Linking Disaster Risk Financing with Social Protection

Disaster risk financing (DRF), when linked with social protection systems, can enable faster, more cost-effective and predictable responses to climate shocks. Linking the two at national, regional or local levels can better support vulnerable people. The aim of linking DRF and social protection is to safeguard livelihoods, ensure food security and enhance overall resilience, enabling vulnerable people to adapt and cope with the impacts of hazards. This document examines the intersections between DRF, as a system of budgetary and financial mechanisms arranged in advance to credibly pay for a specific risk, and social protection.

An Evolving Understanding of Disaster Risk Financing

As the global understanding of DRF has evolved, a more comprehensive approach has emerged. It now goes beyond the establishment of financial protection instruments against disasters, progressing toward considering context and the effective channeling of financial resources to policies and programs aimed at mitigating the impacts of shocks. 

According to the Centre for Disaster Protection, DRF can be structured in terms of four major elements: 

1. Context: Understanding the specific needs, risks and factors to be taken into consideration in a specific country context, and what to prioritize (“who should be protected and what they should be protected against”).

2. Establishing “money-out” systems and processes: Including assessing the pre-existing systems and programs in place so that funds provided by financing instruments can be effectively used to reduce the impacts of a shock.

3. Set up “money-in” instruments: Designing/setting up financial tools, so that resources needed to prevent and reduce disaster risk, and prepare and respond to shocks are available in a timely manner.

4. Project management: Processes and practical considerations that should be in place for an effective implementation.

Within this framework, it is possible to identify important intersections between DRF and social protection systems. 

The Link between Disaster Risk Financing and Social Protection Systems

While there is an imminent need to further invest in evidence generation and feasibility assessments on the cost-effectiveness of coordinating DRF instruments with social protection systems, there is a growing recognition that relying solely on ex-post funds, such as humanitarian assistance budgets or ad hoc budget allocations, to support hazard-affected populations is not sustainable, especially in the context of increased risks and exposure provoked by climate change. Emerging debates are also highlighting the potential benefits of forecast-based financing to support individuals and communities in advance of a shock by strengthening early warning systems and setting up anticipatory action mechanisms to respond to or minimize the impacts of an impending crisis, including through social protection.

This brief contributes to the debate on the benefits of strengthening the linkages between DRF and social protection systems. The document provides information on the key DRF instruments in place, and which actors commonly use them, with examples that illustrate the potential of stronger coordination with DRF for financing shock-responsive social protection, operational considerations when matching DRF instruments with social protection systems, and key reflections on what should be considered when moving forward toward a greater alignment between the two.