Wealthy countries dragging back loss and damage fund 

Rich nations have been accused of delaying the loss and damage fund with slow payments, undermining its plans to deliver US$250 million in aid next year to climate-vulnerable countries hit by extreme weather. 

Representatives of developed countries in the Fund for Responding to Loss and Damage (FRLD), at a board meeting in the Philippines last week, expressed concern that wealthy nations have only transferred US$348 million out of US$789 million they pledged to the fund for victims of climate change.

That is less than half of what they promised.  

All countries agreed to set up the fund two years ago during the United Nations climate summit (COP27) in Sharm El Sheikh, Egypt, after years of resistance from rich polluting nations, fossil fuel producers and exporters, the major contributors to global warming.  

Although they are the least contributors to global warming, climate-vulnerable developing nations experience most of the climate impacts first-hand, enduring devastating consequences such as prolonged droughts and ravaging floods, often with limited resources to respond and adapt. 

Loss and damage refer to harms wrought by extreme weather events – homes wiped out by tropical cyclones, for example, decimated crop yields following drought, or infrastructure torched by wildfires – or slow-onset events, like rising sea levels.  

It is generally understood to cover unavoidable damages, which happen in spite of efforts to adapt to an increasingly erratic climate across the globe. 

These damages carry clear economic burdens, but there is an argument to be made for non-economic losses, too, such as trauma experienced by hurricane survivors or the mental health impact of mass displacement. 

Intense lobbying 

Loss and damage might also include physical health impacts. Heat stress is the leading cause of mortality linked to extreme weather, claiming around 489,000 lives on average each year.  

Severe flooding, meanwhile, carries the risk of deadly waterborne diseases. In Pakistan, the 2022 floods decimated much of the country’s water systems, leaving over 5.4 million people reliant on contaminated floodwater for drinking. 

COP28 in Dubai, United Arab Emirates, marked important progress with the establishment of the loss and damage fund and the global stocktake of climate action.

However, these efforts fell short of delivering a forward-looking, sustainable plan toward the specific needs of developing economies.

It took strong negotiations and intense lobbying for the loss and damage fund to be finally operationalised at last year’s climate summit in Baku, Azerbaijan.  

In April, the board of the FRLD, at a meeting in Bridgetown, Barbados, agreed to a strategy to spend US$250 million until the end of 2025 on an initial set of interventions to help developing countries deal with the aftermath of climate-driven disasters. 

The start-up phase of the mechanism focuses on strengthening national responses to climate catastrophes rather than community-level action, which activists had called for. 

The fund will give grants of between US$5 million and US$20 million to project proposals submitted by developing countries.

Governments are expected to obtain direct budget support for emergency measures, such as temporary housing for displaced people, in case of a disaster during this start-up phase. 

Led by Senegalese-American banker Ibrahima Cheikh Diong, FRLD is considering programmatic approaches for long-term needs, readiness support for country-led approaches and rapid disbursement through direct budget support – to help governments tackle loss and damage by preparing and bolstering national systems. 

African countries and the wider developing countries community continue to seek for more “adequate and predictable finance” to tackle the climate crises confronting them.  

Studies by the Addis-Ababa-based African Climate Policy Centre (ACPC) indicate “the increasing frequency and severity of climate change impacts, resulting in disproportionate effects on African economies and societies, with countries estimated to be losing on average 2-5 per cent of GDP, and many countries diverting up to 9 per cent of their budgets into unplanned expenditures on responses to extreme weather events”. 

How much is available for the most vulnerable countries?

Governments have agreed that small island developing states (SIDS) and the world’s least developed countries (LDCs), of which 33 out of 46 are in Africa, 9 in Asia, 1 in the Caribbean and 3 in the Pacific, should get a minimum share of the fund’s resources, with donor pledges currently standing at less than US$800 million. 

Bankable pledges 

The network of NGOs Loss and Damage Collaboration has estimated that developing countries’ loss and damage needs add up to around US$400 billion a year. 

Speaking on behalf of developing-country board members during a press briefing, Honduras representative Elena Cristina Pereira Colindres expressed concern about the delay in wealthy nations’ payments, adding that “transparency and predictability” on when the money would be paid is lacking. 

Italy, the European Union and Luxembourg are the three donors that have promised money but not said when it will be given.

Australia, Sweden and the UAE are drip-feeding their promised pledges, only giving a part of them each year. 

Pereira said these multi-year disbursement schedules severely limit the ability of the fund’s board to determine how much money they can spend and reduces “overall confidence in our partners’ commitments to long-term capitalisation” of the fund. 

While the fund’s board has agreed to spend US$250 million next year, Pereira said this must not be used or considered as an indication of the future scale of the fund because the needs are in the “hundreds of billions”.

Developing countries want developed nations to provide US$100 billion in loss and damage finance per year by 2030. 

Fiji’s representative Daniel Lund told the board meeting that the amount the fund currently has is just “lemonade-stand money”, adding that is about a quarter of what it costs to build a coal-fired power plant, reported the authoritative UK-based Climate Home News digital publication. 

But some developing-country board members and climate campaigners pushed back at the board against adding this practice, known as leveraging, into the mix.

Egypt’s representative said he had “a very strong concern” about the idea.  

“This should not be part of any criteria when we deal with loss and damage funding,” he said. 

The head of Climate Action Network (CAN) International, Tasneem Essop, told Climate Home she was worried that the fund’s secretariat was pursuing “typical World Bank approaches”.

The World Bank was chosen to host the fund – at least on an interim basis – despite opposition from some large NGOs like CAN. 

Essop said she opposed leveraging and derisking investments.  

“It’s as if what we are setting up here is an investment fund,” she said. “No, it’s not – this is a solidarity fund. This fund needs to benefit the people suffering from the climate crisis”. 

“A fund is not a bank. Solidarity is different to investment. Loss and damage is different to development,” Mohamed Nasr said in agreement. 

Despite funding constraints, FRLD board co-chair Richard Sherman said he expects the first projects to be approved early next year. 

The board is still working out the fund’s financial architecture, meaning how the money is banked and disbursed to countries to set up a unique fund to deliver a “rapid disbursement in time of disaster or extreme event”. 

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