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Loss and damage finance: A long time in the making but not without its challenges

Loss and damage finance: A long time in the making but not without its challenges

A new report from the Finance Working Group of the independent Global Stocktake (iGST) explores loss and damage finance and its place in the Global Stocktake.

By: Raju Pandit Chhetri, Prakriti Resources Centre, Nepal; Laura Schaefer, Germanwatch; and Charlene Watson, Overseas Development Institute and co-chair of the iGST Finance Working Group

A new report from the Finance Working Group of the independent Global Stocktake (iGST) explores loss and damage finance and its place in the Global Stocktake. The report outlines the practical challenges faced by national stakeholders and international climate finance providers  in progressing the financing of loss and damage and in monitoring and tracking such finance. It also highlights the opportunity that the first Global Stocktake (GST) of the Paris Agreement in 2023 presents for progressing loss and damage finance challenges. Ultimately, this paper intends to support a learning-by-doing approach to overcoming the practical challenges of international support for loss and damage, articulating the role for both government and non-governmental stakeholders in moving forward the debate. 

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The recognition that loss and damage might result from human-induced climate change was conceptualized at least as early as 1991. It appeared in a proposal to address impending sea-level rise by the Alliance of Small Island States (AOSIS) to the Intergovernmental Negotiation Committee, the body tasked with drafting the U.N. Framework Convention on Climate Change (UNFCCC). Yet it took more than two decades to officially establish the Warsaw International Mechanism for Loss and Damage (WIM) in 2013, and it was only in the Paris Agreement, adopted in 2015, that loss and damage was afforded its own self-standing Article, giving loss and damage a more solid political legitimacy in multilateral negotiations. 

There is no question now that we will need finance to avert, minimize, and address loss and damage. Can the Global Stocktake (GST) help us do that effectively? 

In 2018, the IPCC acknowledged the near certainty of loss and damage associated with the adverse effects of climate change. Climate change mitigation – reducing or removing harmful emissions – and adaptation – adjusting to minimize harms of climate change – will be insufficient to tackle all climate impacts. Yet the topic has been so politically charged that loss and damage has historically and intentionally been separated from finance discussions. For instance, it sits outside the commitments for developed countries to collectively mobilize $100 billion per year, from public, private, and alternative sources, by 2020. Nonetheless, at COP25 in Madrid (2019), loss and damage was loosely anchored within the UNFCCC financial architecture: In decisions providing guidance to the Green Climate Fund (GCF), one of the major funds in the multilateral climate funds architecture, the COP asked the GCF Board to “continue providing financial resources for activities relevant to averting, minimizing and addressing loss and damage”.

This of course assumes that the GCF has the right expertise to address loss and damage, and that countries can articulate loss and damage finance needs and priorities. Many countries are indeed moving forward with articulating loss and damage and even associated needs. For instance, Saint Lucia, a Caribbean small island developing state that lies in the tropical cyclone belt, has clearly outlined the need to address loss and damage in its National Adaptation Plan (NAP). However, with loss and damage kept out of climate finance discussions, there are no processes for systematically collecting, recording, and reporting information on loss and damage, and related financial needs by countries under the UNFCCC. Nor is there a process to clearly track and report finance associated with loss and damage, either by developed or developing countries, collectively or individually.

This is where the Global Stocktake could play a role, requiring loss and damage to be systematically included in its finance theme as a cross-cutting topic in the five-year cycle of the GST.

Our new paper emphasizes that it is politically challenging right now for multilateral climate change funds that sit under the UNFCCC and Paris Agreement to separate or identify loss and damage finance. This is not an excuse for delay. In the short term, civil society can also support the development of mechanisms established outside of the UNFCCC Financial Mechanism. These might include United Nations or other institution-based funds, regional and national funds for loss and damage, or bilateral arrangements that make use of existing or new institutions. 

What is important is that any arrangements for loss and damage finance have iterative learning baked into their mandates. Identifying what works, in combination with a strong process to facilitate learning-by-doing and mandated assessment, will be required to progress toward an effective architecture for delivering loss and damage finance. This progressive function is at the heart of the Global Stocktake. In this paper we outline how to lay the groundwork to progress the loss and damage finance debate.  

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About the iGST and the Finance Working Group

The Independent Global Stocktake is a consortium of civil society actors working together to support the Global Stocktake, the formal process established under the Paris Agreement to periodically take stock of collective progress toward its long-term goals. The first Global Stocktake culminates in 2023.

The Finance Working Group is an open partnership that brings together a wide range of expert perspectives from the global north and south. It is building a compendium of case studies on Article 2.1 (c) – to provide concise, high-level, early mapping of government-led policy levers and private initiatives in an effort to understand the effectiveness of financial flows in achieving the goals of the Paris Agreement.

Published March 18, 2021

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