Loss and damage caused by extreme weather events such as drought, rising sea levels and the recent devastating floods in Pakistan hit the headlines at the opening of COP27. While financial pledges and initiatives to help with loss and damage have been evolving for years, consensus and formal agreements on feasible action plans still need to be improved.
Fatemeh Bakhtiari, Senior Researcher at the United Nations Environment Programme Copenhagen Climate Centre (UNEP CCC), unpicks the regulatory landscape, discusses key sticking points and makes a case for a data-driven approach.
The establishment of the Warsaw International Mechanism (WIM) in 2013 and the Santiago Network (SN) in 2019 are two important milestones for loss and damage. How are they progressing?
The Warsaw International Mechanism (WIM) was set up to facilitate dialogue and promote action for countries most affected by loss and damage. The thinking behind this is that while developing nations, particularly small island states, create the least emissions, they are disproportionately affected by climate-related events. Since WIM was established, the proposal of specific funding for loss and damage came back on the table at COP26. One of the main calls from developing countries in the G77 negotiating group and the Chinese delegation was to establish a specific loss and damage funding facility. Notably, it should be a new and separate channel of funding that wouldn’t come at the expense of the current flow of financing for adaptation and mitigation. Unfortunately, the funding facility was never established due to opposition from developed nations who feared ongoing liability and compensation calls would require an open chequebook.
In terms of the Santiago Network (SN), it was established in 2019 to mobilise technical assistance from a wide range of experts and organisations to help develop solutions that address loss and damage for countries more vulnerable to climate change. However, opinions on how SN should be structured have put the initiative in a state of limbo, with pressure now on COP27 to make it operational.
Is there a role for private and non-governmental organisations (NGOs) as part of the solution to financing loss and damage?
Yes. NGOs actively work in this area, mainly fundraising for vulnerable small island states and other developing countries. However, NGOs are typically small entities without political oversight or backup. So while their fundraising capabilities for immediate catastrophes are well-regarded, their long-term influence is limited. Loss and damage are not just about the direct and immediate impact of climate change events; it’s also about slow onset climate events such as rising sea levels and their often indirect effect on vulnerable countries. For this, we need long-term solutions and access to high-level finance channels. So far, there has been a reliance on creating insurance-based loan facilities to help developing companies with the economic impact of loss and damage events. However, costly repayment premiums tend to exacerbate financial problems in the long term as it puts the poorest countries at higher risk of debt distress, diverting public finance away from where it’s most needed. So for the poorest developing countries at a higher risk of loss and damage, it’s understandable why a grant facility is the preferred financing option.
But it’s not just about funding; it’s also about sharing knowledge, expertise and developing solutions. This is where the private sector can make a significant impact, particularly as they are now subject to sustainability disclosure reporting and net zero targets. As their sustainability knowledge matures, the private sector’s expertise can hopefully bring agility and commercial planning skills into the equation.
How essential is governance in terms of moving loss and damage solutions forward?
Governance is vital in helping to move things forward. If we take the SN, there are still several points to agree on before it becomes fully operational, such as its structure and terms of reference. Sticking points include the suggestion by developed countries that the executive committee of WIM should act as the advisory board to SN. In contrast, developing countries insist that the advisory board should be completely independent and have a technical assistance focus. Also, developing countries want to nail down SN’s terms of reference before an entity is chosen to run it, as they don’t want the choice of entity to over-influence decisions about operational details.
For WIM, governance is also proving a sticking point, particularly over the regime under which it should operate. Developed countries would prefer WIM to come under the Paris Agreement, which focuses on averting, minimising and addressing loss and damage, but currently excludes any reference to liability and compensation. Developing countries say WIM should operate under both the Paris Agreement and COP to achieve broader buy-in, as not all countries have signed up to the Paris Agreement, plus COP has a higher focus on funding. Without these governance decisions being made, it’s hard to see progress. We will see if COP27 addresses these points.
What is the role of an enhanced transparency framework, and how can greater reliance on robust data improve the prospects for loss and damage recognition?
An enhanced transparency framework is set out in article 13 of the Paris Agreement. It relates to monitoring and reporting progress on climate change mitigation, adaptation and implementation at national level, which countries report on as part of sustainability goals. However, while loss and damage reporting is considered part of the global stocktake, no specific tools exist to measure its impact. So while several countries include loss and damage in their national reporting, the quality and scope of information vary hugely. And while UNEP CCC, under the ICAT project, has produced a template to assess loss and damage, there is currently no official guidance.
There are, of course, many challenges regarding data, including estimating costs, tracking the flow of finances, measuring trends and designing appropriate policies for loss and damage. When it comes to cost estimations, robust methodologies are lacking, and data sets are incomplete. The problem is exacerbated when measuring indirect loss and damage impacts affecting the entire economy, where costs tend to be much larger than direct impact costs. It’s equally challenging to track the flow of domestic, international, private and public funding as there is currently no commonly agreed definition of what constitutes loss and damage. The inclusion of insurance-based funding and the fact that there is no separate finance channel muddies the water further on the ability to track the flow of finance. In terms of measuring trends, there is also a lack of tools to calculate the impact of slow onset climate events, particularly in relation to the indirect effects across the whole economy. Equally, policy measures that focus specifically on loss and damage are still rare.
In conclusion, definitions need to be firmed up and data improved so governments can monetise the direct and indirect consequences of climate change events more accurately. Improving methodologies and quantifying loss and damage can help paint a clearer picture and finally get loss and damage firmly on the political agenda.