Explained: What’s Next For The Climate-Driven ‘Loss and Damage’ Fund?

The fund was approved by the conference last year in what was hailed as a historic move, with the caveat that a transitional committee will iron out its details. However, the committee could hammer out an agreement only earlier this month, and even that is now facing criticism. Where does the fund now stand and why did countries find it so difficult to find common ground? Ahead of the Dubai conference that starts on November 30, we detail the issues in this explainer.

Who pays?

India’s monsoon this year may have closed at a ‘normal’, but a look at the details showed large variations in months and regions. For example, average rainfall was in deficit in June and August. Within the country, northwest and central India saw good rainfall but the south and northeast saw a deficit. While this may be attributed to El Niño and other meteorological factors, the larger effect of climate change on the Indian monsoon is well documented. On another front, as November comes to an end, many parts of the country have recorded above normal night temperatures.

One in four people worldwide, or approximately 1.9 billion people, faced extreme and dangerous heatwaves driven by climate change over the last 12 months, that is, between November 2022-October 2023. These were the hottest 12 consecutive months ever recorded, very consistent with the long-term global warming trend. The earth’s Global Mean Temperature (GMT) is around 1.3°C hotter than the pre-industrial climate, according to a new report by non-profit science and news organisation Climate Central.

The science is clear on how climate change has led to an increase in the occurrence and intensity of floods, droughts, cyclones, landslides, sea level rise, heatwaves and other natural disasters. In order to aid and empower vulnerable countries to respond to the resulting losses, global leaders agreed on a loss and damage fund at last year’s climate conference, known as the Conference of Parties or COP27.

At COP26, a network of developing countries known as the G77, and China, had called for a formal loss and damage finance facility to be set up to provide financial support to vulnerable nations. However, due to opposition from the European Union, the US and other rich nations, leaders failed to establish a relief fund.

But at COP27, loss and damages were part of the official agenda for the first time. Until the final few hours, discussions went back and forth, and it was a push from the same group of countries, which includes India, that led to the presidency establishing the fund. It was decided that a transitional committee will decide on operationalisation of its funding mechanism, and the committee was to hold at least three meetings over the following year.

However, the committee’s meetings failed to reach consensus earlier this year, since developed nations were in favour of hosting the fund at the World Bank while developing nations were opposed to the idea. The latter argued that this would tip the balance of power towards wealthy governments and make it hard for the developing nations to tap into the funding.

Also, developed countries such as the United States had called for all countries to contribute equally to the capitalisation of the fund, which went against the principles of equity and historical responsibility in who must give the most. The differences threatened to derail the upcoming COP28.

Consequently, an emergency meeting of the transitional committee was called earlier this month. After consensus was reached, the US in a last-minute move challenged the decision by denying its financial obligation and proposing to make developed country contributions to this fund voluntary.

The decision however had already been ‘gaveled’ (formally accepted) by that point. The operational structure of the fund was finalised, wherein the fund will be hosted by the World Bank for an interim period of four years. It will be governed and supervised by a Board that is its decision-making body. The Board will comprise of 26 members including representatives from developed countries, least developed countries, and small island developing states, among others.

Then what’s the problem?

A member of the transitional committee and representative of Barbados, Avinash Persaud, called this final text a “delicate compromise around eligibility, scope and responsibility”.

Observers like the Loss and Damage Collaboration, a group of experts and advocates working for the rights of those affected by L&D, have criticised the text recommendations for failing to mention the fund’s scale. Exactly how much funding can and will be processed and channeled remains unknown, as some developed countries such as the US and Australia had opposed scale from being mentioned.

Besides, the text ‘urges’ developed countries to continue to provide support and ‘invites’ financial contributions, with developed countries taking the lead, to provide financial resources. This language was considered too weak.

The Collaboration has continued to criticise the World Bank hosting the fund, since the bank supports fossil fuel projects and also for its high overhead rates.

“Rich countries, particularly the USA, have not only coerced developing nations into accepting the World Bank as the host of the Loss and Damage Fund but have also evaded their duty to lead in providing financial assistance to those communities and countries most in need of support to recover from the intensifying impacts of climate change,” stated Harjeet Singh, head of global political strategy at the Climate Action Network International, a network of NGOs fighting the climate crisis.

Experts have also pointed out that in the agreement, providing financial assistance is not an obligation but is voluntary. Going by the status of climate finance of $100 billion that was to be provided by developed countries to developing ones but remaining unfulfilled, voluntary contributions may not work.

The fight for loss and damage reparations has been a long one. The subject was first taken up in 1989 by leaders of small island nations facing an existential threat because of rising sea levels. They formed the Alliance for Small Island States (AOSIS), which talked of "the financial burden of loss and damage" that is suffered by small island and low-lying nations.

In 2013, the Warsaw International Mechanism (WIM), an institutional arrangement, was established by countries to address loss and damage, including from extreme events such as landslides, cyclones and also from slow onset events such as sea-level rise and rising temperature. This was the first tangible outcome of the discussions on climate change loss and damage until then.

When the Paris Agreement was adopted in 2015, loss and damage was referred to as the "third pillar" of climate action. According to Article 8 of the Paris Agreement, signatory countries recognise "the importance of averting, minimising and addressing loss and damage associated with the adverse effects of climate change," and that they should enhance cooperation on implementing solutions.

Persaud now expects the Fund to get public sector pledges to the tune of $500 million at COP28 as its ‘start-up capital’. The committee’s final agreement, and any objections to it, will now be deliberated upon at COP28 where global leaders will take the final call.

IndiaSpend wrote to India’s environment ministry asking what India’s views are on the L&D Fund agreement, whether it has done any assessment of the losses and damages incurred by India due to changing climate, and how much share of the Fund it expects to receive. This story will be updated when we receive a response.

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