COP27 ‘loss and damage’ fund: What does South Asia have to gain from it?

Many remain skeptical about the new fund as it remains unclear who pays for it and who benefits.

Loss and damage was one of the thorniest topics at COP27. | Photo Credit: Christophe Gateau/dpa/picture alliance

Countries that participated in this year’s UN climate summit (COP27) in the Egyptian resort city of Sharm el-Sheikh agreed on November 20 to set up a “loss and damage” fund to help developing and climate-vulnerable countries overcome the devastating effects of worsening weather extremes. The agreement was struck despite initial resistance from rich nations—which are primarily responsible for the bulk of the world’s greenhouse gas emissions — to the idea of compensating poorer ones for climate impacts.

Many poorer and vulnerable nations have long appealed for financial aid that will help pay for damage caused by climate change-triggered environmental disasters. “With the creation of a new loss and damage fund, COP27 has sent a warning signal to polluters that they can no longer go scot-free with their climate destruction,” said Harjeet Singh, head of global political strategy at Climate Action Network International.

“From now on, they will have to pay up for the damages they cause and are accountable to the people who are facing supercharged storms, devastating floods and rising seas,” he added. “Countries must now work together to ensure that the new fund can become fully operational and respond to the most vulnerable people and communities who are facing the brunt of climate crisis.”

Saleemul Huq, a climate expert from Bangladesh and long-time campaigner for such a fund, said the establishment of the fund “is a great achievement.” He noted after the two-week conference officially concluded that this was “the first COP” in this “new era when we can say that we are facing loss and damage because of climate change.”

A thorny topic

Loss and damage was one of the thorniest topics at COP27. The G77—a group of more than 130 developing nations—was determined to make progress on this front and had the issue added to the official COP agenda for the first time.

At the climate talks, countries in South Asia—one of the world’s most climate-vulnerable regions—stood united in their demand for the loss and damage fund. With support from its neighbours, Pakistan—the current G77 chair—led the charge in the fight for climate aid to the developing world.

Pakistan’s climate minister, Sherry Rehman, whose country was hit by massive deadly flooding in the summer, said the fund was not “optimal,” but it addressed developing nations’ “basic demand” that major historical polluters such as the United States and the European Union help vulnerable countries pay for the damage caused by climate change.

Full details still have to be hammered out, but the final deal calls for workshops to be held later in 2023 on how exactly the fund will function. The final text of the agreement states countries “welcome the consideration, for the first time, of matters relating to funding arrangements responding to loss and damage associated with the adverse effects of climate change, including a focus on addressing loss and damage.”

A 24-member transitional committee, comprising members from both developed and developing countries, has to be set up to operationalise the fund by 2023. Negotiators at Sharm el-Sheikh also agreed to set up the so-called Santiago Network, a body to offer technical assistance to countries that need help rebuilding after climate catastrophes.

Uncertainties surrounding the new fund

The agreement on climate reparations payments represented a major U-turn in the talks, after the EU softened its position near the end of the summit. Big polluters had previously resisted a specific fund in fear of being held liable for all climate-related extreme weather events.

Climate activists, however, remain skeptical given the uncertainties surrounding the establishment of the loss and damage fund. There are unresolved questions over who would be contributing to the fund, by how much, and who would be the beneficiaries. It is also unclear which nations will fall under the “particularly vulnerable” category and hammering out details could be a matter of contention.

The European Union and the US say they want to broaden the donor base, by including China, which Beijing will likely oppose. The issues mean that it will likely take a while for the fund to be up and running. “As you understand, it will take time to operationalise it. I have doubts whether its operational modalities will be established within one year,” Mirza Shawkat Ali, an official from Bangladesh’s Environment Ministry, told DW.

Afia Salam, a Pakistan-based writer, also believes it will take time to reach an agreement on all the modalities and mechanisms related to the fund. “It’s just the beginning. That means it will take at least a few more COP meetings until the revenue stream is formalised,” she said, adding that it’s not clear “what happens in the interim”.

A distraction?

At COP27, there was a lot of talk about financial mechanisms, including bonds, insurance and other innovative means to deliver help.

A plan led by G7 countries, dubbed “Global Shield,” was also launched during the conference, aimed at providing prearranged insurance and other financial help quickly to communities in low-income countries struck by climate disasters like floods, droughts, and hurricanes. It was coordinated by Group of Seven president Germany and the Vulnerable Twenty (V20) group of climate-vulnerable countries.

Berlin said it will provide €170 million ($172 million) to the initiative, while countries like Denmark and Ireland also pledged millions of euros in funding. But critics called it a “distraction” from a real loss and damage fund.

Not enough to overcome the challenges?

Many poorer countries say they need grants—not loans or insurance, which could lead to climate-vulnerable countries, especially in South and Southeast Asia, shouldering a huge debt burden, Salam said. She stressed that the funds pledged so far by the rich countries are not at all sufficient.

Pointing out that a country like Nigeria alone “needs trillions of dollars” to deal with the damages caused by climate change, Salam said she doesn’t see rich countries and the international financial system allocating the vast sums needed to tackle the challenges.

In 2009, rich nations agreed to provide $100 billion a year to help developing countries transition to green energy systems and adapt to climate change. However, to date, that initiative has never been fully funded.

Data from the Organization for Economic Cooperation and Development (OECD) shows such contributions reached $83 billion (€83 billion) in 2020, with just $29 billion of that for adaptation. But a report from Oxfam in October estimated the actual amount could be far lower than reported, while up to 70 per cent of the public finance portion of the climate funding is in the form of loans.

“The global south sounded angry at COP27 because they have not seen any past commitments being fulfilled. The $100 billion pledge has not been kept and the adaptation fund is not holding enough,” said Salam.