Paying for loss and damage: operationalizing a new climate fund and what it means for developing countries

Dennis Mombauer

The impacts of climate change beyond the current or theoretical limits of adaptation cause loss and damage to human communities and natural ecosystems. This issue has been brought up in global climate negotiations for decades, but so far, no dedicated fund or support facility has been established under the United Nations Framework Convention on Climate Change (UNFCCC). However, at the end of 2022, Parties to the UNFCCC decided at the United Nations Climate Change Conference (COP27) to establish a fund for loss and damage to support those who are most vulnerable and affected.

From a decision to a fund

As of now, this fund is not operational. While the COP27 decision acknowledges the “urgent and immediate need for new, additional, predictable, and adequate financial resources to assist developing countries that are particularly vulnerable to the adverse effects of climate change,” the fund is yet to be designed, structured, and established to be able to collect and disburse any money. 

Throughout 2023, a Transitional Committee will work out the modalities, institutional arrangements, sources of funding, and eligibility of funding recipients before Parties convene again at COP28 in Dubai. The COP27 decision specifies 24 members representing different regions and stakeholder groups to constitute the Transitional Committee: 14 from developing and 10 from developed countries. At the time of writing this column, 10 out of these 24 slots have been filled, in the case of developing countries from Latin America and the Caribbean with two alternating members each (January-June and July-December). The Asia-Pacific region, to which Sri Lanka belongs, has only officially submitted one nomination out of three so far, the United Arab Emirates as the host of the upcoming COP28.

The first meeting of the Transitional Committee is scheduled to take place no later than March 31st, 2023, and two more meetings will happen before the end of the year. Key questions for the Committee include the following:

  • What is loss and damage, and how can it be assessed, measured, and quantified in different contexts without putting additional burdens on developing countries and frontline communities?
  • How can loss and damage be attributed to climate change and the need for support be distinguished from humanitarian relief or disaster management?
  • What are finance needs for addressing loss and damage, and how can finance and support be delivered to those who are impacted the most? Which Parties should be eligible to receive money, and which ones should be required to pay?
  • How can loss and damage support be monitored and evaluated to understand and optimize its actual impact?
  • What are changes to the wider global financial architecture that could facilitate better access to loss and damage finance and help the countries which are affected the most?

While all these issues will be discussed by the Transitional Committee and a range of other stakeholders, the most crucial question for developing countries such as Sri Lanka is likely to be the following: how can they access funds, and what can these funds be used for?

Opportunities and challenges for developing countries

The ways in which developing countries contribute to this process and highlight their own needs for addressing loss and damage could make a huge difference. For example, countries could document different forms of loss and damage, including non-economic and cultural ones, identify the most affected populations, and map out support that would be required on the local and national level.

As of now, there is no standardized framework for measuring loss and damage. While databases on disaster impacts and reporting under the Sendai Framework for Disaster Risk Reduction could play an important part, they currently don't capture all aspects of climate-induced loss and damage, especially many of the non-economic ones or long-term impacts like loss of ecosystem services. For countries such as Sri Lanka, it could therefore be beneficial to develop a way to provide estimates for the full range of climate-induced loss and damage, highlighting the additional needs that are separate from adaptation funding, development funding, or disaster risk reduction.

Sri Lanka already experiences significant climate impacts causing loss and damage in key sectors such as agriculture. Especially given the current economic situation and against the backdrop of the COVID-19 pandemic and shrinking fiscal space, the country requires support to address loss and damage and help those affected by climate change to recover, rebuild, and heal. However, understanding the need for support is only one side of the equation: the other is to be able to actually deliver this support down to the ground level once it is received.

In addition to being climate-vulnerable, Sri Lanka already has an existing institutional infrastructure to channel loss and damage support to beneficiaries on the ground. For example, there are public crop and livestock insurance schemes, a national natural disaster insurance, disaster relief payments, social protection systems, farmers’ and fishermen’s pension funds, and relocation programmes to move exposed communities away from hazard-prone areas.

Laying the groundwork

It will take time for the loss and damage fund to be properly established and become fully operational. The work of the Transitional Committee will be carried forward into COP28, where Parties to the UNFCCC will convene again and decide on the way forward. Based on experiences with previous multilateral climate funds—such as the Green Climate Fund or the Adaptation Fund—, it may also take time to establish a Secretariat, collect funds, and process applications.

It is clear that funding is needed for addressing loss and damage, that much of this funding must come from developed countries, and that it has to reach frontline communities in the Global South, which are currently shouldering most of the burden of loss and damage. However, there are potential roles for many stakeholders in expediting this process and ensuring the development of an ambitious, transparent, equitable, inclusive, and fit-for-purpose loss and damage fund.

Developing countries can proactively engage with the topic both within and outside the UNFCCC space. By collecting evidence on loss and damage, the need for support, and domestic structures to disburse it, they can present themselves as case studies and guide the establishment of the fund by highlighting potential solutions and concrete options. Furthermore, documenting the impacts of climate change can help communities, local governments, and industries to plan ahead, invest in pre-arranged risk transfer or retention solutions, and mobilize funding from different sources.

This blog post was originally published as a guest column in Daily Financial Times on February 10th, 2023, and is available here.

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Dennis Mombauer

Dennis Mombauer currently lives in Colombo as a freelance writer and researcher on climate change and education. He focuses on ecosystem-based adaptation and sustainable urban development as well as on autism spectrum disorder in the field of education. Besides articles and research, he has published numerous works of fiction in German and English.