The Loss and Damage Finance Landscape

The ongoing climate emergency already leads to devastating losses and damages in developing countries beyond the capacities of vulnerable governments, communities, and people to cope. This is disproportionately affecting the poorest and most marginalized groups that have least contributed to global greenhouse gas emissions. Disasters like Pakistan’s massive floods or Cyclone Freddy in southern Africa exacerbate existing inequalities and impose economic and non-economic costs to developing countries already facing severe challenges, including growing indebtedness. These countries lack the capacity to provide public services for recovery and restoration in the face of climate disasters and slow onset climate events like sea level rise or desertification. The global community’s response must therefore be guided by solidarity, acknowledging the humanity and rights of those most affected and underpinned by just and equitable efforts to address inequality and the climate crisis. 

At COP27, parties decided to set up a new Loss and Damage Fund (LDF) and tasked a Transitional Committee with the technical work to develop the modalities of the LDF as well as address broader funding arrangements to respond to loss and damage.  The LDF, once established, should become the central player in an emerging loss and damage finance landscape to support developing countries already suffering from devastating impacts of anthropogenic climate change. How can it best fulfill this role?

It is crucial that financing to address loss and damage is mobilized and provided in line with the UNFCCC’s principles of equity, historical responsibility and polluter pays. Despite benefitting from fossil fuel-driven economic growth and its pollution, developed countries have failed to undertake the necessary mitigation actions. They are subsequently morally and legally responsible to ensure sufficient loss and damage finance is channeled to countries, communities, and people in the Global South , and should contribute their fair share to the LDF.

This mapping study, a collaboration between the Loss and Damage Collaboration and the Heinrich-Böll-Stiftung Washington, DC, lays out the core principles that should guide the development of the new LDF and its operational modalities. It also looks at the scale of the resources needed; analyses the potential of alternative sources of finance, such as taxes and levies imposed on polluting industries; and provides recommendations to guide the work of the Transitional Committee throughout 2023.

              First, the Transitional Committee tasked with the operationalization of the LDF must ensure that it provides future recipients with access to loss and damage finance that is

1. equitable,
2. adequate in scale and form,
3. new and additional to existing  development and climate finance commitments,
4. and human rights aligned and gender-just.  

An essential step to achieving this is ensuring that finance delivery does not impose additional burdens on the recipients. Given that loans could exacerbate the economic consequences of climate change, loss and damage finance should be public grant funding. Furthermore, the LDF’s procedures need to ensure responsiveness to the needs of the recipient countries’ communities while also addressing the shortcomings of existing funding mechanisms.  In order to provide comprehensive support to address loss and damage, the new fund should have several distinct funding modalities channeled through  

1. a rapid disaster response window,
2. a slow-onset window for transformative programming,
3. and a micro/small-grant window directly accessible to and benefitting subnational and local actors.

              Finally, the Transitional Committee must facilitate the active and meaningful engagement of civil society and affected communities. Its Board or Governance Council should be composed with equitable representation, with a majority of seats for developing countries and gender-balance and giving affected communities voice and vote.  The gender-responsiveness of finance also needs to be ensured through intersectional gender analyses and integrating their results into programming, consulting and engaging women and non-gendered communities, and implementing measures that preclude the exclusion of traditionally marginalized women groups.

For a more detailed review of the questions that need to be resolved in 2023 for ambitious progress on financing to address loss and damage and the new LDF, please consult the following landscape paper.