Lost and found: Can the new loss and damage fund deliver the transformative change we need?

We are in the era of loss and damage. Global failure to mitigate and adapt to the impacts of the climate crisis is causing massive losses and costly damages to the lives, livelihoods and futures of communities worldwide, with the costs borne principally by vulnerable households that are the least responsible for climate change. We need a transformative fund to recover these losses and mend these damages, the outlines of which have now been sketched by the outcomes of the Fifth Transitional Committee (TC5) meeting, to be adopted at COP28. Will this fund be fit for purpose, and able to deliver climate justice?

Balancing pragmatism with principles

Last year’s agreement to establish a loss and damage fund was historic and reflects a key priority of developing countries, In this piece, the terms ‘developed’ and ‘developing’ countries are used in relation to party categories under the UNFCCC. More on these categories: https://unfccc.int/parties-observers who have been championing the issue of loss and damage for almost 30 years. With this and the scale of the climate crisis in mind, it’s critical that the fund is operationalised at COP28. Considering the years of struggling that it took to even get loss and damage on the agenda, the TC5 agreement represents a major step forward. And yet, if you look at what is actually required to meet the needs of vulnerable populations affected by the climate crisis, then the goal is still a long way off. The text clearly is the result of very difficult trade-offs; it may be a major step forward, but it is also pragmatic, rather than principled, where bold action is needed.

In a previous article, Andrea Steinke and Sonja Hövelmann noted the need for structural solutions, and identified the loss and damage negotiation process as an opportune time to reshape global norms and shift from a charity-based to a justice-based system. However, the TC5 agreement does not champion a justice- or a rights-based approach. There are no references to polluter countries’ historical responsibility for climate change, nor to the financial scale needed for addressing current and future losses and damages. The TC5 recommendations include no reference at all to the fundamental principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC), which underpins all United Nations Framework Convention on Climate Change (UNFCCC) agreements. Without this, the burden of addressing loss and damage will not be fairly distributed, and those least responsible for causing climate change will continue to shoulder a disproportionate share of its consequences. This could further erode trust and legitimacy in climate negotiations as a whole, and in the fund in particular. To ensure the fund is able to deliver climate justice, these foundational principles should be enshrined in governing documents and endorsed by the fund’s board.

Similarly, the decision by the Transitional Committee to house the fund in the World Bank – at least for the first four years – was driven by the desire to set it up quickly, which the World Bank should be able to do. However, there were real concerns about the World Bank’s suitability to host the fund, so TC5 created a list of conditions for the fund’s host, including ensuring the autonomy of the fund’s board, eligibility criteria and accessibility mechanisms. If the World Bank is able to comply with these conditions, it could signify not only an important step for the loss and damage fund, but also another step in the broader discussion on the roles and functions of international financial institutions.

The key to impact: filling the fund

The loss and damage fund will only really be impactful when it can deliver at scale, and this, in turn, is dependent on the finances it receives. The fund needs to be filled to be able to function. While the fund should be able to receive funding from a wide range of sources, it is crucial for developed countries, in line with their historical responsibility for producing greenhouse gas emissions, to take the lead in providing contributions. In addition, innovative, new sources of funding should be explored to elevate the impact of the fund, grounded in ‘polluter pays’ principles. These could include environmental impact fees, airline or shipping levies, and other innovative financial instruments.

Importantly, advocacy for finance at scale should go hand in hand with a plea for transparency, ensuring every dollar is accounted for and not subject to double counting. As a recent study by CARE highlighted: ‘93% of the climate finance reported by wealthy countries between 2011 and 2020 was taken directly from development aid’, rather than being the ‘new and additional finance’ that they had promised to deliver. Finance for loss and damage should not take away from existing humanitarian and development funding.

Funding for those who need it most

After some debate, TC5 agreed that the loss and damage fund is available for all developing countries, which is important to make sure that finance can flow to vulnerable communities everywhere. To ensure this funding is allocated where it’s most needed, the new loss and damage funding must have a different basis than most humanitarian and development funding, which tends to be characterised by a few donors providing discretionary funding with limited coherence and coordination. As stated elsewhere, ‘the loss and damage fund should take a coherent and transparent approach and be designed around clear criteria to allow the prioritisation of scarce resources’.

As the fund targets the most vulnerable, these are likely to be found in highly fragile and often conflict-affected states, which have historically received very little climate finance. The new fund represents an important opportunity for climate finance in these areas, which is desperately needed. Mechanisms should be developed to ensure that loss and damage funding can be operationalised in the most fragile places, and humanitarian experience can support in designing funding approaches that are conflict-sensitive and appropriate to these contexts. Given the complexity of these issues, the fund’s board may wish to institute a specific taskforce or workstream to consider how funds can best be accessed in particularly fragile and conflict–affected contexts.

Empowering the voices of those served by the fund is an essential principle for the effective and sustainable operation of the loss and damage fund. A locally led approach ensures that communities directly impacted by climate-induced disasters actively participate in decision-making processes and that their unique perspectives shape the strategies implemented. By placing the leadership of initiatives in the hands of local communities, the fund can better address their specific needs and vulnerabilities. Gender considerations play a pivotal role here, as the fund should recognise and address the distinct challenges faced by women and girls in the aftermath of climate-related events.

Breaking through silos

Loss and damage is a systemic, cross-cutting issue, and the fund’s potential lies in its ability to bridge silos across humanitarian, development and climate sectors, so that the aid system is fit for purpose for current and future climate impacts. Proactive connections must be forged between anticipatory action, relief and recovery. With a mandate to rebuild communities impacted by climate-induced disasters, the focus should also be on building back better and integrating resilience into recovery, connecting with adaptation expertise, and eradicating the silos that hinder comprehensive progress. One vehicle is the proposed annual High-Level Dialogue that would globally coordinate the various funding arrangements, in which humanitarian perspectives, along with voices from local actors and community representatives, should be heard.

In conclusion, the agreement at TC5 marked a major milestone on the trajectory towards the loss and damage fund. Yet, there is still a long road ahead to turn the negotiated text – with its inevitable compromises and trade-offs – into a principled fund that can deliver climate justice for those hardest hit by the climate crisis. This requires a recognition of historical responsibility, new and additional finance (including from innovative sources), effective prioritisation of resources with the participation of the fund’s recipients, and breaking through silos to truly deliver system change.

Barbara Rosen Jacobson is a Senior Advocacy Advisor at Mercy Corps