Our interviews with country representatives illustrate that there are diverging perspectives on appropriate Loss and Damage funding arrangements, especially on the question of whether there is a need for a dedicated financing facility. A host of other challenges and concerns also continue to impede meaningful progress.
The previous chapter described the emergence of Loss and Damage as a procedural issue in climate negotiations. This chapter will explore countries’ concerns, motivations and priorities in relation to Loss and Damage finance, drawing mainly on insights generated through closed-door interviews with country representatives.
As mentioned, the information obtained through the interviews is not intended to represent a complete or perfect overview of Party perspectives globally. It does, however, provide an indication of where the main challenges in the discussions on Loss and Damage finance lie, and what the key priorities and concerns of different countries are. The interviews are supplemented by information from Party submissions and statements – and articles in the media – as well as findings from previous studies on the politics of Loss and Damage.
Based on the information obtained, six key themes were identified:
- Loss and Damage is considered to be an increasingly important topic by developed and developing countries alike.
- There are diverging views on whether Loss and Damage constitutes the ‘third pillar’ of climate action under the Paris Agreement.
- There is a lack of clarity on definitional issues.
- Some developed countries remain apprehensive about liability and compensation.
- There are different views on what effective financing solutions look like.
- Reaching sufficient scale in funding is a key challenge.
The chapter is structured in accordance with these six themes. As the aim is to convey positions, views and perceptions as context for the analysis and recommendations in Chapters 4 and 5, the sections are largely descriptive, rather than prescriptive.
An increasingly important issue
Loss and Damage is recognized by developing- and developed-country interviewees as a topic that has risen in salience within the climate negotiations. Many developing-country interviewees referred to it as a key priority or a ‘life or death issue’. At COP26, developing-country representatives made impassioned calls for support to deal with urgent and escalating climate impacts, and during the first session of the Glasgow Dialogue they highlighted the substantial – and devastating – economic and non-economic costs of loss and damage, emphasizing that these costs are currently being borne by communities with little or no responsibility for human-induced climate change.
In Chatham House’s interviews, negotiators from developed countries perceived that Loss and Damage – especially Loss and Damage finance – has gained significant traction within the climate talks in recent years, and that the importance of the issue will only increase in the future. Several developed-country negotiators pointed to the fact that climate change impacts are becoming ever more severe as explanation – at least in part – for why the issue of Loss and Damage has risen in salience. In addition, one developed-country negotiator proposed that the increasing importance of Loss and Damage within the climate talks may be partly linked to the fact that many other negotiating items have been concluded, suggesting that Loss and Damage has become an issue which masks other grievances of developing countries.
Developed-country interviewees generally expressed a willingness to contribute towards addressing concrete needs related to loss and damage in developing countries. A few said that they are facing mounting political pressure – from both developing countries and civil society – to respond, and that they are analysing what possible solutions might look like, indicating they are open to and would welcome suggestions and ideas. Many stated that they are keen to better understand the needs of developing countries and are upskilling internally, with some governments dedicating new staff to work on Loss and Damage.
When interviewed by Time magazine shortly before COP27, the US special presidential envoy for climate, John Kerry, expressed US support for a ‘good dialogue’ on Loss and Damage finance at the Sharm El-Sheikh conference, during which Parties should ‘have a discussion about all aspects of [Loss and Damage], including whatever potential financial arrangements people are thinking are appropriate’. Kerry also stated: ‘Clearly, there is a need by the developed world to step up to deal with the impacts’.
The EU, meanwhile, aims to be a ‘bridge-builder’ on Loss and Damage at COP27, and the conclusions on climate finance adopted by the Council of the EU ahead of the Sharm El-Sheikh conference underline ‘the need to strengthen the action, support and global coordination for averting, minimising and addressing loss and damage associated with negative impacts of climate change’.
Some countries share a concern that failure, or a perception of failure, to make sufficient progress on the Loss and Damage finance agenda within the UNFCCC may have negative repercussions for the wider climate talks.
Some countries share a concern that failure, or a perception of failure, to make sufficient progress on the Loss and Damage finance agenda within the UNFCCC may have negative repercussions for the wider climate talks. An interviewee from an NGO advising a climate-vulnerable developing country emphasized that trust between developed and developing countries is at rock bottom as a result of the past failure of developed countries to deliver on promises made.
Implications: will a greater sense of urgency help countries find common ground?
The fact that Loss and Damage has risen in political salience in recent years, and that at least some developed countries are feeling increasing political pressure around this issue, suggests that there is a greater sense of urgency across all country groups to identify possible funding solutions and arrangements. While this could help countries find common ground, several challenges remain: these are explored in the following sections.
It should be emphasized that for some countries – notably, those for which climate change is an existential threat – the sense of urgency with respect to loss and damage is much greater than for others. While the Loss and Damage finance agenda is gaining momentum, many developing countries express frustration, anger and disappointment that the pace of change is too slow. The decision to establish the Glasgow Dialogue is a case in point. One SIDS representative interviewed for this research paper voiced the opinion that there is no difference between the Glasgow Dialogue and the Suva Expert Dialogue of 2018. Another SIDS negotiator highlighted that it would have been more acceptable if the Glasgow Dialogue had been agreed a few years ago: but their country had been pushing for a facility – as opposed to a dialogue – at COP26.
The ‘third pillar’ of climate action?
Several developing countries and civil society stakeholders consider Loss and Damage to be the ‘third pillar’ of the Paris Agreement, alongside climate change adaptation and mitigation, and/or the third pillar of climate action under the UNFCCC. However, research by Elisa Calliari and colleagues suggests that some Parties continue to question whether Loss and Damage does constitute the third pillar of climate action, despite the establishment of the WIM and the inclusion of Article 8 in the Paris Agreement. At least one developed-country negotiator interviewed for this paper argues that the agreement’s pillars are set out in Article 2, where Loss and Damage is not mentioned. According to the negotiator, climate change mitigation and adaptation lie within the UNFCCC’s financial architecture, whereas addressing loss and damage does not.
Implications: how and where should Loss and Damage be addressed?
The divergence of views on whether Loss and Damage constitutes the ‘third pillar’ of climate action under the UNFCCC/Paris Agreement has implications for discussions around how – and in what forum – the issue should be dealt with. Those countries and civil society organizations that do consider Loss and Damage to be the third pillar of climate action sometimes use this as an argument when advocating for the provision of dedicated Loss and Damage finance, for the establishment of a dedicated Loss and Damage financing facility under the UNFCCC, and/or for the inclusion of a sub-target on Loss and Damage in the New Collective Quantified Goal on Climate Finance. In contrast, the above-mentioned negotiator whose developed-country government does not consider Loss and Damage to be the third pillar of the Paris Agreement points to a reluctance in establishing a dedicated Loss and Damage finance facility under the UNFCCC and/or including a sub-target on Loss and Damage finance in the new climate finance goal, at least partly because they believe addressing loss and damage lies outside the remit of the UNFCCC.
Confusion and lack of clarity on definitions
There does not appear to be a shared understanding among Parties of what constitutes loss and damage, and/or Loss and Damage finance. One negotiator acknowledged that their country is not entirely certain what is meant by the term ‘loss and damage’, suggesting that it could mean many different things. The same negotiator emphasized the importance of not focusing too strongly on the language, but rather on defining in concrete terms the activities that need to be funded. One developed-country interviewee stated that they always use the phrase ‘averting, minimizing and addressing’ loss and damage in its entirety (this being the terminology used in the Paris Agreement), and another representative highlighted a need to focus on – and unpack – the provisions of Article 8 in the Paris Agreement with respect to Loss and Damage. A third developed-country representative stated that their country uses the definition employed by the OECD. Several developing countries describe loss and damage as occurring when limits to adaptation have been reached.
In Chatham House’s interviews, some representatives of developed countries stated that it is, or can be, difficult to distinguish Loss and Damage finance from adaptation finance, or from some types of development aid and humanitarian assistance. Several commented that they are, in effect, already providing Loss and Damage finance, but do not label it as such. One representative asked whether it matters what the finance is called, if the needs of affected communities are met, and another speculated whether the issue of providing Loss and Damage finance may, at least to some degree, be a matter of the tagging and labelling of finance. However, a negotiator from a SIDS turned the argument around, wondering why pledges should not be framed as relating to Loss and Damage, if the label applied to the finance was unimportant? The same negotiator emphasized that the term ‘Loss and Damage finance’ should be used, specifically because current financing structures do not cater to addressing Loss and Damage-related needs, which are distinct from needs related to adaptation and mitigation. Previous research has highlighted the difficulties some Parties face when distinguishing Loss and Damage from adaptation and/or disaster risk management.
In the first session of the Glasgow Dialogue, many developing countries highlighted that there is international funding available, albeit not in sufficient amounts, for mitigation (averting loss and damage) and adaptation (minimizing loss and damage). They argued that international finance for addressing loss and damage is where the main gap lies. Some developing countries claim that no international finance at all is available for addressing loss and damage, while other developing countries state that funding is available for some aspects of addressing loss and damage, but that it is far from sufficient and that important gaps exist. Diverging views on whether certain types of humanitarian assistance can qualify as finance for addressing loss and damage is a case in point: some developing countries believe this to be the case, while others do not.
Some developing-country interviewees highlighted the utility of agreeing on definitions of ‘loss and damage’, or ‘Loss and Damage finance’. However, both developed- and developing-country negotiators point to the challenges – or even the political impossibility – associated with reaching such an agreement. A representative of a SIDS suggested that while it might be difficult to agree on a definition, it would be productive at least to separate discussions on addressing loss and damage from those on averting and minimizing it. One developed-country interviewee highlighted that it remains difficult to determine the role of climate change in causing a specific weather event, and that this is an obvious technical barrier in the discussions on Loss and Damage finance.
Implications: fuzziness around concepts may impede progress
Previous research has illustrated how the ambiguity surrounding the term Loss and Damage may have facilitated its institutionalization within the UNFCCC, as this enabled Parties to attach different meanings to the concept. It is possible that ambiguity still serves a purpose in this regard. However, confusion around definitions – and a lack of shared understanding of what constitutes Loss and Damage finance – also creates problems. This is because Parties may, at times, be speaking about different things, or they may be uncertain about what types of activity need funding. Confusion around definitions might also make it harder for governments and other stakeholders to pledge dedicated Loss and Damage finance, and there is a risk that such pledges could constitute a simple ‘rebadging’ of other types of finance (for example, adaptation finance), as opposed to being ‘new and additional’ and specifically aimed at addressing loss and damage.
‘Averting, minimizing and addressing’ loss and damage encompasses all areas of climate action. As such, this broad term is itself a source of ambiguity. Leia Achampong and Erin Roberts have highlighted that developed countries’ insistence on having ‘averting’ and ‘minimizing’ inserted along with ‘addressing’ loss and damage serves to divert attention away from the latter component. While mitigation and adaptation are crucial, using the term ‘averting, minimizing and addressing’ loss and damage in its entirety, for example within the Glasgow Dialogue, incentivizes broad, and therefore potentially less productive discussions.
Finally, although the attribution science has improved markedly, it is still difficult to say with certainty whether a specific extreme weather event was caused by climate change. This may have implications for the discussions on funding arrangements.
Lingering fears around liability and compensation
Several interviewees expressed the view that the adoption of the Paris Agreement had largely moved the debate around Loss and Damage away from liability and compensation, as the agreement’s decision text rules out compensation claims in the context of Article 8. A developing-country negotiator suggested further that the decision at COP26 to establish the Glasgow Dialogue had contributed to shifting the discourse away from apportioning culpability, and towards an approach focused on countries collaborating to find solutions to the loss and damage challenge.,
For some developed countries there no longer appears to be an evident link between Loss and Damage finance, on the one hand, and liability and compensation on the other. This sentiment came across in interviews, and is epitomized by the statement delivered by the Danish minister of development cooperation when he announced his government’s loss and damage pledge at the UN General Assembly in September 2022:
Nevertheless, certain other developed countries remain concerned about liability and compensation. One developed-country representative commented that Loss and Damage is an extremely sensitive topic, and equated the demands for a dedicated financing facility with compensation claims, stating that such calls go against the nature of the Paris Agreement. A third, when discussing their government’s significant concerns around liability and compensation, mentioned that the number of climate litigation cases in their country is rising, possibly implying that discussions within the UNFCCC might have implications domestically. The finding that some developed countries remain concerned about liability and compensation, despite the adoption of the Paris Agreement, is in line with previous research. Moreover, an interviewee from an LDC commented that there are economies within the G77 where emissions are growing rapidly. These countries are apprehensive about the topic of Loss and Damage, as they fear they may at some point become obligated to provide support to climate-vulnerable developing countries.
Developing-country negotiators interviewed for this paper appear to take a relatively pragmatic stance. Some stated that they still consider the concepts of liability and compensation to be important – including from a fairness and justice perspective – but that, to enable progress, they are no longer calling for compensation within the UNFCCC. Others went further, saying that they deliberately avoid all reference to the concepts. A few developing-country negotiators stated that while they do not consider the UNFCCC to be the right forum for claiming compensation, they would consider taking legal action against high-emitting countries in international and/or national courts. A negotiator from a SIDS stated that they are in favour of a dedicated Loss and Damage facility through which funding would be provided on a ‘cooperative and facilitative’ basis. Other SIDS negotiators confirmed that resources given or dispersed through such a facility would not need to be framed as compensation.
However, some interviewees pointed out that there are G77 members who continue to refer to liability and compensation in the climate talks. Moreover, a previous study suggests that there is no clear consensus among developing countries that compensation payments constitute a suitable way of mobilizing Loss and Damage finance, and that compensation is by many seen as ‘desirable but unfeasible, impractical or impossible’. Another study found there are differing interpretations of ‘compensation’ among developing countries, and that the term is not always used with a legalistic or liability implication in mind. One developing-country interviewee pointed to a discrepancy between the discussions taking place at the technical level within the UNFCCC, where the concepts of liability and compensation are largely absent, and statements made at the political level, where (according to the interviewee) it is not uncommon that calls for compensation are made. The negotiator also mentioned that the term ‘compensation’ may be used as a rallying call at the national level in some developing countries. Moreover, it should be noted that the media often describe Loss and Damage finance in terms of ‘compensation’ or ‘climate reparations’: this was the case, for example, in much of the reporting on Denmark’s pledge, which was explicitly not framed in such terms.
Several developed- and developing-country interviewees cited concerns about liability and compensation as one of the greatest challenges – if not the single greatest – in the discussions around Loss and Damage finance.
A recent example of a reference by the leader of a developing country to the concepts of liability and compensation is to be found in the statement made by Gaston Browne, the prime minister of Antigua and Barbuda, at the high-level segment of COP26: ‘Such loss and damage have persisted for decades, but compensation has been neglected by the governments of the worst polluting countries, for far too long. Should no formal mechanism for loss and damage compensation be established, member countries of the United Nations may be prepared to seek justice in the appropriate international bodies.’ However, the vast majority of developing-country leaders did not refer to liability and/or compensation during the high-level segment of COP26.
Several developed- and developing-country interviewees cited concerns about liability and compensation as one of the greatest challenges – if not the single greatest – in the discussions around Loss and Damage finance. In contrast, one interviewee from a SIDS appeared genuinely surprised that some developed countries remain concerned about these concepts, commenting that fears over liability and compensation are not the main issue – in their view, the key challenge consists of insufficient domestic support for scaling up climate finance or providing Loss and Damage finance in developed countries.
One developing-country negotiator said exploring new narratives and framings around Loss and Damage finance – for example solidarity – could help unlock progress. When one representative of a developed country which is relatively more concerned about liability and compensation was asked whether their government might consider providing dedicated Loss and Damage finance if it were not framed as compensation, the representative answered that this was a conversation which had not been had in such terms within their government. Another developed-country negotiator suggested that further building consensus around a narrative that delinks Loss and Damage finance from liability and compensation might help persuade their country to be more open to discussing Loss and Damage finance. When speaking at Chatham House in October 2022, US Special Presidential Envoy for Climate John Kerry stressed that a focus on liability, compensation or reparations would not advance the dialogue on Loss and Damage finance.
Implications: liability and compensation are still a factor in play
While developed countries generally are becoming increasingly less apprehensive about engaging in discussions around Loss and Damage finance, some do remain concerned about liability and compensation, despite the adoption of the Paris Agreement. This fear is one of the factors preventing some developed countries from taking a more ambitious position on Loss and Damage finance. Developing countries interviewed for this paper generally take a pragmatic stance, suggesting that the provision of Loss and Damage finance does not need to be framed as compensation. Within the UNFCCC, it should be possible for governments to work together around funding arrangements on a ‘cooperative and facilitative’ basis, as set out in the Paris Agreement.
Outside the remit of the UNFCCC, the number of climate litigation cases is rising. In addition to the establishment in 2021 of the Commission of Small Island States on Climate Change and International Law (by Tuvalu, together with Antigua and Barbuda), Vanuatu is spearheading a coalition calling for advisory opinion from the International Court of Justice on climate change and international law. Several studies point to a link between insufficient progress on the Loss and Damage agenda within the UNFCCC and the rising number of climate litigation cases. This is also reflected in statements like that made by Prime Minister Gaston Browne for Antigua and Barbuda at the high-level segment of COP26 (see above).
Diverging perspectives on funding solutions
Views differ across country groups – and sometimes within country groups – on what form effective responses and funding arrangements for Loss and Damage might take.
Leveraging and strengthening existing institutions
In interviews with Chatham House, negotiators representing developed countries emphasized the need to gain a better understanding of how existing organizations – such as the multilateral climate funds, the MDBs and humanitarian organizations – respond to loss and damage at present. They also emphasized the need to identify weaknesses and barriers within the current system, and the need to assess how existing institutions can be reformed and/or strengthened to address gaps. Many developed-country interviewees recognized that the current financing architecture has its shortcomings. For example, they mentioned that humanitarian organizations remain persistently underfunded, and that multilateral climate funds do not work in an optimal way (citing, among other reasons, that it takes a long time for a project proposal to be approved). They also suggested that there is a need to strengthen cooperation between the humanitarian and development sectors.
Negotiators from both developed and developing countries underlined the need for a ‘multipronged’ or ‘holistic’ approach to the loss and damage challenge. Several among them highlighted that there is scope for the MDBs to do more in this space. Addressing debt issues in developing countries and the strategic deployment of IMF Special Drawing Rights (SDRs, an international reserve asset) were also referred to as potential – if partial – solutions. In public forums, the US has highlighted the potential of the MDBs to do more on Loss and Damage, and the utility of addressing debt issues in developing countries.
At the first session of the Glasgow Dialogue in June 2022, many developing countries reported that mapping exercises had already been conducted and that clear financing gaps – for example in relation to non-economic losses and slow-onset events caused by climate change – had been identified. Antigua and Barbuda, speaking on behalf of AOSIS, presented examples of reforms that the alliance had sought to implement within the Green Climate Fund to enhance the latter’s ability to address loss and damage, but which had been rejected. The delegates also outlined the challenges and constraints Antigua and Barbuda – and SIDS more widely – face when applying for funding for activities addressing loss and damage from existing organizations, stating, in conclusion, that ‘the facility is a manifestation of being ignored and being neglected’.
In the closing plenary of the Dialogue, the US asserted that many of the reform proposals mentioned during the first session of the Dialogue had ‘real merit’, and went on to state that the US government was interested in further exploring them. The EU (in the final plenary) and the US (in a breakout group discussion) were among those Parties acknowledging the existence of gaps in current international architecture when it comes to addressing loss and damage.
Establishing a Loss and Damage financing facility
At COP26 and during the June 2022 Subsidiary Body meetings in Bonn, the G77 plus China called for the establishment of a dedicated Loss and Damage financing facility, with some negotiators arguing that such an arrangement could contribute to meeting loss and damage funding needs not covered by existing entities.
Based on interviews with developing-country negotiators, there appear to be different ideas and/or some flexibility around what such a facility could look like. Some interviewees stated that a new standalone fund would be desirable, while others consider a window within an existing entity, such as the Green Climate Fund, to be a better option. A few negotiators highlighted that placing the facility within an existing fund or mechanism could be challenging, as it would probably require wider – and potentially far-reaching – reforms to the entity in question. Obtaining approval for these reforms from the boards of the relevant organizations could prove difficult. A negotiator from an LDC emphasized that they would not want a dedicated ‘window’ or trust fund for loss and damage under the Adaptation Fund or LDC Fund, given the risk that such an arrangement could divert resources away from adaptation objectives.
Furthermore, a SIDS negotiator proposed that the facility could potentially encompass a range of funding arrangements: a new fund could be part of the package, along with solutions related to debt cancellation and cash transfers. The same negotiator also mentioned the potential utility of implementing budget swaps, reallocating IMF SDRs and adjusting the MDB’s loan criteria, and emphasized that their country is seeking an innovative approach to the Loss and Damage finance challenge.
At COP27, AOSIS is expected to present a proposal for a ‘Loss and Damage Response Fund’, which could pool and disburse finance from public and private sources to help developing countries rebuild after a climate disaster. The idea would not be to replace humanitarian aid. Instead, the proposed fund would focus on supporting reconstruction efforts after an extreme weather event has occurred, according to a lead negotiator for AOSIS.
Many developed-country representatives stated that they do not see how setting up a new fund would add value, given the multiplicity of existing organizations in the climate, development and humanitarian space.
Some developed-country interviewees indicated that they interpret the term ‘facility’ as equivalent to a new standalone fund under the UNFCCC, while a few stated that the concept could have multiple meanings. Many developed-country representatives stated that they do not see how setting up a new fund would add value, given the multiplicity of existing organizations in the climate, development and humanitarian space. Several also pointed to the transaction costs of establishing a new fund and highlighted negative experiences with the Green Climate Fund, commenting that it took a long time to set it up, that it continues to suffer from various operational and governance problems, and that it is likely that such challenges would re-emerge if a new fund were to be created.
Some developed countries stated that they would not necessarily be opposed to establishing a Loss and Damage facility, if it was clear how such an arrangement could help address the problem (they currently remain unconvinced of the benefits). Many developed-country negotiators – and some representing LDCs – said the Glasgow Dialogue is an important forum for analysing gaps in the current system, and one developed-country representative highlighted that it is possible the Dialogue could end with the conclusion that a dedicated facility is needed. One developed-country representative stressed that their government needs the time and discussion provided by the Glasgow Dialogue to learn about and consider workable solutions. This requirement for time and discussion space has been a point of frustration among some developing countries, which point to the urgency of funding needs and which stress that there has already been a dialogue on Loss and Damage finance (the Suva Dialogue) and that several mapping exercises have been conducted.
However, some developed-country interviewees were more firmly opposed to establishing a dedicated facility, especially if the arrangement were to take the form of a new standalone fund or entity under the UNFCCC. One negotiator acknowledged that SIDS face especially challenging circumstances: they are generally highly vulnerable to the impacts of climate change, but many have strained fiscal positions and are often ineligible for overseas development assistance (ODA). The negotiator said they would prefer to work through institutions like the IMF and the MDBs to address these challenges – or possibly come up with a special funding arrangement for SIDS not eligible for ODA (and other climate-vulnerable developing countries which are similarly not eligible), as opposed to creating a new fund available to all developing countries.
In terms of process, some countries within the G77 – including the members of AOSIS – are advocating that the decision to establish the dedicated financing facility should be taken at COP27, and that the remaining sessions of the Glasgow Dialogue should be used for discussions on how to operationalize it. A SIDS negotiator interviewed for this paper stated that Parties need to start by agreeing politically on the need for a facility, and expressed scepticism about the Glasgow Dialogue, questioning how it differs from the Suva Dialogue. In contrast, a negotiator from an LDC commented that COP27 is not the right place to discuss Loss and Damage finance, and that discussions should proceed within the Glasgow Dialogue. This interviewee also stated that more analysis on funding arrangements is needed. Another developing-country negotiator explained that their country supports the calls for a facility, but sees a risk in agreeing on a mechanism without knowing what form it would take, how it would be funded or what types of activity it would support. By way of illustration, they pointed to shortcomings in the ways in which the Global Environment Facility and Green Climate Fund operate. The same negotiator suggested that there is a need for numerous funding arrangements, given the scale of the loss and damage challenge.
Leveraging the potential of other initiatives
In interviews, several developed-country negotiators referred to the potential of initiatives outside the UNFCCC framework to provide support for loss and damage, specifically mentioning as examples the Climate Risk and Early Warning Systems (CREWS) initiative, the InsuResilience Partnership, the World Meteorological Organization’s work to meet the UN Secretary-General’s pledge on early warning systems, and the Global Shield.
The Global Shield will assemble activities on climate risk finance and preparedness under one umbrella initiative to help bridge the financial protection gap for vulnerable and poor people experiencing climate-related loss and damage. In October 2022, the German federal minister for economic cooperation and development, Svenja Schulze, and the Ghanaian finance minister, Kenneth Nana Yaw Ofori-Atta, announced that the G7 (under the German presidency) and the V20 group of finance ministers from climate-vulnerable countries would jointly launch the Global Shield at COP27. In a V20 communiqué released shortly after the announcement, the group’s members stated: ‘We seek funding commitments into the Global Shield, as part of comprehensive funding arrangements to address mounting loss and damage by responsible nations under the Paris Agreement.’ However, the group does not consider that the Global Shield would replace the need for a dedicated financing facility.
Climate-vulnerable countries have established a number of further initiatives to mobilize and deploy Loss and Damage finance at national and international levels. The V20 group of climate-vulnerable countries is seeking to launch a pilot Loss and Damage financing facility with the support of two philanthropic foundations, and its members are seeking additional funding, particularly from G7 and G20 countries. In addition, Bangladesh is establishing a national mechanism on loss and damage, and Fiji has led the development of a new regional parametric insurance product for extreme weather events.
Including loss and damage in the New Collective Quantified Goal on Climate Finance
Many developing countries are calling for the integration of loss and damage into the new climate finance goal. For example, in their submissions to the UNFCCC on this issue, both the LDC Group and the Independent Association of Latin America and the Caribbean (AILAC) have proposed the setting of a specific sub-target on loss and damage in the new goal, alongside similar sub-targets for adaptation and mitigation. Similarly, the submission from AOSIS states that Loss and Damage response should be a ‘main thematic area’ for the new goal; that the sum agreed under this theme should be connected to the cost of addressing loss and damage in developing countries ‘at the worst-case projected temperature scenario’; and that the funds should be ‘public and grant-based’. In the Chatham House interviews, some developing-country negotiators suggested that the new goal could be an important way of mobilizing finance for loss and damage. One negotiator also mentioned that there could be a link between the new climate finance goal and the financing facility proposed by the G77 plus China.
The submissions from the EU, the US and Canada on the New Collective Quantified Goal on Climate Finance do not refer to loss and damage, even though mitigation and adaptation are mentioned. Instead, these submissions highlight that the new goal should support the objectives of the Paris Agreement found in Article 2.1 (where loss and damage is not mentioned). New Zealand’s submission states that it is open to discussions on actions for addressing loss and damage and ‘look[s] forward to a constructive resolution’ of loss and damage financing gaps for SIDS and LDCs ‘in the context of the collective goal’. Speaking about the new goal during a Chatham House interview, a developed-country negotiator re-emphasized that addressing loss and damage lies outside the UNFCCC’s financial architecture.
Capacity-building and country priorities
Some developed-country interviewees commented that it is important that developing-country governments articulate their loss and damage-related needs. One mentioned that the problem is not a lack of funding globally and that it is crucial that developing-country governments set their own priorities, integrate climate change aspects in relevant budgetary processes, and discuss loss and damage-related needs with donor agencies. In parallel, several countries have stressed the importance of national ‘ownership’ of funding. This would facilitate a shift away from primarily project-based funding and towards national and local disbursement to affected communities. However, it is notable that an official from a SIDS told the authors that they felt that the burden of proof of loss and damage was consistently placed on the most badly affected countries – even though those states often have limited financial and technical capacity to conduct this work. Some countries, such as Fiji, have publicly expressed frustration, stating that they have designed innovative projects to address loss and damage, but have struggled to secure international funding.
Work is already under way on the part of countries, academics and civil society groups to assess climate change-related loss and damage in climate-vulnerable communities and countries, and to determine the most appropriate disbursement mechanisms for Loss and Damage finance at national and subnational levels. Some experts recommend subsidiarity in Loss and Damage finance – defined in one study as ‘decision-making and implementation on the most local level possible’ – which enables front-line communities to apply their knowledge and experience to the prioritization and design of contextual solutions. It can also support gender-responsive deployment of finance, and access to finance for marginalized population groups, including people with disabilities and Indigenous communities.
Some developing countries have expressed their need for support in building capacity to deal with loss and damage, including capacity to conduct national needs assessments and design efficient disbursement mechanisms that can quickly meet the needs of most vulnerable people and communities. A number of developing-country representatives stated in interviews that they would benefit from capacity-building support through the Santiago Network and would be willing to engage in South–South cooperation initiatives.
Implications: are the diverging views unbridgeable?
There are different views on how best to mobilize Loss and Damage finance. This divergence is, for example, notable when it comes to the question of whether or not a dedicated facility is needed. However, while the issue of a facility remains a polarizing topic, our interviews indicate there may be some scope for discussion. There are, for example, some developed-country representatives who indicate that their country is not necessarily opposed to establishing a facility, but that they currently remain unconvinced of what value it would add. There is, moreover, a perception among some developed countries that ‘facility’ is equivalent to a new fund under the UNFCCC, whereas in fact there appears to be flexibility and/or different ideas among developing countries about the form that the arrangement could take. Further conversations around what shape a facility could take, where it could be located, what types of activity it could support, and how it could be funded could potentially build additional support for a facility. However, the difficulty in obtaining support from some developed countries should not be underestimated.
Developed countries generally favour working through the organizations that already exist. However, it would likely be in the interest of most developing countries too, regardless of their position on a dedicated facility, that the response of the wider system is improved, given the scale and array of needs. There is, however, a frustration among some countries – as highlighted by AOSIS at the first Glasgow Dialogue – that reforms which have been proposed in the past have been rejected. Greater coordination, scrutiny and accountability may help to address this issue.
The challenge of reaching scale and ensuring finance is ‘new and additional’
Achieving sufficient scale in funding for Loss and Damage is a key challenge, acknowledged both by developed and developing countries. The UN’s humanitarian appeals remain underfunded – between 2017 and 2021, such appeals linked to extreme weather events have been only 54 per cent funded, leaving an estimated shortfall of between $28 billion and $33 billion over the five-year period. Developed countries have so far failed to fully meet their 2009 pledge of mobilizing at least $100 billion per year to support mitigation and adaptation objectives in developing countries. Meanwhile, cost-of-living crises and economic slowdown in advanced economies pose challenges to scaling up climate finance contributions from such countries.
In interviews, developing countries emphasized that finance for Loss and Damage needs to be ‘new and additional’ to mitigation and adaptation finance. Some developing countries said they fear that Loss and Damage finance could ‘cannibalize’ funds available for adaptation finance. One developing-country negotiator mentioned that setting up a dedicated facility, and/or agreeing on a definition of Loss and Damage finance, would help to ensure that funding is new and additional.
Several developed- and developing-country interviewees referred to the domestic political situations in many developed countries as a key challenge: it is, in many cases, very difficult to prevail on national parliaments to approve enhanced climate finance contributions. A negotiator from a developed country stated that the integrity of the Paris Agreement could be put at risk if promises were made that developed countries are not able to meet, as this could provide some large emerging economies with a reason not to implement their own national emission reduction targets. The negotiator commented that a similar dynamic has played out when developed countries have failed to fully meet the minimum $100 billion annual target; the negotiator’s country regards Loss and Damage finance as a similar issue. Another developed-country representative pointed to the importance of ensuring that discussions around Loss and Damage do not create expectations that developed countries could transfer unlimited financial resources to developing countries to address loss and damage.
The challenge of persuading national parliaments to approve the provision of finance for Loss and Damage was highlighted by US Special Climate Envoy John Kerry at a New York Times climate event in September 2022, where he commented: ‘You think this Republican Congress where we couldn’t get one vote for this legislation is going to step up and do loss and damage? Good luck.’
Most developing-country representatives interviewed for this paper consider it essential that developed countries contribute public funds towards addressing loss and damage in developing countries.
Most developing-country representatives interviewed for this paper consider it essential that developed countries contribute public funds towards addressing loss and damage in developing countries. This is based on principles of climate justice, as well as of common but differentiated responsibilities and respective capabilities (CBDR-RC). One negotiator suggested that ‘the money is out there’ but went on to say that it is not being channelled towards addressing loss and damage. The negotiator said that their country had been astounded by the trillions of dollars the international community had been able to mobilize towards the global COVID-19 response – and horrified by the amounts spent globally on military budgets and fossil fuel subsidies.
In October 2022, in conjunction with the annual meetings of the IMF and World Bank Group, the V20 finance ministers released a communiqué in which, among other things, they urged ‘all major polluting nations and companies to contribute finance to address loss and damage’, implying that it was not just developed countries but all polluting nations and companies that should contribute. In the first session of the Glasgow Dialogue, the US mentioned the need to broaden the base of donors contributing to climate finance, and the relevance of this expansion to Loss and Damage discussions.
While underlining how important they consider the provision of public funds by developed countries to be, several developing-country negotiators either expressed their openness towards or strongly emphasized the necessity of exploring how resources from other more innovative sources could be mobilized to meet loss and damage-related needs. When interviewed, a negotiator from a SIDS highlighted a range of proposals for systematic and reliable ways of sourcing new public finance for loss and damage. These included the removal of fossil fuel subsidies and the implementation of carbon taxes, or the establishment of a share-of-proceeds arrangement as provided for under Article 6 of the Paris Agreement.,
One developed-country negotiator highlighted the importance of grants by donor countries, but said that the scale of the loss and damage challenge requires thinking outside the box, citing a need to engage with the MDBs, the insurance industry and institutional investors to identify and scale up new financial solutions for Loss and Damage.
A negotiator from a SIDS emphasized the importance of considering power dynamics when involving private sector actors in financing Loss and Damage-related activities, given their profit incentive.
Concerns about debt sustainability were mentioned both by developed- and developing-country interviewees. This was also a prevalent theme during the heads-of-delegations informal consultations on Loss and Damage in September 2022, where many developing countries called for Loss and Damage finance to be provided in the form of grants.
Implications: a key challenge to be overcome
The question of how to achieve sufficient scale in funding is perhaps the most critical challenge of all. The financing needs are substantial, and will keep on rising as loss and damage continues to increase in severity. As evidenced above, many developing countries consider it essential that developed countries provide at least some public finance for addressing the increasing loss and damage caused by climate change. At the same time, the domestic political situations in many developed countries are cited as a key constraint. While the financing pledges made in 2021–22 by Denmark, Scotland and the Belgian region of Wallonia are important symbolically, the sums involved are small. Many negotiators from both developed and developing countries emphasized that meeting loss and damage-related needs will require creative thinking around how to mobilize finance from a range of sources.