Success of COP27 hangs on a ‘loss and damage’ thread

The entrance to COP27 in Sharm El Sheikh, a series of flags
The entrance to COP27 in Sharm El Sheikh

Michael Wilkins, Professor of Practice and Executive Director at Imperial’s Centre for Climate Finance & Investment (CCFI) and Hanyuan Wang (Karen), Research Assistant at CCFI, are both members of the Imperial delegation at the UN Climate Change Conference (COP27) in Sharm El Sheikh. In this blog, they consider ‘loss and damage’ – the role of financial aid in helping countries recover from, and build resilience to, the losses and damages caused by climate change – and how it is being addressed at COP27.

Michael Wilkins and Hanyuan Wang (Karen) at COP27.
Michael Wilkins and Hanyuan Wang (Karen) at COP27.

‘Loss and damage’ has leapt to the top of the COP27 headlines after more than 130 developing countries successfully demanded it be added to the agenda for the first time. It was an early breakthrough when countries agreed to discuss funding to help vulnerable countries cope with damage from floods, drought and other climate impacts – the politically contentious issue known as ‘loss and damage’. However, progress towards an agreement is slow and stuttering, and climate negotiators and observers have warned that a ‘no-deal’ on this funding could thwart other agreements.

A conference room with large digital screens showing COP branding, and a big room full of delegates: the Second informal consultation of “Loss and Damage” issues at COP27, 11.14 at Sharm El Sheikh
Second informal consultation of “Loss and Damage” issues at COP27, 14 November 2022, at Sharm El Sheikh

The “Global Shield Against Climate Risk”

One proposal that does address loss and damage is the Global Shield Against Climate Risk, which was formally launched at COP27 on Monday November 14.

Spearheaded by Germany in its current role as president of the G7 nations, and launched in partnership with the V20 group of climate-vulnerable countries, the Global Shield is intended as a new insurance-based mechanism to provide poor and vulnerable people with substantially more and better pre-arranged finance against disasters.

Funding pledges have already started rolling in. Germany has committed €172 million ($178 million). France will kick in with €20 million ($ 20.8 million) next year. Ireland has promised $10 million and Canada $7 million. Belgium has pledged €2.5 million ($2.6 million) in aid to Mozambique. Over the next four years, Austria will allocate €50 million ($52 million) from its existing budget to fund loss and damage in the world’s most vulnerable countries, while New Zealand will allocate $12 million. The total promised so far stands at about $282.4 million.

The trouble is that these sums are tiny compared with the vast costs of climate disasters that are already happening. In Pakistan alone, this year’s catastrophic floods created loss and damage amounting to $30 billion.

“My country, Pakistan, has seen floods that have left 33 million lives in tatters and have caused loss and damage amounting to 10% of GDP” said Ambassador Munir Akram, Permanent Representative of Pakistan to the United Nations.

This year, Pakistan posed the most visible example for the vexing dispute that some countries are having over a loss and damage fund.

Close up of Pakistan ‘s country pavilion, where the slogan on the structure says “what goes on in Pakistan will not stay in Pakistan”, with a few people gathered around talking
In Pakistan‘s Pavilion, the slogan says: “What goes on in Pakistan will not stay in Pakistan”

A distraction from real action on funding for loss and damage?

The support of the Global Shield by the V20, which includes 20 of the developing nations most exposed to climate impacts, is important to note here. At a press conference earlier this week, Ghanaian finance minister Ken Ofori-Atta called it a “path-breaking” effort that was “long overdue”.

But others have been far less enthusiastic. The major fear is that the Global Shield will divert attention away from the push for a formal loss and damage facility established under the United Nations Framework Convention on Climate Change (UNFCCC), which would impose far more stringent requirements on rich countries while providing far more support to poorer ones.

Similarly, while the Global Shield at COP27 might be interpreted as a sign of progress, some argue that an insurance-based structure will still compel impoverished nations to pay premiums, which they cannot afford.

A political impasse

Compensation for loss and damage does not imply a donation from developed to developing countries. Yet this is how many see it, leading to extremely slow progress on the timeline, funding arrangement, and financing model. During an informal consultation held at the start of week two, the most frequently repeated feedback from countries, particularly those experiencing the worst impacts of climate change, was the request for the setting up of a fund rather than the never-ending, circular discussions on technicalities leading to further delays.

Promisingly, the 27-country European Union said it is now open to discussing such a fund, but, along with the United States, refuses any outcome that could make rich nations legally liable to pay for climate-related damage based on their high historical greenhouse gas emissions. “It’s a well-known fact that the US and many other countries will not establish… some sort of legal structure that is tied to compensation or liability. That’s just not happening,” said US climate envoy John Kerry on Saturday.

China meanwhile has expressed a positive attitude toward supporting climate damage mechanisms, particularly for the most vulnerable countries. China’s chief climate negotiator, Xie Zhenhua, stated that: “China would be willing to collaborate as a developing country that also suffers greatly from extreme weather events”.

For now it seems the political impasse behind loss and damage, hitherto an obscure issue hidden in the depths of COP jargon, still means success overall of the negotiations at Sharm El Sheikh remain on a knife edge.

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