Forward-Looking Household Climate Vulnerability Curves to Inform Poverty Reduction Policy

Overview & Synopsis

Climate shocks increase poverty and reduce development gains and productive investments, in part because vulnerable households have poor financial resilience, are often not covered by public safety nets, and therefore have little ability to cushion the impacts of shocks. Globally, nearly one in five people (18 percent) are at risk of climate hazards and are likely to experience a severe climate shock in their lifetime that they will struggle to recover from. Among those at risk, 44 percent have no access to a bank or mobile money account, and 49 percent neither receive benefits nor are eligible to receive benefits from social protection schemes (World Bank Corporate Scorecard, 2024). Improving households’ post-shock access to financing—by strengthening public safety nets and encouraging people to increase their own financial resources to meet unanticipated expenses (for example, through savings and insurance)—is thus an urgent policy priority. This note presents an analytical approach to developing forward-looking household climate vulnerability curves to understand both the size of the financing problem and the ways that different policies can address it. The approach is illustrated with an application to drought risk in Sub-Saharan Africa. It provides valuable inputs for policy makers prioritizing investments in climate adaptation and resilience, can add technical value to key flagships such as Country Climate and Development Reports (CCDRs) and Poverty and Equity Assessments, and can support the use of instruments from the World Bank’s Crisis Preparedness and Response Toolkit.