The establishment of the Loss and Damage Fund is a big step in international negotiations on climate change, which the most vulnerable countries have been agitating to help compensate for the negative consequences of climate change. It is a fund aimed at addressing the economic and non-economic losses that developing nations face from climatic events such as strong storms, increased sea levels, and protracted droughts-several of these phenomena occurring with growing frequency as the world’s temperatures increase.
Among the key outcomes of COP27, held in Sharm El-Sheikh, Egypt, in 2022, was the creation of the Loss and Damage Fund, where countries agreed to establish a mechanism for loss and damage. At the time, however, details over funding and the management of the fund were still under negotiation. By the time of the COP28 meeting in Dubai, discussions had moved on, with several countries making initial pledges to contribute to the fund. Notable commitments came from European nations, as well as a few high-income countries like Canada and New Zealand, recognizing tangible support for nations bearing the brunt of climate impacts.
Even then, the current financial commitments fall short of the estimated needs. All developing countries and climate activists have, time and again, underlined that much more money is needed to deal with the extent of damages while climate change is worsening. To many developing countries, especially for small island nations and the least developed countries, the cost of recovery from disasters or structural damages is crippling. These developing countries want more firm commitments and underline that the fund cannot rely on traditional donors alone but must find new ways of funding through international financial institutions and partnerships with the private sector.
This fund shall have a different objective from all other mechanisms on climate finance, like adaptation and mitigation funds. It addresses, in particular, the immediate and long-run impacts of losses due to climate change. Its aim will be to ensure that countries which suffer the most catastrophic damage would rebuild their economies and communities rather than plunge into debt obligations that are inescapable on account of reconstruction.
While the establishment of the Loss and Damage Fund is a breakthrough in climate diplomacy, it remains that now the real challenge is translating pledges into action. There are considerations under way as to how to ensure transparency, fair access, and efficient deployment of the resources of the fund. The outcome of these deliberations will be critical in determining whether, in reality, the fund can respond to the needs of the first line of climate change and help bridge the gap in international climate justice.
