Loss and Damage was introduced to the climate negotiations more than three decades ago, and the topic has gained increased political traction in recent years. However, the issue of how to mobilize finance remains unresolved – and disputed.
Loss and Damage was introduced to the UN climate change negotiations in 1991, when the Alliance of Small Island States (AOSIS) called for the creation of an international insurance pool to ‘compensate the most vulnerable island and low-lying coastal developing countries’ for loss and damage caused by sea level rise. Over the years, Loss and Damage has gained increasing prominence in climate negotiations, but it has been controversial. This is largely because of the topic’s association with the historical responsibility of developed countries for causing climate change, and with linked calls for them to provide compensation to developing countries. Developed countries have feared that they may become liable to provide vast sums in compensation for loss and damage.
The 2007 Bali Action Plan was the first UN climate text in which the term ‘loss and damage’ appeared. In an important breakthrough, Parties agreed in 2013 to establish the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts (WIM). The WIM is intended to support countries most affected by loss and damage by facilitating dialogue and coordination among stakeholders, enhancing knowledge of comprehensive risk management approaches, and enhancing action and support to address loss and damage – including through finance, capacity-building and technology.
The Paris Agreement
To enable the adoption of the Paris Agreement at COP21 in 2015, developing and developed countries compromised on the issue of Loss and Damage. In Article 8 of the Paris Agreement, Parties agreed to ‘recognize the importance of averting, minimizing and addressing loss and damage associated with the adverse effects of climate change’ – which, to many, reflected the increased importance attached to the issue and a differentiation of Loss and Damage from adaptation. However, Paragraph 51 of the Paris Decision text states that Article 8 ‘does not involve or provide a basis for any liability or compensation’.
It is generally understood that Paragraph 51 in the Paris Decision text does not prevent communities from seeking compensation for loss and damage in national and international courts – as indeed the Commission of Small Island States on Climate Change and International Law, established in 2021 by Tuvalu and Antigua and Barbuda, aims to do. Vanuatu is also leading a campaign to ask the International Court of Justice for an advisory opinion on climate change and international law, with a view to supporting litigation on loss and damage in domestic and international courts. Vanuatu and the Maldives have also called for the International Criminal Court to criminalize ecocide (widespread destruction of the environment).
The Santiago Network
In 2019, Parties agreed to establish the Santiago Network to catalyse technical assistance related to loss and damage. In short, the network is intended to facilitate the provision of demand-driven technical assistance related to loss and damage by connecting developing-country governments with appropriate organizations, networks and experts. It is also meant to facilitate the development and dissemination of information on loss and damage, and enhance coordination among experts and organizations working on the topic.
As yet, the Santiago Network has not been fully operationalized – its existence is currently limited to a website – and its governance arrangements and institutional structure are still to be resolved., Negotiations on the Santiago Network will continue at COP27 in Sharm El-Sheikh, Egypt, in November 2022.
COP26
The provision and mobilization of Loss and Damage finance was a core priority for many developing countries at COP26 in Glasgow in 2021, and the topic received much attention in the media. Towards the end of the summit, the G77 plus China coalesced around a call to establish a ‘Loss and Damage financing facility’. However, the proposal did not gain sufficient support among developed countries and was not included in the Glasgow Climate Pact, the key political outcome of the conference. As a compromise, Parties agreed to establish the Glasgow Dialogue, a two-year process to ‘discuss arrangements for the funding of activities to avert, minimize and address loss and damage’. Some developing countries expressed criticism, saying the Dialogue was a delaying tactic, and made it clear that they expected the Dialogue to conclude with the establishment of a dedicated financing facility.
The Glasgow Climate Pact includes a specific section on Loss and Damage, and urges governments and other stakeholders to provide ‘enhanced and additional support’ for activities addressing loss and damage.
The Glasgow Climate Pact includes a specific section on Loss and Damage, and urges governments and other stakeholders to provide ‘enhanced and additional support’ for activities addressing loss and damage. It also states that the Santiago Network should be provided with funds. Since COP26, European Union member states have pledged contributions totalling approximately €25 million in support of the network. At the Glasgow conference, Scotland and the Belgian region of Wallonia pledged £2 million ($2.3 million) and €1 million ($989,600) respectively in dedicated Loss and Damage finance. Five philanthropic organizations also demonstrated support by contributing $3 million in start-up assistance to support the objectives of the facility.
The Glasgow Dialogue
The Glasgow Dialogue is scheduled to run until 2024, with sessions taking place each year at the Subsidiary Bodies meetings in Bonn. The first session of the Dialogue took place in June 2022. It focused on enhancing understanding of financing needs as well as the coverage of, and gaps remaining in, the existing international finance architecture. Developing countries highlighted gaps in the provision of finance for addressing loss and damage, including finance to address non-economic loss and damage (such as loss of cultural heritage), finance to address loss and damage arising from slow-onset events (such as glacial melt) and finance to fund medium-term rebuilding and recovery activities after extreme weather events. Many developing countries expressed frustration about the lack of an established link between the Dialogue and the formal negotiations, with some labelling it a ‘talk shop’ and highlighting that a similar dialogue (the Suva Dialogue) had been held in 2018.
Ahead of the Bonn conference, Bolivia, on behalf of the Like-Minded Developing Countries (LMDC) bloc, submitted a proposal to put the Glasgow Dialogue on the formal agenda for the meetings of the Subsidiary Body for Implementation (SBI), but this proposal did not gain sufficient support. The calls for an agenda item re-emerged over the course of the conference, and were formally expressed during coordination meetings of the SBI chairs and the lead national delegation coordinators. As these discussions were in progress, the G77 plus China submitted a letter to the Executive Secretary of the UNFCCC proposing that a sub-agenda item worded as ‘Matters relating to funding arrangements for addressing loss and damage’ be added to the provisional agenda for COP27 under ‘Matters related to finance’. This submission was accepted by the UNFCCC Executive Secretary and the item has been included on the provisional agenda for the Sharm El-Sheikh conference. However, as the agenda needs to be adopted at the start of COP27, there is a possibility that the item could be challenged.
COP27 and beyond
Loss and Damage finance is expected to be a headline issue at COP27. At a speech in July 2022, the UN Climate Change High-level Champion for Egypt stated that COP27 should focus on adaptation and Loss and Damage finance, but predicted that the latter would be ‘very controversial’ at the negotiations. In the run-up to the conference, the incoming COP27 presidency convened informal consultations with heads of Party delegations to gauge views and build consensus around what a possible package of outcomes on Loss and Damage at COP27 could look like. At the consultation convened in Cairo on 10–11 September, there was a ‘general consensus’ among participants that such a package at COP27 could include the following elements: an agenda item (though views differed on its scope, timeline and placement, as well as on issues related to sources of financing and eligibility); further operationalization of the Santiago Network; enhancement of finance for Loss and Damage (including a call for multilateral development banks – MDBs – and financial institutions to scale up such support); providing visibility to relevant initiatives and ongoing work outside the UNFCCC; and giving recognition to work conducted by the WIM.
Outside the remit of the UNFCCC, Loss and Damage finance attracted significant attention in the lead-up to COP27, including at the UN General Assembly (UNGA) in September 2022. During UNGA, Denmark became the first UN member state to pledge dedicated Loss and Damage finance, committing a total of $13 million. UN Secretary-General António Guterres called on all developed countries to impose a windfall tax on fossil fuel companies and to distribute the revenues to support vulnerable nations suffering from loss and damage as well as people struggling financially in the face of the international cost-of-living crisis. Also at UNGA, Barbadian prime minister Mia Mottley launched the Bridgetown Agenda to reform the international financial system so as to free up resources for action on climate change – including Loss and Damage – and for the achievement of the Sustainable Development Goals (SDGs). Moreover, Loss and Damage has been an area of focus for the G7, whose members, together with finance ministers from the Vulnerable Group of Twenty (V20) climate-vulnerable countries, are seeking to launch a new initiative at COP27, the Global Shield Against Climate Risks (Global Shield), in order to support those affected by loss and damage.
Looking beyond COP27, the Global Stocktake – a two-year process to assess progress on the implementation of the Paris Agreement – is due to conclude at COP28 in the United Arab Emirates in November 2023. The Stocktake will include consideration of Loss and Damage as a cross-cutting issue, although the extent to which the topic will feature is not yet clear. Countries can, however, include loss and damage in their individual nationally determined contributions (NDCs), and thereby report on the issue as part of the Stocktake process. At the time of writing, 10 of 46 LDCs had integrated loss and damage into their NDCs, with another 35 LDCs making indirect references to loss and damage. In addition, in submissions ahead of the Global Stocktake, many developing-country groupings have stated that Loss and Damage should be an important element of the Global Stocktake – with AOSIS and the LDC Group stressing that the Stocktake should consider Loss and Damage finance, action and support.
At and beyond COP27, negotiations will continue on the New Collective Quantified Goal on Climate Finance (hereafter ‘new climate finance goal’). The aim of the talks is to set a new climate finance goal for the post-2025 period ‘from a floor of USD100 billion per year, taking into account the needs and priorities of developing countries’. The process is scheduled to conclude by 2024. Several developing-country groupings have called for a specific target for Loss and Damage finance to be included in the new climate finance goal.
