Toward a Climate Loss and Damage Fund

One of the key outcomes from the COP27 United Nations Climate Change Conference held in Egypt in November was the establishment of a fund to pay loss and damage to developing countries most affected by climate change. For Pacific Island states this is a welcome development, as these countries make negligible contributions to climate change but disproportionately experience its effects. It is also a testament to the diplomatic tenacity of Pacific Island states, who have made establishing such a fund central to their international engagement in recent decades.

The idea behind loss and damage is that compensation should be paid to countries that suffer permanent loss or irreparable damage created by the effects of climate change. This could include persistent severe weather events, as well as slow-onset events such as desertification and rising sea levels. It could also include ongoing economic effects like crop damage and the loss of certain industries, and even be extended to the loss of cultural heritage. This is something that is of deep concern for countries that fear they may need to migrate en masse due to their territory – which is essential to their culture – becoming uninhabitable.

The initial push for the establishment of such a fund came from the Alliance of Small Island States (AOSIS), which was established in 1990 with the specific purpose of advancing the similar interests of small island countries regardless of their location. Of its 37 members, 15 are from the Pacific. In 1991 – spearheaded by Vanuatu – AOSIS proposed the establishment of an insurance fund to assist low-lying islands such as Palau and Tuvalu in the Pacific, as well Mauritius, Seychelles, and Maldives in the Indian Ocean, which were all starting to see the effects of rising sea levels.

It wasn’t until 2007 when the idea of loss and damage entered a formally-negotiated U.N. document with the Bali Action Plan. The plan stressed the need for “disaster reduction strategies and means to address loss and damage associated with climate change impacts in developing countries that are particularly vulnerable to the adverse effects of climate change.” However, the Bali Action Plan established no framework to implement such a mechanism.

Due to a sustained diplomatic effort from Pacific Island states, greater progress was made at COP19 in Warsaw in 2013, which established the Warsaw International Mechanism for Loss and Damage (WIM). This included three main aims: to enhance knowledge and understanding of comprehensive risk management approaches; to strengthen dialogue, coordination, coherence among relevant stakeholders; and to enhance action and support, to include finance, technology and capacity-building. This created a greater framework around the issue, but still fell short of any financial commitments from wealthier countries.

The next critical diplomatic victory was to have the principle of loss and damage recognized within Article 8 of the Paris Agreement, which “enshrines the importance of averting, minimizing and addressing loss and damage and the role of sustainable development in reducing the risk of loss and damage.” This led to the Glasgow Dialogue on Finance for Loss and Damage at COP26 in 2021, but this still fell short of the establishment of an actual fund.

The agreement to create a fund at COP27 this year is therefore a momentous event. It is the outcome of a long process and Pacific Island states have been essential actors in this achievement. There are still further steps to take before we see implementation. The agreement reached at COP27 will create a committee with representatives from 24 countries to devise how the fund will be run, which countries and financial institutions should contribute, and which countries should be the recipients.

Critically for the fund’s implementation, the agreement states that payments to the fund will not be seen as an admission of liability. This would have been a major hurdle to any attempt to create a substantial contribution from the world’s largest carbon emitters. It doesn’t guarantee that wealthier nations will commit their financial resources, but it does make it much easier for them to do so.

The processes for such critical aspects of international cooperation are always long and arduous. When it comes to climate change the amount of time and effort to build such cooperation may seem frustrating and counter-productive, but for Pacific Island countries that lack the conventional power to advance their interests with greater speed and efficiency there has been no other option but to be persistent with their influence-building and establish a moral weight that cannot be ignored.

The primary problem now is that the creation of a loss and damage fund is an implicit admission that we have reached a point where certain effects of climate change are irreversible. One concern is that the primary focus of our response will now turn to adaptation, and away from mitigation. Pacific Island states will need to keep up their diplomatic advocacy to make sure the world does not lose sight of both objectives.