Foreword

In a world with mounting impacts of climate change on livelihoods and the broader economy, governments play an increasingly critical role in managing the adverse impacts. As the climate changes, and losses and damages increase, governments are required to increase their resilience and develop strategies for dealing with financial risks of climate change. With a focus on the impacts of climate-related disasters including extreme weather events on the fiscal framework of central governments, this report proposes policy solutions on how governments can reduce, manage and address these climate-related financial risks. It offers a strategic framework that elaborates on the role of governments in the identification and assessment of climate-related physical risks and their impacts on public finances, the mitigation of those risks through investments in risk reduction and risk management, and the development of financial strategies to fund government expenditure needs. The report and its recommendations take into consideration the differences in fiscal resources and borrowing capacities that may exist across countries, assessing the adequacy of different financial and budgetary tools for climate risks of varying frequency and severity and in different national contexts.

The report is intended to support decision-making and action at the national and international levels, particularly among governments in emerging market and developing economies that face increasing climate-related risks. It concludes with a discussion of the way forward in the promotion of global financial resilience, through shared international action and mobilisation of additional development finance for greater collaboration and coherence.

The report benefited from the oversight of three OECD committees: the Environment Policy Committee (EPOC) and its Working Party on Climate, Investment, and Development (WPCID), the Insurance and Private Pensions Committee (IPPC) and the Senior Budget Officials (SBO) Committee. The analytical framework builds on the 2021 OECD report Managing climate risks, facing up to losses and damages, and is informed by the OECD Recommendation on Disaster Risk Financing Strategies, the OECD Recommendation on Budgetary Governance, the OECD Recommendation on the Governance of Critical Risks, complemented by the G20/OECD Methodological Framework for Disaster Risk Assessment and Risk Financing.