Climate change: The contested path of Loss and Damage Fund

As the United Arab Emirates prepares to host the pivotal COP28 summit, the recent impasse at a meeting at Aswan, Egypt casts a long shadow over proceedings, particularly regarding the operationalisation of the Loss and Damage Fund ( L&D). This fund, a seminal achievement of COP27 in Sharm El-Sheikh, Egypt, was heralded as a beacon of hope for vulnerable nations grappling with the escalating crises induced by climate change. The increasing severity, breadth, and regularity of L&D wrought by climate adversities are irrefutable.

It is not a surprise that all the 10 most affected countries by climate change between 2000-2019, as per Climate Risk Index 2021, are all developing countries. The G77 plus China, representing the climate-vulnerable countries, pioneered the inclusion of finance for L&D in the COP27 agenda, emphasising that this mechanism should not misconstrue liability or compensation. Instead, it’s a global commitment—a collective acknowledgment of the asymmetrical impacts of climate change and a step toward redressing these imbalances.

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However, the path from conceptual agreement to functional reality has been fraught with contention. Disagreements persist, especially concerning the fund’s structure, beneficiaries, and contributors—with developed nations notably insistent on China’s financial participation. The deadlock extends to decisions on the fund’s domicile, reflecting deeper geopolitical undercurrents. The developed countries want it to be based out of the World Bank, whereas the developing countries want the fund to be a “body under international law possessing international legal personality”.

There are four other challenges which makes operationalisation of L&D difficult. First, determining the range and extent of L&D requires a holistic understanding that goes beyond mere economic metrics. Estimating the value of non-economic L&D, especially those stemming from slow onset impacts, is particularly challenging. Such losses may not always be tangible or easily quantifiable, adding complexity to the assessment process.

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Second, there is often a disconnect between affected populations and the data repositories maintained by governments, civil society organisations, and financial providers. While the larger causes may trace back to climate change, local communities might perceive more immediate or proximate causes as more significant. This disparity between lived experiences of L&D and available data makes designing effective interventions a challenge. Moreover, many Least Developed Countries lack the technical know-how and resources to analyse climate data and assess projected risks of L&D, underscoring the urgency for capacity building and support.

Third, the nuances of each context make standardising methodologies a challenging task. Existing assessment models face limitations, especially in areas where climate change and conflict intersect. Understanding the multifaceted vulnerabilities, which may vary based on gender and other intersectional aspects, and prioritising actions within available resources, further complicate matters. Overall, the challenge is not just in recognising the economic and non-economic losses but also in attributing them accurately to the overarching phenomenon of climate change.

Fourth, the rift between developed and developing nations is palpable, rooted in historical injustices and equity concerns. Developed nations, including major historical polluters, argue for a shared solution and endorse an insurance-centric system supported by grants, favouring the World Bank’s oversight for efficient funding diversification. On the other hand, developing nations, pointing to the developed world’s past emissions, insist on their greater financial contribution. They demand immediate, debt-free support, highlighting the urgency for the most vulnerable among them. They advocate for a dedicated fund, in line with the UNFCCC and Paris Agreement’s equity principles, emphasising non-debt finance and urging the developed world to step up without burdening the developing countries

Possible solutions

Countries should invest in building capacity for climate risk analysis and L&D assessments because climate change disrupts national economies, affects lives and livelihoods, especially the vulnerable, and impacts every country on every continent. The UN aids developing countries through sustainable development initiatives and climate action strategies, striving for a more sustainable global economy and reducing greenhouse gas emissions. Additionally, the Warsaw International Mechanism promotes methods to address loss and damage linked to climate impacts. While the UN’s efforts are commendable, more needs to be done in terms of providing financial support and developing institutional capacities for the most vulnerable nations.

National-level frameworks on loss and damage, like the one adopted by Nepal, are vital because they provide a structured and contextualised approach to understanding and addressing the adverse effects of climate change specific to a country’s unique circumstances. Such frameworks not only serve as a blueprint for managing climate risks but also inspire other nations to develop their tailored strategies, making them an integral part of global efforts to mitigate the impacts of climate change.

There is a need to develop adaptable assessment tools which underscores the need for a multifaceted approach to assessing loss and damage, incorporating social, economic, and health facets.

As cross-border migrations are projected to increase due to climate-induced factors, there is also a need to investigate potential migration routes, associated health risks, and preventive measures.

Further, the funds should be allocated to developing nations impacted by climate change, with the amount being based on need and without exacerbating debt. The most vulnerable communities, which may not always be the poorest, should be identified. For instance, many small island developing states, despite having middle-to-high incomes, face significant threats due to their vulnerability, high debt, and limited resources. The fund’s release should follow post-disaster assessments with clear goals and timelines, considering factors like geographical damage and previous disasters.

It’s essential to differentiate L&D finance from humanitarian aid and development assistance, with L&D covering both immediate and long-term recovery. Moreover, the fund should provide for slow-onset events like sea-level rise and desertification, supporting long-term planning and transformative actions, such as facilitating transitions to alternative livelihoods due to climate impacts.

Last but not the least, it is important to reform multilateral development banks (MDBs). India’s G20 presidency has given impetus to this idea and COP28 should take it forward. According to the Independent Expert Group on Strengthening MDBs, “The MDBs should be tripling sustainable lending levels by 2030 and creating a third funding mechanism which would permit flexible and innovative arrangements for purposefully engaging with investors willing to support elements of MDB agenda.”

Operationalizing the L&D fund presents its challenges, but they are not insurmountable. As global attention turns to the COP28, the urgency for tangible outcomes resonates deeply. The L&D Fund, beyond mere financial aid, symbolises our collective duty to shield the vulnerable. Drawing inspiration from literature, both Rachel Carson and Kazuo Ishiguro emphasise the interconnectedness of our fates and the perils of indifference. The success of the fund hinges on its detailed execution. With COP28 on the horizon, the hope remains for a resolution that upholds the principles of equity and shared responsibility.

The author is Officer on Special Duty, Research, Economic Advisory Council to the Prime Minister of India. Tweets @adityasinha004. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.

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