the Consultant will support in the physical climate risk assessments and quantification, development of climate risk financing strategies including climate-smart insurance, risk-financing solutions, identify resourcing, financial & climate literacy capacity-building requirements for some MSME portfolios and template business continuity plans for MSMEs. In doing so, the Consultant will liaise closely with V20 SIF Secretariat, UNEP FI’s Adaptation & Resilience team, and the selected MFIs/Banks from the programme (1 MFI and 2 Banks). The project needs a consultant with actuarial expertise to conduct physical climate risk modelling and quantification and currently does not have the relevant professional expertise internally. Objectives To strengthen the UNEP FI , PSI V20 SIF’s implementation of its mandate, to support the development of climate adaptation projects for MSMEs in V20 markets and to support the UNEP FI's RFM project to scale adaptation and resilience (A&R) solutions and financing towards strengthened A&R outcomes in Africa, the next set of activities/deliverables will be applicable for the partner Fis in the target countries. Specific tasks and responsibilities (i) Parametric risk modelling and stress testing for the MSME credit portfolio for the partner FI (or FIs) (i.e., default risk for banks) a. Data review. Engage with partner FI to review and format relevant data based on the geographical spread of their credit portfolio. Data include FI’s information on MSME credit portfolio, client information, portfolio performance, and geographical mapping of MSME clients. b. Probabilistic parametric risk modelling, validation and stress testing. Perform probabilistic parametric risk modelling using data as well as identified risk parameters and hazards related to the entity. Such hazards may include floods, heavy rainfall, cyclones/typhoons, and droughts. c. Leverage modelling to project potential losses of the credit portfolio of the partner FIs. The projected potential losses shall be based on the average loan life cycle of their MSME portfolio vis-à-vis climate and disaster hazards. The model should have the capacity to project short- to medium-term scenarios for climate-risk stress testing. d. Testing and verification of model sensitivity against available data of partner FI. e. Undertake exposure mapping for partner FI to present the geographical spread of MSME clients and strategies undertaken to transcribe models to MSME clients. Deliverables: • Parametric risk model for the MSME credit portfolio of the partner FI • Detailed report on modelling exercise including climate risk projections for the partner FI and strategy for transcribing models to MSME clients. Output level (e.g. georeferenced risk data/model, shape files) to be defined in inception note. • Toolkit with summary data, visual maps and example model templates to enable replication of the work. (ii) Climate risk financing strategy based on a risk layering approach a. Review of existing climate risk financing strategy against the projected losses. In collaboration with the risk management team of the partner FI, evaluate the appropriateness of existing climate risk financing strategy (if any) in light of the modelled losses. Strategies and scenarios will be for discussion with the partner banks/FIs and will be defined during the inception stage. b. Design a climate risk financing strategy for the partner FI jointly with target key re/insurance actors. Based on modelling and stress testing, create and present to the senior management of the bank a climate risk financing strategy. Strategy development shall use a risk layering approach to present scenarios modelled, FIs capacity, risk retention, parametric portfolio insurance and potential contingent credit lines. Deliverables: • Climate risk financing strategy for the partner FI • Presenting the strategy to the senior management of the partner FI (iii) Capacity building to leverage the modelling in climate resilience advisory support for their MSME clients a. Develop a gender-sensitive advisory services package for MSME clients of the partner FI. In collaboration with the partner FI, utilize the information and insights obtained from the modeling and stress testing exercise to develop an advisory services package for MSME clients to quantify MSME climate risk exposure more effectively, develop business continuity plan to mitigate losses from extreme weather events, and enable the partner FI to provide adaptation lending products that support these business plans. b. Build the capacities of the partner FI to offer this advisory services package. Implement a train-the-trainer approach to enable Bank/FI staff and conduct one to two pilot workshops with selected bank/FI MSME clients (at least 50% of participants women). Deliverables: • Climate risk advisory and adaptation lending package • Train-the-trainers material and workshop with partner FI • 1 pilot workshop with MSME clients of partner FI • Replication manual and methodological guide summarizing procedures and lessons learned for scaling the model and risk financing strategy to other institutions and regions • Regional scale‑up plan and training schedule, including modalities for training (e.g. webinars, workshops) and gender considerations (iv) Knowledge sharing on climate risk financing strategies a. Coordinate a national level workshop to share insights and findings from the project. In collaboration with the banks and V20 SIF, organize and facilitate a national workshop in the respective country to present project results to stakeholders such as central bank, other banks, MSME associations. The M&E methods indicated in the inception note will also include workshop evaluations. b. Final project report. Prepare a summary for the bank, detailing activities undertaken, insights, and recommendations for scaling up this approach. Deliverables: • National Level Workshop • Final project report for the country • Lessons‑learned brief and policy recommendations to support the adoption of climate risk financing strategies The consultant shall be under the overall supervision of the Head of UNEP FI and report directly to the Head of Climate and the consultant will be working in close coordination with the Adaptation & Resilience team, V20 SIF team and the respective banks focal point.

Education: A master’s degree in actuarial science, statistics, economics, finance, development studies or business is required. A bachelor’s degree could be taken in lieu of master’s degree provided the selected candidate has 12 years of relevant experience. Professional Experience: At least ten (10) years of relevant work experience in climate risk modelling and parametric risk financing with demonstrated knowledge for insurance and risk financing ecosystem in emerging market context is required. At least seven (7) years of relevant experience in banking, microfinance, inclusive insurance and finance, climate risk insurance is required. Prior experience working on climate risk financing, parametric insurance and project management is a distinct advantage.

Languages: English is the working language of UNEP FI. Fluency in English is required. Knowledge of other United Nations languages is an asset.

Skills & Knowledge: Climate risk modelling and parametric risk financing with demonstrated knowledge for insurance and risk financing ecosystem in emerging market is required with excellent data, data analytics and data interpretation skills. The expert will lead and supervise the delivery of outputs, desk analysis and assessments for the project. Strong interpersonal skills and ability to establish and maintain good working relations in a multicultural and geographically dispersed team working across functions. A hands-on, pragmatic approach is desirable.