Loss and Damage Funding in the UN Climate Negotiations: From Dialogue to Reality
Bethany Tietjen and Tarun Gopalakrishnan
Loss and damage negotiations took center stage and its advocates left COP27 in Sharm el-Sheikh with a win in November 2022: for the first time, negotiators agreed to establish a fund for loss and damage from climate impacts. In a recent article for the journal Environment: Science and Policy for Sustainable Development, we explore the enabling conditions that influenced this development and highlight key elements of the COP27 decision that will influence the structure of future loss and damage funding arrangements.
A previously niche topic mostly discussed by climate experts and advocates, loss and damage received mainstream media attention in the lead up to negotiations in Egypt in 2022. The term refers to the losses, both monetary and nonmonetary, that result from the impacts of climate change. Monetary losses can come in the form of infrastructure damage from flooding or loss of livelihood from extreme weather events, among others. Nonmonetary losses can include forced migration, loss of culture, or loss of life – all things that are challenging to measure in financial terms. Loss and damage is often framed as the residual losses arising from disasters that we are not able to mitigate or adapt to.
While the issue has been addressed in the climate negotiations since the inception of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 and was institutionalized through the Warsaw International Mechanism on Loss and Damage in 2013, a dedicated fund for loss and damage remained out of reach until last year. A series of high-profile disasters in 2022, including severe flooding in Nigeria in June and in Pakistan in October brought the concept of loss and damage into the mainstream discourse and increased political pressure on developed country negotiators to incorporate the discussion of a loss and damage fund into the COP27 negotiations. Egypt's position as host and chair of the climate summit amplified voices from developing countries, and the Egyptian leadership chose to prioritize loss and damage as a significant focus for the 2022 gathering.
Figure 1: Timeline of Loss and Damage in the Climate Negotiations. Data source: Prater 2021. Image source: Tietjen and Gopalakrishnan, 2023.
Over the course of the two-week conference, there was uncertainty surrounding the possibility of establishing a dedicated fund. Experts, attendees, and negotiators who had worked on this issue for years expressed skepticism about the feasibility of creating such a fund. Representatives from major economies, including the United States, were apprehensive about acknowledging the legitimacy of loss and damage liability claims against historically high-emitting, industrialized countries for fear of the legal precedent this might set. Perhaps in anticipation of increased pressure on this issue prior to COP27, G-7 governments committed to creating an insurance mechanism called the Global Shield. The Global Shield was launched by the Vulnerable 20 Group of Finance Ministers (V20) and the G-7, and is intended to provide financial assistance that can be rapidly deployed during climate disasters. However, critics are concerned that insurance-based mechanisms like the Global Shield are inaccessible to many of the world's poorest and most climate vulnerable people and divert attention from the goal of a dedicated fund for loss and damage.
Despite the establishment of the Global Shield prior to COP27, negotiators from developing countries persisted in advocating for the establishment of a specific fund dedicated to loss and damage at the conference. Ultimately, despite reservations from some developed nations, parties came to an agreement on financing loss and damage in the final hours of the negotiations. Advocates for loss and damage managed to create a “big tent” to overcome resistance from large historic emitters. The core of this coalition was island nations that are the most vulnerable to climate change, both geographically and economically. Bangladesh, which is also particularly vulnerable to climate change, played a significant leadership role on the issue as well, often speaking on behalf of least developed countries (LDCs).
Pakistan’s role as leader of the G77 (developing country) group on the issue of loss and damage was key to the successful outcome at COP27. Pakistan represents a prime example of ongoing loss and damage, but it is also working to expand access to energy, including through coal projects financed by China. This unique combination of factors—a country that is highly vulnerable to climate change that also understands the concerns of fossil fuel-dependent nations about legal liability—made Pakistan an important diplomatic leader in the negotiations. Pakistan's close relationship with Saudi Arabia and longstanding ties with the United States likely also helped to push toward a historic outcome at COP27.
In our article, we discuss the challenge of reconciling multiple frames of loss and damage. Developing countries and advocacy organizations view loss and damage as a way of holding high-emitting nations accountable for the harm caused by climate change, and at times as a moral claim for climate reparations. However, developed countries frame it as a way of discussing risk management without admitting legal liability for past emissions. The final text on loss and damage at COP27 avoids any explicit mention of liability or compensation, and any institutional arrangement will be limited by the constraints set by developed countries. This means that the normative shift achieved at COP27 was minimal in this regard. However, the text does acknowledge the need to respond to ongoing harm and the inadequacy of existing funding arrangements. This recognition opens the possibility of a more significant normative shift towards developing rules, procedures, and expectations for funding in response to loss and damage. While this development may not address demands for moral reckoning or result in a legal shift, it does unlock the potential for greater policy action in this area.
What this action will look like will be determined in the coming months and years. The Transitional Committee, tasked with developing the institutional arrangements for loss and damage funding, recently met for the first time in March 2023. The committee consists of 14 members from developing countries and 10 from developed countries, and it will have significant choices to make regarding the trade-offs between scale, equity, and impact of the funding arrangements for loss and damage. Another key challenge it will face is identifying the gaps in funding loss and damage within the current financial landscape—particularly “priority gaps for which solutions should be explored” and including the “types of gap, such as relating to speed, eligibility, adequacy and access to finance.” The committee’s work will determine the future structure of a loss and damage fund.
With insights from developing research on international relations, international law, and climate policy, our article proposes strategies for addressing some of these decisions. These strategies include:
Forging strategic connections between the fund and multilateral and non-governmental players in the climate change "regime complex."
Developing new funding norms that steer clear of the limitations of purely voluntary actions and legal liabilities.
Filling crucial gaps in the current global frameworks of climate and financial governance.
The establishment of the loss and damage fund is a pivotal step forward in a process that has been decades in the making. The Transitional Committee’s work going forward will shape the format of these funding arrangements and determine their level of effectiveness at addressing a critical need: providing funding for countries and communities that have done little to contribute to climate change but are experiencing severe and costly climate impacts.
Bethany Tietjen and Tarun Gopalakrishnan are Pre-Doctoral Research Fellows at the Climate Policy Lab.