Introduction
Loss and damage in climate change refers to impacts beyond mitigation and adaptation capabilities, encompassing economic and non-economic losses such as destroyed infrastructure, crops, and loss of habitats due to extreme weather and climate phenomena. This concept emerged in the early 1990s, recognizing that human-induced climate change disproportionately affects vulnerable communities, especially in developing countries.
Vanuatu in 1991 initiated the global dialogue on loss and damage during the Intergovernmental Negotiating Committee for a Framework Convention on Climate Change (INC-FCCC). This dialogue gained traction at the 1992 Rio Earth Summit, emphasizing the imbalance between major polluters, and impacted nations. The 1990s and 2000s saw further advocacy, led by the Alliance of Small Island States (AOSIS). The Bali Roadmap of 2007 acknowledged the need to address loss and damage, leading to the creation of the Warsaw International Mechanism for Loss and Damage. However, although the 2015 Paris Agreement recognized loss and damage in Article 6, it did not establish a specific fund for compensating affected communities and states. In 2022, due to severe climate impacts, COP27 saw the historic formation of the Loss and Damage Fund (LDF), a significant move in acknowledging the compensation needs and rights of vulnerable countries.
In 2023, COP28, building upon the momentum established at COP27, adopted recommendations of the transition committee on the operationalization of new funding arrangements to address loss and damage through a dedicated fund. The operationalization of the LDF took centre stage on the first day of COP28, focusing on governance structure, funding sources, and eligibility criteria. The key features of the Fund include financing for disaster response, long-term recovery, and future climate resilience, along with technical assistance and capacity building to support the most climate-affected regions.
Adequacy of the Fund
While the creation of the LDF marks significant progress, the financial pledges at COP28 fell short of the anticipated requirements. At just over US$ 700 million, the LDF commitments constituted merely 0.2 per cent of the total amount needed to address the irreversible effects of climate change and global warming.[1] Climate and Development experts have recommended a baseline of US$ 400 billion annually to cater for the loss and damages caused by severe weather incidents globally.[2]
Contrary to the Polluter Pays Principle, during COP 28, the top 10 global polluters made minimal contributions, with some not committing at all. For instance, as shown in the table below, the UAE and Germany each pledged US$ 100 million, while the UK and the US pledged approximately US$ 50.6 million and US$ 17.5 million, respectively. Japan, another significant polluter, pledged US$10 million. China, India, and Russia, major oil consumers, and high carbon emitters, made no commitments to the fund.
Table 1: Major polluters and their contributions to the LDF
| Pollution ranking by Country | Amount Pledged towards the LDF | Greenhouse gas (GHG) Total Emissions (MtCO2e) | Global Percentage (%) Contribution to GHG Emissions |
| China | None | 12,295.62 Mt | 25.88 |
| USA | U$17.5 million | 5,289.13 Mt | 11.13 |
| India | None | 3,166.95 Mt | 6.67 |
| European Union (27) | U$ 245 million | 2.96 Gt Mt | 6.22 |
| Russia | None | 1,799.98 Mt | 3.79 |
| Indonesia | None | 1,475.83 Mt | 3.11 |
| Brazil | None | 1,469.64 Mt | 3.09 |
| Japan | U$10 million | 1,062.78 Mt | 2.24 |
| Iran | None | 844.71 Mt | 1.78 |
| South Korea | None | 613.54 Mt | 1.29 |
Source: Global GHG Emissions 2020, Climate Watch Data.org
Financing through LDF is voluntary and not linked to carbon emission levels, which some critics view as unjust. This arrangement allows relatively affluent nations such as China, Brazil, and Saudi Arabia, classified as developing but not least developed countries, to choose whether to contribute, without any mandatory obligation despite their high emissions. This absence of mandatory commitments raises doubts about the Fund’s effectiveness and its sustainability in assisting vulnerable developing nations impacted by climate change. Additionally, the absence of defined deadlines and targets may indicate a lack of commitment from major polluters to provide sufficient emission reduction support, further fueling these concerns.
Governance Structures
COP28’s decision to operationalize the LDF marked a significant milestone in the global climate policy landscape, with the World Bank appointed as interim trustee and host for the initial four years. This decision imposes eleven (11) conditions on the World Bank. Most notable is the need to prioritize the provision of climate funds as grants or concessional loans with minimal or no interest. Another significant decision is the creation of an independent secretariat and governing board for the Fund to oversee the World Bank’s role and align the Fund with the interests of vulnerable developing countries, particularly the Least Developed Countries (LDCs) and Small Island Developing States (SIDS). Inclusive representation in the governance structure is equally important. During the transition, the World Bank will provide legal and administrative support, focusing on alignment with LDF’s governing principles. The Board will ensure objectivity and transparency in fund management, including hosting arrangements and operational systems development. In disagreements between the Board and the World Bank, LDF Board decisions will take precedence, reinforcing the Fund’s independent governance and authority. The Fund’s more specific operational details for transparency and long-term sustainability beyond the World Bank’s involvement are yet to be developed.
Complementarity between LDF and other Existing Climate Financing Mechanisms
The LDF operates within the extensive climate financing framework of the United Nations Framework Convention on Climate Change (UNFCCC). Uniquely, LDF addresses the third essential aspect of climate action by aiding individuals and communities affected by climate-induced losses and damages. This complements existing mitigation efforts to reduce greenhouse gas emissions and adaptation measures that prepare communities for climate change impact. Currently, among UNFCCC’s multilateral funding sources, only the Green Climate Fund (GCF) partially addresses loss and damage through investments in crucial transition areas such as human security, well-being, and livelihoods. However, the main emphasis is on mitigation and adaptation. In contrast, funds such as the Least Developed Countries Fund (LDCF), the Special Climate Change Fund (SCCF), and the Adaptation Fund (AF) predominantly focus on adaptation measures. Therefore, the LDF will play a crucial role in directly addressing climate change impacts, effectively filling a significant gap in the current climate finance framework. Additionally, the LDF will complement the Santiago Network, which was established during COP25 in 2019. This network, operating under the UN Office for Disaster Risk Reduction (UNDRR) and the United Nations Office for Project Services (UNOPS), is responsible for providing technical assistance to mitigate, reduce, and manage climate change-induced loss and damage. The Santiago Network aids climate-vulnerable developing nations by facilitating technical assistance in crafting loss and damage strategies, connecting countries requiring support with the necessary expertise and resources to address a wide range of loss and damage challenges.[3]
Accessibility of the Fund
The eligibility for the LDF is designed to be inclusive and equitable, prioritizing all developing countries, especially those facing vulnerability to climate change. The proposed criteria for fund allocation are for it to be event-driven and to address the specific challenges and impacts encountered by communities. These criteria are expected to encompass immediate and long-term needs arising from extreme and slow-onset events. The emphasis is on a country-led approach, which will ensure that the modalities for accessing the fund are integrated within national frameworks and respect the unique situations and contexts of different countries grappling with climate-induced loss and damages.
The decision-making process is expected to incorporate the best available data and information from sources such as the Intergovernmental Panel on Climate Change (IPCC), and relevant knowledge from indigenous people and vulnerable communities while recognizing the potential limitations in data for specific countries and regions. The estimates of recovery and reconstruction costs will be considered based on data and information from entities, especially at the national and/or regional level, acknowledging potential limitations in specific areas. The system also intends to incorporate a minimum percentage allocation floor for LDCs and SIDS.
If indeed the above elements are incorporated into the actualized LDF, then most developing countries could make a strong case to benefit from the Fund. So far, developing countries within the Transitional Committee have advocated for universal eligibility for the LDF, emphasizing fair access determined by climate events, impacts, and necessities, instead of broad country classifications. They suggested a three-tier LDF framework for rapid response, recovery, and gradual onset occurrences, providing both event-driven and programme-driven access.[4] This aligns with UNFCCC principles for equitable assistance to vulnerable developing nations.
There is a strong case for African countries to tap into and benefit from the LDF. With a population exceeding 1.4 billion, Africa faces diverse climate disasters such as droughts, floods, and rising sea levels, particularly in the Sahel, Horn of Africa, and equatorial regions. Smallholder farmers, vital for the continent’s food production, bear the brunt of these challenges. Given its acute climate vulnerability, Africa’s access to the LDF is crucial. African countries, facing both immediate and slow-onset climate events, are potential candidates for LDF support. The Fund’s focus on equitable access and country-specific solutions aligns with Africa’s needs. However, success depends on addressing capacity issues within African countries and ensuring their active role in LDF decision-making, alongside international commitment to fair funding and representation. This is vital for the LDF to effectively address Africa’s complex climate challenges.
Kenya has a compelling case for benefiting from the LDF due to its susceptibility to climate-related challenges. The country relies on rainfed agriculture and tourism, which are acutely vulnerable to climate variability and extreme weather events. Increased intensity and frequency of droughts and floods not only threaten economic stability and food security but also hinder Kenya’s strides towards sustainable development.[5] Kenya’s situation aligns closely with the LDF’s mission to aid countries disproportionately affected by climate change, especially those with limited coping capacities. Access to LDF resources is therefore not just beneficial but essential for Kenya to mitigate the impacts of climate change and secure its developmental future.
Challenges in Implementing the Loss and Damage Fund for Developing Countries
Effective implementation of the Loss and Damage Fund in vulnerable developing countries is likely to face some challenges. The Fund’s limited resources versus the vast needs of many vulnerable nations could make it difficult to prioritize needs. Setting a transparent and equitable eligibility criterion would ensure the neediest countries are prioritized. Additionally, direct Fund access by local communities while avoiding bureaucratic hurdles remains a crucial, yet complex task.
Seamlessly integrating the LDF resources into national climate strategies demands thorough coordination and a tailored approach to country specific situations and priorities. Additionally, a strong mechanism for monitoring the utilization of the Fund is crucial for enforcing transparency and accountability. These challenges are compounded by the intricate nature of global climate change politics and the ongoing need for sustained funding, which is mostly provided by developed nations. Moreover, ensuring adequate funding for adaptation and mitigation is critical for sustainable loss and damage intervention.
Conclusion
To implement the Loss and Damage Fund effectively, a multifaceted policy approach is crucial. Central to this is establishing a prioritization criterion that not only considers economic status but also accounts for vulnerability to climate impacts. This process needs to be transparent, inclusive, and participatory, with representation from vulnerable countries especially in the governance structure. Streamlining access to the Fund is essential to enable rapid and direct support to communities in need. In addition, aligning the Fund’s initiatives with national climate strategies is key, necessitating strong collaborations between international agencies and local governments to ensure alignment with each country’s unique needs and goals.
Further, a robust monitoring and evaluation framework is critical for accountability and effective Fund utilization. It is equally important to secure continuous and sustainable funding for the LDF, possibly through innovative financing methods and commitments from all. The complexity of global climate politics requires adept diplomatic efforts to ensure fair representation and decision-making in the LDF’s governance. The Fund could benefit from strengthened data systems to support timely and effective decision making. If these policy approaches are collectively implemented, they will enhance the effectiveness of the LDF in meeting the urgent needs of developing countries facing the brunt of climate change.
[1] https://www.theguardian.com/environment/2023/dec/06/700m-pledged-to-loss-and-damage-fund-cop28-covers-less-than-02-percent-needed
[2] https://us.boell.org/sites/default/files/2023-05/the_loss_and_damage_finance_landscape_hbf_ldc_15052023.pdf
[3] https://www.undrr.org/news/un-office-disaster-risk-reduction-undrr-and-unops-will-host-secretariat-santiago-network-which
[4] https://www.twn.my/title2/climate/info.service/2023/cc230906.htm
[5] https://climateknowledgeportal.worldbank.org/sites/default/files/2021-05/15724-WB_Kenya%20Country%20Profile-WEB.pdf
Authors: Esther Irungu, KIPPRA
Irene Nyamu, Senior Policy Analyst, KIPPRA
