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COP27 Produces a Historic Result for Vulnerable Countries: A Loss and Damage Fund


Loss and damage was the main topic of negotiations at the recently completed Conference of Parties (COP27) meeting in Egypt. The Egyptian presidency made clear that it would prioritize the issue of loss and damage, and to the surprise of many longtime observers of climate negotiations, a loss and damage fund was established at COP27. As the first COP since 2016 to be held on the African continent, analysts anticipated this COP would focus on adaptation, as well as loss and damage, and of course climate finance. But the establishment of a fund on loss and damage is historic, and results from decades of deeply contentious negotiations on the issue.

Constructive Ambiguity?

Part of the problem with loss and damage is definitional. Parties included a broad definition of loss and damage at previous COPs, to incorporate impacts that go beyond efforts at mitigation and adaptation. Scholars have defined loss as “irreparable” loss which cannot be recouped or regained. Examples include both economic and non-economic loss, the latter including loss of life, culture, community, and a sense of place. Non-economic loss has been documented by myself and Dr. Adelle Thomas as resulting from extreme events in island nations, such as hurricanes, which devastate communities and lead to extensive climate induced displacement. Loss and damage is part of efforts to achieve climate justice for poor, vulnerable countries – to make developed countries pay for their historic emissions, and the climate impacts those emissions have caused.

Definitional ambiguity can, at times, be constructive during climate negotiations. The breadth of the loss and damage definition created a wide tent for developing countries, who could all potentially claim to benefit from the provisions to address loss and damage. This led to a largely united front in the negotiations from the G77 plus China negotiating bloc, which continued to push the issue at COP 27.  But definitional ambiguity can be both a blessing and a curse. Not all developing countries have the same level of vulnerability to climate impacts. The G77 plus China negotiating bloc represents a variety of interests – from the very vulnerable island states like Vanuatu, to members of OPEC countries, like Saudi Arabia. Many wealthy, industrialized countries also used definitional ambiguity to their advantage – delaying agreement on loss and damage by claiming not have a clear idea of what loss and damage actually meant.

But loss and damage is more than just a reference to the most extreme impacts of climate change. It is about who will pay for those impacts, which is why the issue has been so difficult to address in the past.

COP27 Breaks the Impasse

As the impacts of climate change escalate in frequency and intensity, and as the world creeps closer to the 1.5˚C temperature threshold, the delay and defer tactics used by developed countries finally gave way, due to intense pressure exerted by the G77 plus China  at COP27. 

The U.N. Secretary General’s opening remarks at COP27 were stark, including the phrase, “We are on a highway to climate hell, with our foot still on the accelerator.” The political circumstances surrounding this COP were fraught, with the war in Ukraine and an escalating energy crisis, tensions between the United States and China, as well as deep resentment from developing countries around the disproportionate distribution of COVID vaccines, and the accelerating debt being incurred by climate vulnerable countries. The tragic flooding in Pakistan was a high profile marker of the level of devastation that climate change has caused, and will continue to cause, vulnerable countries. Pakistan is responsible for less than 0.4% of historic emissions, and almost half its population are “energy poor” (lacking access to reliable energy), so the country has not benefited from industrialization as developed countries have. Perhaps not surprisingly, as president of the G77 plus China negotiating bloc, Pakistan became one of the most vocal proponents of a loss and damage fund at this COP  – using the motto “What goes on in Pakistan won’t stay in Pakistan.”

Countries had established mechanisms to deal with loss and damage, but had never established a fund. Last year’s draft COP26 outcome included a provision for the establishment of a loss and damage facility, but it was replaced by the “Glasgow Dialogue” at the last minute due to resistance by the United States and European Union to a facility or fund. Of course, there is huge resistance by wealthy, developed countries, including the United States, around compensation for loss and damage (otherwise referred to as climate reparations), so there was no guarantee that a loss and damage facility would end up in COP27’s final decision. At COP27, the European Union was the first to break the impasse, agreeing to a loss and damage fund provided it was targeted to the “most vulnerable,” and in exchange for stronger language around the 1.5˚C goal, in an attempt to disband unity on the issue within the G77. That attempt was not successful – G77 continued to push for a fund which was not earmarked just for the most vulnerable – a risky tactic with so much on the table.

Loss and Damage Jeopardizes Development

The Alliance of Small Island States (AOSIS) has been at the forefront of this issue for many years, originally proposing an insurance facility to help compensate countries for climate impacts. During her opening remarks at the High Level segment of COP27, Prime Minister Mia Motley of Barbados articulated clearly why loss and damage was such an important issue for this COP. Debt levels for very vulnerable states are escalating, partly due to the impacts of climate change. Many of these States are the least responsible for climate change – highlighting the connection between loss and damage and climate justice. Escalating debt levels means countries have difficulty accessing credit on international markets, and their national credit ratings are being downgraded, sometimes as a direct result of an incident of loss and damage. 

In my research with Thomas, we highlight the unvirtuous cycle that loss and damage imposes on very vulnerable states. Vulnerable countries often have existing capacity constraints, which means the formation and implementation of public goods, such as climate change adaptation plans, is already constrained. An incident of loss and damage, such as a hurricane, means countries have to access public budgets to recover from these incidents, leaving fewer funds available to invest in and implement other public policies, including in climate adaptation, but also in education and poverty reduction strategies. Loss and damage jeopardizes prior development gains. This erosion of capacity, and budgets, leaves these countries even more vulnerable to the impacts of climate change, and future incidents of loss and damage, and the cycle continues.

What Was (and Was Not) Agreed

It was against this backdrop of escalating climate impacts, and vigorous, and at times very fraught negotiations, that a loss and damage fund was established. But the establishment of a fund was in no way guaranteed. On the last official day of the COP, three options on loss and damage remained on the table. The Germany/Chile option included enhanced funding arrangements for particularly vulnerable countries. The EU proposal established a loss and damage fund for the ‘most vulnerable’ countries, contributed to by developed and developing countries, which would be one of a mosaic of solutions, including debt relief and reforming financing from multilateral development banks. The G77 plus China proposal established a fund for assisting developing countries (with no references to levels of vulnerability) in meeting their costs of addressing non-economic and economic loss and damage, and suggested a transitional committee to develop objectives, principles, and operational modalities of the fund. 

Parties worked through Friday and Saturday night, and almost 40 hours after the official end of the COP, in the early hours of Sunday morning, the final text was released. It is a mixture of the three options but adheres most closely to the G77 plus China proposal. The COP decision establishes new funding arrangements for assisting developing countries that are particularly vulnerable to the adverse effects of climate change. It also establishes a fund for responding to loss and damage. The text also establishes a transitional committee, which will agree on parameters for the operationalization of the new fund. The transitional committee will first meet in March 2023, and will develop recommendations before the next COP meeting, in the United Arab Emirates, in November 2024.

There is much work to be done, as the text establishing the loss and damage fund is bare bones.  The committee will have to fill in a considerable amount of detail in the next year, including the size of the fund and who will contribute to it. Easier wins on funding sources will likely focus on debt relief and reforming multilateral bank structures to direct financial relief towards vulnerable countries. It is also likely that some prioritization of access will at least be discussed, if not ultimately agreed, as this is a highly contentious area. The fund, at the moment, is largely a blank slate, but despite the lack of detail, the decision to establish a loss and damage fund, as well as enhancing funding arrangements for particularly vulnerable countries, is historic. Vulnerable countries need help in managing increasingly devastating climate impacts. While a loss and damage fund is long overdue, its establishment should be seen as evidence of slow, but incremental, progress on the long road toward climate justice for vulnerable countries.

IMAGE: Protesters, including women indigenous activists, demonstrate over climate justice, loss and damage, fossil fuels, human rights, exploitation by rich countries of poor countries and other climate related issues during the UNFCCC COP27 climate conference on November 12, 2022 in Sharm El Sheikh, Egypt. (Photo by Sean Gallup/Getty Images)

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