Experts outline governing principles to fund climate loss and damage

The door is open for a funding mechanism to compensate for loss and damage caused by climate change, speakers at a Chatham House event said this week, outlining possible principles on which that funding might be based.

Speakers at the event Tuesday suggested that the contentious issue of funding for loss and damage caused by climate change made some headway at the 26th United Nations Climate Change Conference in Glasgow, Scotland, and is set to be a focus at the next iteration of the event.

Linnéa Nordlander, a postdoctoral fellow at the University of Copenhagen’s Faculty of Law who studied the negotiations, said that the legal landscape for loss and damage has not really changed since COP 26 but that negotiations had advanced.

She said the Glasgow Dialogue on loss and damage, which took place at the conference, had aimed to create a funding facility — but none has come to pass.

“We didn’t manage to get the Glasgow loss and damage facility, which is a pity. But at the same time, I think Glasgow has shown we are now at a critical juncture,” said Alpha Kaloga, a lead negotiator of the African Group of Negotiators at COP 26, during this week’s event.

“In Glasgow, we finally saw [loss and damage] in the language in the corridors and in the negotiations. Finally, the world has woken up to loss and damage,” agreed Colin McQuistan, the head of climate and resilience at the NGO Practical Action.

What is the cost of loss and damage?

By 2030, lower-income countries are expected to see between $290 billion and $500 billion in costs due to loss and damage from climate change, according to Laura Schäfer, a senior adviser on climate risk management at NGO Germanwatch.

She said this projection does not include noneconomic losses to biodiversity, cultural sites, or other areas, for which there is “very little funding available.” The funding that exists “is mainly available for minimizing loss and damage before something happens,” she said.

Official development assistance used for loss and damage purposes only covers “a fraction of what is actually needed,” added Schäfer. So “in the end, households are paying for costs,” she said.

Schäfer cited a report by the International Institute for Environment and Development showing that rural households in Bangladesh are collectively spending $2 billion a year on repairing damage caused by climate change and on prevention measures, twice as much as the country’s government spends.

Guiding principles for loss and damage

As preparations get underway for COP 27 — and expectations grow around a new international climate finance target for after 2025 — several panelists, including Kaloga, put forward potential guiding principles for loss and damage finance.

Kaloga suggested three key guiding principles: accessible funding, accessible data about the climate events that require funding, and equity around who pays — meaning that the funding pool would need to be constructed in a way that enables the most vulnerable people to access its resources.

“Loans should be a red flag,” he specified.

Meanwhile, McQuistan warned against an overreliance on insurance, which he said can increase existing inequalities.

“Poorer people are less likely to be able to afford the [insurance] products, less likely to be able to access the products,” he said. “[Without care], we know they are going to be excluded and missed out.”

McQuistan, whose work has involved assessing climate-related loss and damage internationally, suggested two additional “building block” principles that could be considered for loss and damage: mutuality and solidarity, and accountability and transparency.

He cited 2021’s extreme flooding events in relatively higher-income countries such as China and Germany, saying they show that “everybody’s in this, but people have different abilities to respond and react, so this idea of mutual support is important.”

McQuistan said that while those two countries have “systems in place to respond” that are backed up by billions of dollars, a country such as Madagascar — recently hit hard by Cyclone Batsirai — “can’t afford that level of financing.”

“They just don’t have the fiscal liquidity to mobilize money to help people who are being impacted by these climate disasters, so we need to think about solidarity,” he said.

He added that accountability and transparency are also important to track responses to loss and damage and ensure they are reaching the “front lines of the climate emergency.”

Research conducted by Zoha Shawoo, an associate scientist at the Stockholm Environment Institute, also identified five key principles that she said should underpin a future financing mechanism for loss and damage.

The first was “needs-based finance,” said Shawoo, adding that the annual target of $100 billion for climate finance, which higher-income countries have failed to meet, was an “arbitrary number” not based on any type of scientific assessment.

She said that “loss and damage finance should be based on actual needs on the ground,” meaning a formal assessment would be necessary ”to identify how much finance would be needed, what activities would be funded, which communities would it go to, and how it would be distributed.”

The Santiago Network, a currently inactive project under the U.N. Framework Convention on Climate Change that intended to provide technical assistance for loss and damage, could be used to support this process, suggested Shawoo.

Another of her principles was “national ownership” over distributing finance — which she said could be integrated with preexisting disaster funding or national Green Climate Fund mechanisms — to help ensure it reaches the most vulnerable.

Additionality was Shawoo’s next principle, meaning loss and damage funding should be considered an add-on to the $100 billion climate finance commitment rather than part of it.

She also emphasized strict liability protocols for any new finance mechanism.

Her final principle was urgency. Funding is needed immediately, she said, and the lack of a formal mechanism for loss and damage shouldn’t prevent financing.

“The success of the Paris Agreement really hinges on the provision of climate finance, including loss and damage finance,” she said. “Not meeting those demands questions the extent to which climate justice is being assured.”

This coverage exploring innovative finance solutions and how they enable a more sustainable future, is presented by the European Investment Bank.