The New Loss and Damage Fund–Climate justice or just another fund?

By Nicholas R. Micinski, Assistant Professor of International Affairs and Political Science

Dec. 5, 2023

The Loss and Damage Fund was officially operationalized on the first day of COP28 in Dubai. This was long awaited, and hard fought for, but is lacking in scale and specificity. 

The Loss and Damage (L&D) negotiations emerged from calls for climate justice by the Global South and civil society nearly 30 years ago. While mitigation is supposed to prevent further climate change and adaptation is intended to help countries cope with current climate change, Loss and Damages acknowledges that there will still be devastating impacts no matter the level of mitigation and adaptation efforts. For some, Loss and Damage was intended to fill this gap and compensate countries on the frontline of the climate crisis for damages to their infrastructure and culture–particularly because those who have polluted the least are hurt the most by climate disasters. For others, though, L&D encapsulates all potential impacts of climate change and the need for risk management and more adaptation planning. In contrast to adaptation funding, Loss and Damage was supposed to function differently because of these principles of historic responsibility, liability, and compensation.

Years of contentious negotiations ensued with developing states arguing for climate reparations, while rich, developed governments refused any mandatory contributions or financial liabilities. In 2013, the COP established the Warsaw International Mechanism for Loss and Damage to support cooperation on early warning systems, emergency preparedness, slow onset events, risk assessment, insurance, non-economic loss, and resilience. However, the 2015 Paris Agreement asserted that loss and damage “does not involve or provide a basis for any liability or compensation” [Decision 1/CP.21 – III.51]. Since then, the US and EU have pushed an insurance approach and argued that countries like China and rich Gulf states should be excluded from benefiting from L&D funding.

Last year, in a landmark agreement, countries agreed to establish the new L&D fund but did not operationalize the details at COP27. Instead, states negotiated at the intersessional meetings and made remarkable progress in just a few months.

The new fund will be hosted at the World Bank for four years, after which it could transition to an independent entity. There will be 26 governing board members: 14 from developing countries and 12 from developed countries. This means that poorer countries outnumber the rich—an important long-term win for the Global South. But they agreed to several conditions to make sure the fund is not the same as all the other World Bank funding: eligibility criteria for countries will be set by COP not the Bank, and will include all developing countries and their subnational entities as well as any countries that are not members of the World Bank. The agreement also allows for less traditional implementing agencies besides the usual suspects like UN agencies or development banks. Funding could come in the form of direct budget support for national or subnational governments, small grants to civil society like indigenous groups or climate migrants, or rapid disbursement grants.

As of now, the money will come from voluntary pledges. Within a few days, some $730 million was pledged; notably $100 million from UAE, $100 million from Germany, £60 from the UK, €100 million from France and Italy each. The US only contributed $17.5 million; opting instead to pledge $3 billion to the (significantly less controversial) Green Climate Fund. 

The 2015 Paris Agreement established a system of voluntary pledges for cutting emissions and donating to climate finance, hoping to rally broad participation. But it remains just that—voluntary. The current pledges are in the millions but the need is billions or trillions each year. One estimate suggested that $400 billion each year would be required and the need is only growing. The scale of donations is simply not enough. 

Another concern is that the LD fund should be additional funding–not reallocated or greenwashing other financing. Diann Black-Layne, Ambassador for Climate Change for Antigua and Barbuda explained to other representatives from developing countries: “Loss and damage will not solve your problems. They have moved money from the Green Climate Fund and the other funds. It’s the same funds.”

But there are more interesting and perhaps revolutionary proposals. The UN Secretary General, António Guterres, proposed taxing fossil fuel companies to both contribute to the fund and disincentivize emissions. Mia Mottley, the Prime Minister of Barbados suggested a similar approach: “When you take $200 billion from oil and gas, $70bn from international shipping, another $40-50bn from international air travelers and a financial transaction tax, we have a dedicated source of funds, not just for #LossAndDamage but to build resilience.” Others suggested debt forgiveness or debt swaps as another way to increase the scale of the fund’s impact. Prime Minister Gaston Browne of Antigua and Barbuda argued that voluntary pledges were not enough—instead his county could pursue legal (and financial) accountability in courts. 

Clearly, the new fund is a win for developing countries and a big step for the Loss and Damage agenda. But critics are concerned that the L&D fund will be co-opted into just another pot of climate finance by diluting the principles of climate justice.