The first day of COP28 saw a landmark agreement reached on the operationalisation of a ‘Loss and Damage Fund’, which will provide financial support to countries suffering from irreversible and unavoidable impacts of climate change. Our perspectives from on the ground in the Blue Zone at COP28 are set out below.  

What is Loss and Damage?

‘Loss and Damage’ refers to the irreversible and residual impacts of climate change that cannot be avoided by mitigation (reducing GHG emissions and limiting global temperature rise) and adaptation (measures taken to adapt to the effects of climate change). It includes economic and non-economic losses, such as physical damage to property and the economy as well as loss of biodiversity, culture and health. Loss and damage can be caused by extreme weather events such as hurricanes, tropical storms, wildfire and drought, and slow onset events such as sea level and global temperature rise. 

Brief history of Loss and Damage

Recognising developing countries’ historically limited contributions to climate change and lack of infrastructure for coping with its impacts, developing countries (particularly vulnerable island nations) have called for support from developed countries to address Loss and Damage for decades. Developments have been slow, with developed countries concerned about establishing a precedent for reparation or compensation, which go to the question of liability for that loss and damage. 

However, at COP27 last year, in a breakthrough agreement, parties agreed to the establishment in principle of a pooled “Loss and Damage Fund” (the Fund).  In the year since, a Transitional Committee has worked tirelessly to consult parties and recommend how the Fund should function, which lead to a landmark agreement being reached at COP28 – the first time a negotiated decision has been reached on the first day of a COP. 

What does the Fund look like? 

The Fund will be administered initially by the World Bank and will be capitalised by industrialised countries to support developing countries and emerging economics. So far, pledges total around  USD 656m, including pledges of USD 100mn each from Germany and the UAE, USD 10 million from Japan, and USD 17.5 million from the USA. The UK has promised GBP 60 million to the Fund as part of its GBP1.5 billion funding packaged announced this week, and the US’s contribution, which has been criticised as insufficient considering its historical contribution to climate change, sits alongside pledges of several million dollars for other funds set up to assist vulnerable nations with the effects of climate change. The EU has also called upon high emitting, developing nations such as China and Saudi Arabia to contribute. 

What’s next? What does this mean in practice? 

Representatives of Zambia and other developing countries have noted that this is a statement of good intent, but further capitalisation is required to fill the adaptation finance gap of USD 194-366 billion. In addition, further questions remain about: 

  1. How the Fund will be replenished after the initial capitalisation round, since the decision does not provide details regarding scaling or periodic replenishment of funds. 
  2. How requests for funding will be addressed. Countries have raised concerns about the World Bank hosting the Fund, and have called for the Fund to operate in an inclusive manner, engaging with stakeholders including women, Indigenous people and youth in decision making, and in accordance with human rights. 
  3. How funds will be disbursed. It is important that grants are disbursed efficiently and fairly, but the decision lacks specific text on this point, and there have been repeated mentions by parties to the importance of insurance and pre-arranged finance in this respect. For example, one high-profile briefing calls for each qualifying country to receive USD10 million in premium support from the Fund each year for USD200-300 million in pre-arranged annual protection or stop loss insurance to protect against climate shocks. 

While there is still a lot of work to be done, the decision signifies huge ambition, and all eyes (including ours) will be turned to how finance flows under the Fund are operationalised.