Climate-vulnerable countries are pushing for a just loss and damage fund to help them recover from climate disasters. But will wealthier nations pay up?
Global temperatures soared by more than 1.4°C above pre-industrial levels in 2023, teetering dangerously close to the 1.5°C threshold set by the Paris Agreement.
We are already witnessing the disastrous consequences of this global heating in real time, with lethal storms, wildfires and floods threatening to displace millions, as well as harm the fragile ecosystems we depend on.
But in a cruel irony, the most climate-vulnerable communities are often the ones who have contributed the least to the climate emergency and are ill-equipped to mitigate its effects.
The Philippines is one of the most climate-vulnerable countries in the world.
Hammering typhoons rip through the island nation each year, with 2023's tropical cyclones causing around ₱18 billion ($324 million) worth of damage - an enormous sum that could grow annually as the climate crisis intensifies.
Yet the Philippines contributes less than 1% of the world's greenhouse gas emissions - so who should foot their bill?
At COP29, delegates will debate the details of a loss and damage fund, a money pot that will help climate-vulnerable countries front the costs of climate damages.
The future of climate justice hinges on these negotiations. Its success will depend on how readily those who have contributed the lion's share of the world's greenhouse gas emissions step up and pay their dues.
What is the Loss and Damage Fund?
The Fund for Responding to Loss and Damage will help low-income countries pay for the damage caused by climate-related natural disasters.
Loss and damage could refer to harms wrought by extreme weather events - homes wiped out by tropical cyclones for example, decimated crop yields following a 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 our increasingly erratic climate.
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.
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 water-borne 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.
This led to outbreaks of diseases like dengue, cholera and malaria in flood-affected areas.
Loss and damage funding arrangements at COP
After decades of campaigning by a coalition of Pacific Island Nations and developing countries, the COP27 climate summit in Egypt finally agreed to establish a loss and damage fund to help pay for these climate impacts.
Last year's COP28 in the United Arab Emirates saw countries formally begin the process of launching the fund. The World Bank accepted an invitation to be the fund's interim secretariat and host for the first four years.
The more practical details of how to finance the fund are set to be debated at COP29 in Azerbaijan, which has been dubbed the "finance COP".
How much is needed for the Loss and Damage Fund?
At least $100 billion every year should be unlocked for loss and damage by 2030, the 14 developing countries on the fund's board have argued, though the actual required amount is likely to be much more.
In an ideal world, the fund would reflect climate-vulnerable nations' evolving needs, meaning the annual target will grow if the climate emergency is allowed to intensify.
One UN-led report in 2022 in 2022 found that as much as $300 billion could be needed every year by 2030. Another 2018 paper put that figure at $290-580 billion. The Loss and Damage Collaboration, meanwhile, has estimated $671 billion in annual costs.
When COP28 officially launched the Loss and Damage Fund, early pledges from countries like the United Arab Emirates, Germany, the USA and Japan raised $700 million - a mere 0.1% of that $671 billion.
COP29's presidency will push for more pledges to top up that figure this year in Baku.
Who pays into the Loss and Damage Fund?
When they pushed for a loss and damage fund at COP26, climate-vulnerable countries asserted that those now living with the climate crisis's worst effects are also the least likely to have caused it - and that the countries who have contributed the most to the crisis should pay for the clean-up.
The nations we consider developed today are often the ones who benefitted from a post-industrial boom in burning coal, producing large greenhouse gas emissions in the process.
Before 1882, over half of the world's CO2 emissions came solely from the UK, according to Our World in Data. Since the Industrial Revolution began, the US has cumulatively produced 25% of the world's CO2 emissions, while 22% can be attributed to the EU. Colombia, by contrast, has emitted 0.2%.
This carbon-intensive industry growth was enabled by colonial relationships, which facilitated devastating resource extraction (deforesting North America's forests, for example) and labour exploitation.
The link between colonialism and climate wreckage is plain to see, as the Intergovernmental Panel on Climate change (IPCC) acknowledged in 2022. This creates an additional moral incentive for the most polluting countries to pay climate change's price.
For now, contributions to the Loss and Damage Fund are voluntary, though the fund's draft text singles out developed countries by urging them to "provide enhanced and additional support."
The UN's list of major developed economies includes the G7 (UK, USA, France, Germany, Italy, Canada and Japan), as well as Australia and the EU.
But some critics, including the UK's ex-climate minister Graham Stuart, insist that this distinction between developed and developing countries is "outdated."
Rather, Stuart has said that loss and damage funding should be financed by "all of those capable of doing so." That could include major developing economies like China, India and the Gulf region, whose recent growth has also wrought sizeable emissions.
China is today the biggest emitter of greenhouse gases, while India takes third place behind the US.
Our recent investigation also found that ADNOC, the United Arab Emirates's (UAE) state-owned petrochemicals company, pursued close to $100 billion worth of fossil fuel deals in the country's year as COP28 host.
China and India have rebuffed calls to pay into the Loss and Damage Fund, but the UAE may have set a different precedent last year with a $100 million pledge.
The private sector's role in loss and damage
Pledges from developed countries on their own are unlikely to raise all the necessary funds, the International Peace Institute (IPI) has remarked.
A mixture of public and private sources will likely be needed, with the IPI suggesting a tax levy on entities like air travel, bunker fuel, greenhouse gas emissions or fossil fuel extraction.
A movement to make polluting industries pay for recovery from the climate crisis is already in motion in multiple states in the US.
In September 2024, Representatives Jerry Nadler and Judy Chu and Senator Chris Van Hollen introduced the Polluters Pay Climate Fund Act.
If the proposed bill passes, it will compel large US-based fossil fuel companies (and international companies doing business in the US) to cough up for a $1 trillion funding pot, which will fund measures that respond to the climate emergency.
Which countries will benefit from the Loss and Damage Fund?
The Loss and Damage Fund will be available to all developing countries that are "particularly vulnerable" to climate change's destructive impacts - though precisely who qualifies as the most climate-vulnerable has been up for debate.
The USA would prefer to add restrictions to the fund, two USA State Department Officials told Reuters last year, so that it only targets the most climate-vulnerable countries.
The country's negotiators have also said that the fund should cover specific events to avoid duplicating work covered by existing funds.
One suggested area could be slow-onset climate impacts, like rising sea levels and desertification, which are not easily covered by current climate finance mechanisms.
But the UN's G77 + China have rejected this notion, arguing that they are all vulnerable to the fallout from climate breakdown and should all be able to access the fund.
In the case of Pakistan, despite being one of the most vulnerable countries to climate disasters, its designation as a middle-income country could prevent it from accessing vital loss and damage financing.
China and India too have asserted that, even though they are both booming developing economies, they will still feel the harsher consequences of climate change.
One report last year found that China is home to 16 out of 20 global regions that are most vulnerable to climate change.
Natural disasters, like flooding, drought and heatwaves, have already cost China ¥93.16 billion ($12.83 billion) in the first half of 2024.
Community-led loss and damage funding arrangements
No loss and damage funding arrangement can be workable unless human rights are placed at its forefront.
When deadly weather events hit, it is the people living on the climate crisis's frontlines that feel its repercussions most potently.
These include the Indigenous communities and land and environmental defenders who speak out against the climate crisis's drivers and subsequent harms.
Ensuring that their voices are front and centre in negotiations will be key to a fair and just loss and damage fund.
But a reflection published by the Office of the United Nations High Commissioner for Human Rights (OHCHR) casts doubt on the fund's current commitment to climate justice, particularly regarding Indigenous Peoples' access to the fund.
Plans to include an Indigenous Peoples' representative on the fund's board were scrapped in Dubai, and Indigenous communities and civil society groups are now only invited to engage with the task force as active observers.
This risks neglecting the unique knowledge systems, values and livelihoods that tie Indigenous Peoples deeply to the environment - and which leaves their communities uniquely vulnerable to the changing climate.
For those who traditionally live in tropical forests, for example, wildfires caused by extreme heat can destroy their homes and livelihoods.
A rigid bureaucratic approach has also shut Indigenous Peoples out from climate finance in the past, with less than 1% of climate-related Official Development Assistance going to Indigenous applicants.
The OHCHR puts this down to assumptions about a lack of accountability and reporting - in other words, a preoccupation with paper trails is blocking climate finance from reaching those who need it most.
That is why multiple groups, including the Loss and Damage Collaboration and Climate Action Network, are calling for some of the fund to be ringfenced for direct community-led distribution.
Rather than relying on international and national coordination, a community window could employ the expertise of community leaders and civil society groups to direct loss and damage funds.
What are the challenges of the Loss and Damage Fund?
Countries at COP29 face multiple questions and challenges around loss and damage funding, including:
- What types of loss and damage the fund will cover
- How much high-income countries will pledge to the fund
- Which countries will pay into the fund, and which ones will benefit
- How the private sector can be mobilised to support the fund
- How the fund will be distributed to ensure equitable support
- Whether the fund will be grants or loans-based
Despite Germany's optimistic plea that countries move "from words to action", there are concerns that developed nations will be slow to raise loss and damage finances.
The minimum $100 billion floor named by developing nations on the fund's board is already a contentious figure.
It mirrors the climate finance target set in 2009, when developed countries agreed they would raise $100 billion every year by 2020 to support climate action in developing countries. They only realised that goal for the first time in 2022 - two years overdue.
In the past, Global Witness has called for climate finance to cover climate reparations - not just loss and damage. This would mean pinning down the polluting companies and countries who have historically caused the climate crisis and making them liable to pay compensation.
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But opposition to liability and compensation, particularly from the US, has made some developed countries reluctant to establish loss and damage funding at all.
For now, reparations will not play a part in the fund. The Paris Agreement includes language, at the US's insistence, that precludes lawsuits tied to loss and damage, stating that it "does not involve or provide a basis for any liability or compensation."
The US's preference for funding slow-onset impacts, like rising sea levels, also indicates a preventative approach, which focuses more on adapting to future loss and damage threats rather than addressing historic disasters.
But this overlooks the lived reality of many developing countries, who are already paying a hefty price for the climate crisis - often because wealthier countries and corporations have previously extracted from their lands to line their own pockets.
Part of the blame for Pakistan's floods, for instance, has been lain at the door of the British Raj, which built a network of canals and embankments to tame the Indus River. This colonial project disrupted the river's flow so much that it has exacerbated multiple disastrous floods since.
To make matters worse, Pakistan has been forced to take out $400 million in loans to fund the reconstruction of damaged homes and infrastructure, increasing the financial burden of an already debt-saddled country.
This pattern repeats itself again and again amongst developing countries. Unable to afford the recovery costs in a climate disaster's wake, nations take on more debt to rebuild.
This is why developing countries have voiced trepidation about the US-based World Bank hosting the fund.
Leaving the keys with a bank whose business model is largely driven by loans - and whose governing structure gives the US outsized-voting power - risks replicating colonial structures, with loans further impoverishing developing countries.
To ensure that the future of climate finance works hand-in-hand with climate justice, we are calling for a loss and damage arrangement that:
- Is grants-based, not distributed as loans
- Is mandated, not voluntary, with contributions that governments can tax
- Incorporates debt-forgiveness, in recognition of national debt's colonial undertones, which enriches developed economies at the expense of climate-vulnerable countries
- Gives land and environmental defenders, including Indigenous Peoples, a meaningful seat at the negotiating table
- Receives sufficient funding every year from history's biggest culprits for polluting emissions, harmful resource extraction and colonial exploitation of communities
- Emphasises the need to rapidly phase out fossil fuels - loss and damage funding will never be enough, unless we also reverse the climate crisis and its effects
A just loss and damage fund will recognise the disproportionate suffering that climate-vulnerable countries have already endured for others' gain and seek to put right those historic wrongs.
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Becca Inglis, Web Content Editor
