COP27: Climate Change Loss & Damage Fund Announced But Specifics Only By 2023 COP

"With the creation of a new Loss and Damage Fund, COP27 has sent a warning shot to polluters that they can no longer go scot-free with their climate destruction. From now on, they will have to pay up for the damages they cause and are accountable to the people who are facing supercharged storms, devastating floods and rising seas," said Harjeet Singh, head of global political strategy at Climate Action Network International, a network of 1,800 civil society organisations from 130 countries.

But there is a lack of clarity on which countries will be eligible to receive funds through the financing facility. "Though historic, the devil lies in the detail," said Abinash Mohanty, sector head for climate change and sustainability at IPE- Global, an international development organisation. "As the loss and damage facility is going to be operationalised in 2023 there is no clarity yet on how countries will be categorised to receive the funds, it will be a work-in-progress to be decided by the transitional committees that will meet after the COP."

The Sharm el-Sheikh Implementation Plan, which is the cover text of COP27, mentions a 'transitional committee' that will decide on operationalisation of the funding mechanism. The committee would hold at least three meetings over the next year.

This was the first time climate change loss and damages were part of the official agenda for the world's largest climate conference. Until the last hours, discussions on loss and damage went back and forth, and it was a push from the G77 + China group of countries, which includes India, that led to the presidency establishing the fund.

"Countries must now work together to ensure that the new fund can become fully operational and respond to the most vulnerable people and communities who are facing the brunt of the climate crisis," said Singh.

Other than the announcement for the fund, 11 countries have committed a one-time fund of over $360 million for climate-change-induced losses in developing countries. The text also included other funding arrangements within and outside the United Nations Framework Convention on Climate Change (UNFCCC), such as humanitarian aid.

30-year-old demand to acknowledge loss and damage

Loss and damage from climate change reflects the impact of changing weather on communities. India is one of the most vulnerable countries to the effects of climate change, with the poor being the most at risk. For instance, unseasonal rains and extreme weather events are culminating in heavy loss for farmers and fishers from Maharashtra, IndiaSpend had reported in October 2022, and loss and damage finance can help compensate for these losses.

Loss and damage 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. Over the years, there have been several discussions on climate-induced "loss and damage", but without any concrete results.

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 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.

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, minimizing and addressing loss and damage associated with the adverse effects of climate change," and they should enhance cooperation on implementing solutions. However, the Paris Agreement made no mention of any financial commitments to support countries facing significant loss and damage.

At COP26, a network of developing countries known as the G77, and China, 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 EU, US and other rich nations at COP26, leaders failed to establish a relief fund.

Negotiations at COP27

In the first week of COP27, a flurry of one-time financial pledges were announced by developed nations for loss and damage. Germany committed €170 million (Rs 1,433 crore), Austria committed €50 million (Rs 421 crore) over next four years, Scotland announced £5 million (Rs 42 crore), among others.

At COP27, countries also accepted the operationalisation of the Santiago Network that will connect vulnerable countries with relevant bodies, organisations, networks and experts that can provide technical assistance, knowledge and resources to assist on loss and damage issues. The network was first established at COP25 in Madrid in 2019 as a support body to help developing countries, however it was not operational then.

In the second week, the Global Shield Against Climate Risks initiative was launched, by the V20 group representing 58 climate-vulnerable countries and the G7 countries, which includes the US, the UK, Italy, Germany, Canada, Japan and France. The initiative will be a social protection and insurance-based finance mechanism for loss and damage. Most of the funding that was earlier announced by countries (chart above) has been channelled through the Global Shield initiative.

But experts criticised this mechanism for providing insurance-based finance. "The Global Shield aims to respond to only extreme weather events like floods, storms and not the challenges posed by slow effects of global warming, such as rising sea levels," stated Singh. "It also fails to cover all vulnerable countries who are facing the climate crisis now. On the one hand, the G7 countries resisted establishing a new Loss and Damage Fund under the United Nations; they have no qualms in setting up the Global Shield on the outside to have more control over it."

He added: "Rich countries give disproportionate attention to insurance as a climate solution, despite it becoming unfeasible even in developed countries due to increasing intensity and frequency of extreme weather events. The details of other measures being added to the Global Shield remain unknown and opaque."

Before the agreement on setting up a loss and damage finance facility, "the red line which the US and EU have consistently maintained is that they don't want legal liability attached to loss and damage talks," said Tarun Gopalkrishnan, junior research fellow at the Fletcher School of Tufts University. "Evidently they are willing to provide funds, but they don't want to do so under a written obligation. They would prefer to do it on a bilateral or informal basis, or as a 'gentleperson's agreement.'"

"The mention of the creation of a fund for loss and damages in the final text is a clear result from the pressure from the most impacted nations and the civil society," said Joseph Zikulu, regional director of 350.org, a global grassroot movement against the fossil fuel industry, in a press release shared by Climate Tracker. "It is a signal that we finally got some rich nations to acknowledge the need to compensate our communities for the losses they have been facing for decades."

He added: "Each and every one of us will go from here, back to our communities and constituencies, and we will have a story to tell. Of our anger and rage at the failure of some countries to step up but also of the new and strengthened connections we have made. We will not and we will never be defeated."

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