Loss and Damage Fund adopted at COP 28: What you need to know about the 'historic fund

The Loss and Damage Fund is expected to provide financial assistance to vulnerable countries that are already experiencing the impacts of climate change, such as rising sea levels, extreme weather events, and mass displacement. (Photo by Balurbala via Wikimedia Commons)

Setting a promising tone, COP28, the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), began with the landmark adoption of an agreement on a new Loss and Damage Fund.

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India welcomed the move, with environment minister Bhupender Yadav posting on X soon after the decision was announced: “A positive signal of momentum from COP28 in UAE on the first day itself … Landmark decision on operationalisation of the Loss and Damage Fund was adopted in the opening plenary of COP28. India strongly supports the decision to operationalise the Loss and Damage Fund.”

Millions have been pledged to the newly operationalised fund amid warnings that 2023 will break weather records.

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What is the Loss and Damage Fund?

As the planet’s temperature rises, it’s triggering a cascade of effects known as climate change. Extreme weather events such as floods, droughts, and heat waves are becoming more frequent, intense, and prolonged.

But the consequences of climate change aren’t equal for everyone. In 2022, Pakistan experienced devastating floods that submerged roughly one-third of the country, affecting over 33 million people and causing economic losses exceeding $30 billion. Vanuatu, a Pacific Island nation, has already been forced to relocate six entire towns due to irreversible and accelerating sea level rise.

So, developing nations of the Global South have been persistently calling for adequate funding, in the form of a Loss and Damage Fund. They claim that developed nations must bear the responsibility for assisting them in adapting to climate change, given their historical contribution to the carbon emissions that have fuelled global warming. The US, for example, is responsible for almost 25 percent of all historical emissions from 1750 till 2021. In contrast, India’s share is only 3.4 percent.

Wealthier nations, however, have been reluctant in providing sufficient financial support. At the COP27 summit in Egypt’s Sharm El-Sheikh last year, they finally agreed to establish a Loss and Damage Fund. However, decisions regarding funding allocation, beneficiaries, and administration remained pending.

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So, what has changed now?

In a concerning development, the World Meteorological Organization (WMO), the UN's weather agency, warned that 2023 is likely to be the hottest year on record, signalling a troubling trend of worsening floods, forest fires, glacial melt, and heat waves in the years to come. The WMO also cautioned that the year’s average temperature rise is approximately 1.4 degrees Celsius above pre-industrial levels, just one-tenth of a degree below the limit set by the 2015 Paris Agreement for the end of the century.

This makes the decision to operationalise the Loss and Damage Fund at COP28 a pivotal moment for the Global South. It means that for the first time, developing countries will be able to secure a dedicated source of funding to address the loss and damage caused by climate change.

How does the fund work?

It is expected to provide financial assistance to vulnerable countries that are already experiencing the impacts of climate change, such as rising sea levels, extreme weather events, and mass displacement. The fund, housed with the World Bank for the initial four years at least, will be managed by a board that will have equal representation from developed and developing countries. It will be open to all developing countries that are party to the UNFCCC.

The fund is expected to be operational by 2024, and its initial corpus is expected to be over $400 million. Already, a few key nations have pledged contributions to it. The UAE, the COP28 presidency, spearheaded the initiative with a $100 million pledge, followed by Germany’s $100 million contribution. The UK stepped forward with £40 million for the fund and an additional £25 million for other loss and damage funding arrangements. The US pledged $17.5 million, while Japan contributed $10 million. The European Union made a substantial €225 million commitment.

So what’s the problem?

This is far short of the estimated $400 billion that developing countries need every year to address loss and damage. As a result, there is still much work to be done to ensure that the fund is adequately resourced and that it meets the needs of vulnerable countries.

That apart, the fund is voluntary and no country is obligated to replenish it. There are also no deadlines on the amount of finance needed and when they have to be added. Experts are concerned that money for the fund will be redirected from funds for mitigation, humanitarian aid, adaptation and development. They argue that this should be new money. Also, there is yet no criteria on how countries and communities can access the funds. Lastly, there is a worry that this money will be given in the form of loans and not grants, increasing the indebtedness of developing countries and limiting their ability to reduce emissions and adapt.

Yet, the adoption of the loss and damage fund is a hopeful sign that the international community is finally taking the issue of climate justice seriously. However, much more needs to be done to ensure that the fund is adequately resourced and that it meets the needs of vulnerable countries.