Despite the challenges and differences in views, it should be possible for governments to find a way forward on the Loss and Damage finance agenda. In the short term, modifying or working within existing structures – both inside and outside the UNFCCC – seems the most realistic option.
The previous chapter explored countries’ concerns, motivations and priorities in relation to Loss and Damage finance. Based on the key themes and messages that emerged, this chapter analyses what a politically realistic pathway forward might look like in the near term.
Momentum is increasing, but challenges prevail
The Loss and Damage agenda is gaining traction, and the topic has become less taboo in recent years. At COP26, governments agreed to establish a process for discussing Loss and Damage funding arrangements, and it appears relatively likely there will be a formal agenda item on the issue at COP27. The G7 is planning to launch an initiative jointly with the V20 at Sharm El-Sheikh to enhance financial protection for people experiencing loss and damage; and in September 2022 Denmark became the first individual UN member state to pledge dedicated financial support. The EU wants to serve as a ‘bridge-builder’ on Loss and Damage at COP27, while the US is acknowledging in public forums the need to address the issue. These steps are, however, only among the first in what is going to be a long journey. Meanwhile, climate change impacts are causing ever more severe devastation, and, understandably, many worst-affected countries perceive that progress is far too slow.
As the previous chapter showed, numerous challenges stand in the way of significant progress on the Loss and Damage agenda. Firstly, some developed countries remain concerned about liability and compensation, despite the adoption of the Paris Agreement. This is just one factor preventing them from adopting a more ambitious stance. Secondly, a lack of clarity around definitions means that countries appear at times to be speaking about different things, and that some developed countries struggle to see how Loss and Damage finance differs from, for example, adaptation finance or some forms of humanitarian assistance. Thirdly – and perhaps most importantly – where will the money come from? So far, wealthier nations have not even managed to mobilize the pledged $100 billion per year in adaptation and mitigation finance, and developing countries consider it essential that Loss and Damage finance is ‘new and additional’ to mitigation and adaptation finance. The prevailing global cost-of-living crisis and the economic slowdown in many advanced economies pose challenges to scaling up climate finance in general. And with climate change impacts wreaking ever more destruction in wealthier nations, politicians in such countries may come under increasing pressure to focus resources on addressing loss and damage at home rather than abroad.
When it comes to Loss and Damage funding arrangements, there are – most notably – diverging views among countries regarding whether or not there is a need for a dedicated facility. Some developing countries, including the members of AOSIS, are calling for a firm decision to establish a facility at COP27, and for Parties to negotiate where the entity will be placed, how it will be funded and what activities it will support afterwards. This is unlikely to happen. In the Chatham House interviews, developed-country representatives stated that they do not see how a facility would add value vis-à-vis the funds and entities that already exist, and they often pointed to negative experiences with the Green Climate Fund. They generally highlighted that it is more effective to draw on and, if necessary, to strengthen existing entities rather than to create a new one. There are also some developing countries that see a risk in agreeing to a facility without further clarity on its operational details, and which highlight the need for an array of financing arrangements.
A pathway forward
Given the challenges outlined above, and the differences in views across Parties, the most realistic pathway forward in the near term would probably be to further assess which reforms can be undertaken with respect to existing entities (both within and outside the UNFCCC) to improve their response to loss and damage, and then for governments to pursue such changes. This is the option broadly favoured by developed countries. In the first session of the Glasgow Dialogue, the US – which is a key stakeholder – signalled its interest in exploring these types of operational reforms in more depth. Given the scale and wide range of loss and damage-related needs, it should also be in the interest of developing countries that numerous proposals to reform the wider system are explored. This argument is strengthened by the reality that a dedicated facility, if established, is by itself unlikely to be able to cover all types of need. Adjusting and recalibrating organizational mandates and simplifying procedures to enhance access to finance are examples of reforms that could be explored.
The Glasgow Dialogue provides a forum for discussing Loss and Damage funding arrangements, but its mandate is vague and many developing countries regard it as a mere ‘talk shop’. Further clarifying the mandate of the Dialogue, agreeing on the scope of upcoming sessions, and establishing a link between the Dialogue and the formal negotiations agenda would be important for building trust in the process and enabling action-oriented discussions. Provided that an appropriately framed agenda item on Loss and Damage finance is adopted at the beginning of COP27, Parties can begin to address these issues in Sharm El-Sheikh, for instance by agreeing on a roadmap – or milestones – for future discussions and negotiations on funding arrangements.
Instilling confidence that reforms will be undertaken is a challenge. As highlighted by AOSIS in the first Glasgow Dialogue, measures to improve existing organizations’ response to loss and damage have been proposed in the past, but to little avail. Greater scrutiny and oversight of those reforms that have been proposed, adopted and/or rejected could help promote confidence in them. Civil society organizations have an important role to play in this regard – for example, by mapping which measures have been proposed, which approved and which rejected, as well as by calling out and challenging ‘blockers’.
In interviews, many developing-country representatives stated that they consider it essential that developed countries provide at least some public finance for addressing loss and damage. Such pledges from developed-country governments could help raise the profile of Loss and Damage finance in a general sense, build trust among countries, and possibly make the topic less taboo in the eyes of other, more hesitant, developed countries. Senior officials from developed countries emphasizing the need to mobilize Loss and Damage finance in the media and other public forums might, similarly, inject positive momentum into the discussions.
However, given the current political and economic climate, many developed-country governments may find it challenging in the short term to provide significant amounts of ‘new and additional’ Loss and Damage finance. There is thus a need to think creatively about how to mobilize such finance at scale and to situate the discussions on the topic in wider conversations about how to reform the international financial architecture so that it responds more fully to the climate change challenge. Examples of such reform agendas include the Bridgetown Agenda, which aims to reform the financial system so that it channels more resources towards action on climate change and the SDGs, and ongoing efforts to reform the World Bank, spearheaded by the institution’s major shareholders. Moreover, there is a need to develop and explore proposals around innovative sources of financing, such as aviation levies, the removal and redistribution of fossil fuel subsidies, carbon taxes, and taxes on the windfall profits of fossil fuel companies.
Having a dedicated and recurring agenda item on Loss and Damage finance within the climate negotiations would also be useful in its own right. Among other functions, it would provide a formal space for discussions, coordination and decisions around the reforms that could be made to the international financial architecture to enhance its response to loss and damage, and the sources from which funding could be mobilized. While many decisions on the operations of organizations outside the remit of the UNFCCC would need to be taken by the governing body of each institution, the UNFCCC can play an important coordinating role – and can trigger actions across the wider system by signalling what is needed. A dedicated and recurring agenda item would also provide a space for holding governments to account and assessing progress made.
In Chatham House interviews, some developed countries stated that they would not necessarily be against establishing a dedicated Loss and Damage financing facility, for example if it were made clear how such an arrangement would add value vis-à-vis existing organizations and funds. It would therefore be strategically valuable for the proponents of such a facility to develop more detailed proposals on its placement, scope and resourcing, keeping in mind the concerns identified in this paper. The challenge of bringing some developed-country Parties on board should, however, not be underestimated, especially if the favoured arrangement were to take the form of a standalone fund under the UNFCCC.
Some developing countries, including Bangladesh and the V20 countries, are establishing national or regional Loss and Damage financing mechanisms outside the remit of the UNFCCC. The G7 and V20 are cooperating to launch the Global Shield initiative. Unlike decisions taken within the UNFCCC, these types of measure do not require buy-in from all Parties. More governments could consider developing local or regional funding arrangements for supporting activities addressing loss and damage, which could receive funding from international partners.
More governments could also consider conducting Loss and Damage needs assessments, and more could include loss and damage considerations in NDCs as well as in national long-term strategies and development plans. Such actions can facilitate planning, guide investment, and support the development of funding proposals at the national level. It may also make potential donor governments and organizations more aware of what the concrete loss and damage-related needs in a given country are, and increase the likelihood of such actors providing funding.
Many developing countries have limited capacity when it comes to producing such assessments and plans, and it is therefore crucial that they are provided with appropriate support. Once operationalized, the Santiago Network can play a key role in this regard. It is also important to ensure the ‘readiness programmes’ of the multilateral climate funds are mandated to provide technical assistance related to loss and damage, and that such support can be granted and disbursed in a speedy manner.
Agreeing on a definition of ‘Loss and Damage finance’ would facilitate the tracking of such finance and help overcome the challenge of distinguishing Loss and Damage finance from other financial flows. However, findings from Chatham House’s interviews indicate that it would likely be very difficult for Parties to agree on such a definition. A more politically feasible option in the near term may be a clearer separation between discussions on addressing loss and damage and discussions around averting and minimizing it, for example within the Glasgow Dialogue and during discussions on the formal COP agendas. It may also be helpful for Parties to share concrete case studies of what Loss and Damage projects currently look like.
Finally, COP27 could mandate the IPCC to prepare a special report on Loss and Damage, similar to those it has published on other aspects of climate change. In the first session of the Glasgow Dialogue in 2022, Ghana advocated on behalf of the Climate Vulnerable Forum for the development of just such a report. IPCC special reports attract considerable attention in the policy world and the media, and can be important for establishing the research basis for future policymaking and setting the terms of the debate. As such, a special report could, among other things, contribute to clarifying the boundaries between ‘averting’, ‘minimizing’ and ‘addressing’ loss and damage and could enhance understanding of what effective responses look like across the world.
