Where is the finance flowing? A brief look at the gaps in early action investment, and what is being done about them

4 July, 2022
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REAP Finance for Early Action pyramid of crisis finance types

Key takeaways

  • Fragmentation in finance for early action across the humanitarian, development and climate communities, particularly within donor governments, is preventing early action from reaching the scale required. 

  • The finance is available, but it needs to become more aligned and coherent, and it must be made more anticipatory. 

  • The G7 is working on improving the global climate and disaster risk financing architecture, and these efforts will need to be supported by a broad systemic shift based on the full set of recommendations contained within REAP's Finance for Early Action Report. 


Where is the finance flowing?

“Funding for early action is very fragmented…a proliferation of donors and actors working in this space had led to a very fragmented landscape. As a consequence, early action is not yet happening at scale, with an emphasis on pilots.” 

The recently-released REAP report Finance for Early Action: Tracking Commitments, Trends, Challenges and Opportunities is unequivocal in its assessment. It identifies ‘finance for early action’ as both pre-arranged finance and anticipatory finance, but concludes that amounts invested are minimal compared to funds for unplanned crisis finance. A key driver of this failure to adequately and effectively finance early action – despite agreement among donors that it is faster, more effective and more efficient – is the lack of alignment and coherence among and within donor institutions and governments. 

A persistent issue faced by all of us working in the early action space is that it is still viewed primarily as a humanitarian concern. With humanitarian needs rising rapidly – the IFRC estimates that by 2050 the number of people in need of humanitarian assistance due to climate impacts alone could double to 200 million – and funding not rising to match those needs, we cannot ask the humanitarian community to shoulder the responsibility of scaling up early action on its own. 

As the Finance for Early Action report notes, 

“Development actors have long been providers of finance for crisis response, although this is not always widely understood. Anticipatory action funds have predominantly been implemented by humanitarian agencies, but there are signs that actors from other sectors are beginning to consider them. There is much greater scope for collaboration and recognition of overlaps between the work of mainstream development actors, who have a range of instruments for early response, and large humanitarian agencies. If development agencies are financing crisis response on a large scale, there is no reason why they could not incorporate earlier or anticipatory approaches, given that these arguably link well with longer-term development aims of resilience-building and climate change adaptation.” 

Against this backdrop, the G7 nations have made welcome commitments to increase coherence in the architecture of climate and disaster risk financing and insurance (CDRFI), as well as to scale up anticipatory action. In their Meeting Communiqué of 19 May 2022, the G7 Development Ministers “committed to working with partners outside the G7 to further strengthen the global CDRFI architecture so it becomes more systematic, coherent and sustained, and will work towards a Global Shield against Climate Risks.” The Global Shield offers a potential solution to the piecemeal global approach towards early action that, as the Finance for Early Action report states, is not being delivered at the scale required. Based on available information, the Global Shield will incorporate three pillars: 

  1. Better coordination, including through a global coordinating entity; 
  2. A comprehensive, effective and efficient finance architecture, learning from existing best practices and delivering more pre-arranged finance for climate risk management; 
  3. Premium subsidies and capital support, recognising that insurance will be a key tool for the Global Shield, but must form part of a package of financial instruments that are responsive to context.  

The programme of work will prioritise supporting climate-vulnerable governments to identify and close protection gaps through leveraging better-coordinated existing and new financing mechanisms. The commitment of the G7 Development Ministers was reiterated by the G7 Leaders in their Communiqué of 28 June 2022, promising concerted action by some of the world’s most powerful donors to address the gaps in early action financing laid bare by REAP’s report. 

It is not only within the Development track that the G7 has pledged to focus on anticipatory action. On 13 May 2022 the G7 Foreign Ministers issued a Statement on Strengthening Anticipatory Action in Humanitarian Assistance. This statement recognises the challenges faced by an overstretched humanitarian system and pledges to work in various ways to ensure that anticipatory action is given the attention it needs to become the default approach to crises. Crucially, the Foreign Ministers also acknowledge that collaboration beyond the humanitarian system is required, paving the way for the cross-sectoral approaches that are fundamental to the systemic shift needed to make early action the norm. 

While we welcome this progress, it is important to remind ourselves that increased coordination is not the only area in which improvements must be made. The Finance for Early Action report sets out six recommendations for scaled up and more effective finance, and it is critical that we advance each one of them. While we work on collaboration, we must also work on directing more finance towards early action, on supporting climate vulnerable governments to take ownership of early action at the national level, on working better with the private sector, and on ensuring that investments are smart and efficient. 

REAP’s inaugural Early Action: The State of Play 2021 report highlighted finance for early action as a key area requiring attention, and in taking forward this vital work the Finance for Early Action report has held a magnifying glass up to where we stand at the moment. What comes next – whether the early action community, especially donors, can make progress on the recommendations – will determine if early action remains limited to pilot programmes or if it achieves the scale that can protect more people from the devastating impacts of disasters. REAP will continue to hold these discussions…