Financing loss and damage

A consolidated approach might be needed to optimize efforts aimed at tackling climate change

The world is still mourning over the losses induced by the devastating earthquake that recently struck Turkiye and Syria. This is a strong reminder to the global community of the importance of emergency preparedness and response. Although it was a geological disaster, financing for losses and damages arising out of disasters such as this and those related to climate brings to mind the Loss and Damage Fund agreed upon at the 27th United Nations Conference of the Parties (COP 27) in Sharm el-Sheikh, Egypt, last November.

The fund is considered a historic breakthrough after three decades of climate negotiations, as its formation acknowledges, in part, climate injustice and the need to compensate for it. In the initial stage, more than $300 million has been pledged by a few European countries to finance developing countries in tackling detrimental climate impacts.

While the world cheers for this achievement, many more details need to be worked out before the fund can become operational. A major challenge is the lack of a common understanding of what constitutes "addressing loss and damage". Article 8 of the Paris Agreement outlines "the importance of averting, minimizing and addressing loss and damage associated with the adverse effects of climate change, including extreme weather events and slow onset events, and the role of sustainable development in reducing the risk of loss and damage".

By this narrative, all efforts to mitigate and adapt to the negative impacts of climate change could potentially contribute to avoiding or reducing the risks of loss and damage. Many of the areas for action and support, as identified in Article 8, involve activities that cut across diversified domains, such as disaster risk management (e.g., early warning systems and emergency preparedness), ex-ante climate change adaptation (e.g., climate risk pooling, comprehensive risk assessment and management), and sustainable livelihood development (e.g., resilience of communities, livelihoods and systems).

The difficulty in clearly distinguishing actions that deal with loss and damage from those on existing work in areas just mentioned makes it challenging to account for it, estimate the scale of required financing, and leverage targeted resources. Without a formal definition, the Loss and Damage Fund could run the risk of financing what is already actively covered in the current sustainable finance architecture.

Article 8 does call for support in addressing irreversible and permanent loss and damage. It is increasingly acknowledged that loss and damage could involve more than what can be mitigated or adapted to. There are certain limits to how far we could act upon climate change, because solutions are not physically or technically possible, nor made available or effectively implemented due to social-economic constraints. The difficulty, however, rests with agreeing on where the limits actually lie.

As such, addressing loss and damage in a broad sense could span a range of activities that are interdisciplinary and inter-linked. It implies a continuum of efforts at different stages of management when a climate event strikes, including precautionary measures and those coping with the aftermath. Financing is probably needed on all fronts to address loss and damage, and some dimensions of these qualify for climate adaptation finance. To optimize the use of the Fund, a consolidated approach might be required to prevent duplication.

While working toward an official definition of loss and damage, a set of principles or taxonomy may be developed to help identify eligible activities, taking into consideration existing climate finance practices. The Loss and Damage Fund may consider financing, for instance, those activities that lie along the spectrum of risk management to tackle loss and damage in circumstances which are not normally covered by climate adaptation finance. A case in point is to manage residual climate-related risks. Immediate funding for irreversible asset loss after an extreme weather event takes place, to give an example, may be considered.

It is fully recognized that loss and damage are context-specific, and how those are experienced and responded to vary across communities, regions and countries. The taxonomy or principles, once developed, will provide the basic understanding of what loss and damage actions are and enlighten the fundamental scope of funding, than trying to standardize operations through a confined pool of activities. There are still prospects for funding innovative efforts, as developmental progress is continuously made as per local specifics.

In developing the conceptualization of loss and damage, the Loss and Damage Fund, moreover, may learn from and coordinate with existing funds, such as those operated under the financial mechanism of the United Nations Framework Convention on Climate Change (e.g., Adaptation Fund and Green Climate Fund). This could be instrumental in further demarcating the fund's financing scope, as well as informing its implementation, including the design of a results monitoring framework to help track and report its progress.

The fund could also consider supporting technical assistance activities aimed at advancing the development of tools and methodologies to measure loss and damage in both qualitative and quantitative ways. This is important when loss and damage involve key ecosystems (e.g., forests, marine resources) which local communities rely on for livelihoods. In this case, losses may not only refer to disappearance of ecosystems and a means of life, but also possible dispossession of traditional ecological knowledge and cultural identity. How such losses shall be estimated might not be straightforward, and a commonly accepted methodology by all relevant stakeholders, especially impacted local communities, is needed.

The world is anticipating more discussions and details to be unveiled about the fund at COP 28.While implementing the fund is specific, addressing loss and damage is pertinent to all, particularly developing countries including the emerging economies. Their asset base could render them more vulnerable to climate disasters, raising the need to set aside dedicated resources for timely responses to permanent losses after shocks. A clear definition will therefore be helpful with delineating the accountability of what falls within the realm of addressing loss and damage, so that prompt actions are ensured.

To set up and run a new fund is not easy and the process could be lengthy before any concrete outcomes are in actual operation. Yet, there is no time to waste, with climate extreme events occurring with greater frequency and intensity around the globe. Regardless of what is being funded under which name, it will do no harm to better conduct what is already being done. Building climate and disaster resilient infrastructure and capacity of the vulnerable in preparation for climate disasters, for instance, might not require much more resources. These, however, may prevent heavy loss and damage to happen in the first place.

The author is a climate specialist at the New Development Bank. The author contributed this article to China Watch, a think tank powered by China Daily.

Contact the editor at editor@chinawatch.cn