Fund to compensate developing nations for climate impacts approved at COP28

Developing countries wanted a new and independent entity to host the fund and accepted the World Bank only reluctantly.

The UN climate talks in Dubai opened with a bang with countries clinching an early deal on how to compensate developing and poor countries that bear the brunt of the climate crisis despite contributing little to it. The agreement on the operationalisation of the Loss And Damage Fund on the first day of COP28 sets the stage for ambitious decisions over the next 12 days.

At the COP27 in Egypt’s Sharm El-Sheikh last year, rich countries agreed to establish a loss-and-damage fund. However, the decisions on funding allocation, beneficiaries and administration were referred to a committee. Differences between countries were so stark that it necessitated additional meetings to resolve these issues. A draft agreement was arrived at earlier this month and a revised agreement was released a day ago. The draft agreement had called for the World Bank to host the fund for the next four years. It asked the developed countries to contribute to the fund but said other countries and private parties could also make contributions. Allocations will prioritise those most vulnerable to climate change but any climate-affected community or country is eligible, it said.

Developing countries wanted a new and independent entity to host the fund and accepted the World Bank only reluctantly. Immediately after the decision to operationalise this fund, the UAE and Germany announced that they would contribute USD 100 million each to the fund. "Amid the historic decision to operationalise the Loss and Damage Fund within a year of its establishment, addressing underlying concerns becomes critical. On one hand, rich countries have pushed for the World Bank to host this fund under the guise of ensuring a speedy response. Conversely, they have attempted to dilute their financial obligations and resisted defining a clear finance mobilisation scale," said Harjeet Singh, head of global political strategy at Climate Action Network International.

"The absence of a defined replenishment cycle raises serious questions about the fund’s long-term sustainability. Therefore, a robust system, particularly integrated with the Global Stocktake process and the new climate finance goal, is needed to ensure that COP28 results in a meaningful outcome," he said. Iskander Erzini Vernoit, a researcher at E3G, an independent climate change think tank, told PTI, "It isn’t ideal, but it’s a start … It is a modest step toward providing for the communities in developing countries that are already suffering from escalating climate change impacts … but more ambition is required from developed countries to ensure justice, including but not limited to the additionality of public finance provided."