Two years after a global agreement to help pay for climate disasters was trumpeted as a landmark victory for climate justice at COP27, the fund it has created is beset by massive financial uncertainty as officials wrangle over how best to get it off the ground.
Experts predict that loss and damage will soon cost at least $100 billion every year: There was $41 billion worth of climate damage in the first half of 2024 alone, according to Christian Aid research.
By contrast, the Fund for Responding to Loss and Damage (FRLD) has only received, as of 3 December, $69 million out of a pledged $749 million, and officials are still working through the various technical processes needed to launch the institution.
Following COP29 in Baku, the board met 2-5 December in the Philippines, where the fund is now legally hosted. Its policies are due to be formalised in the first half of next year, and the fund could start to disburse money in 2025.
After a decades-long battle to ensure that the nations that carry the heaviest burden from the climate crisis receive more financial assistance from the countries most responsible, its supporters hope the fund can take a new approach to climate justice.
The rules of the fund, known as the Governing Instrument, agreed on at COP28 in Dubai, say the body should “pursue a country ownership approach… and seek to promote and strengthen national response systems”. Climate-vulnerable governments have often criticised existing climate finance institutions, like the Green Climate Fund, for being slow-moving, incoherent, and hard to access.
“We’d like to see the early funds help to demonstrate how national systems for addressing loss and damage can be directly supported rather than sort of piecemeal projects,” said Fijian FRLD board member Dan Lund.
He told The New Humanitarian the board hoped the fund would, over the long term, incentivise governments to establish their own procedures for dealing with loss and damage. This means the fund will likely determine how it spends money by examining the potential outcomes of what a government or other organisation would aim to do with FRLD funding rather than just be triggered for an automatic payout when a certain disaster hits.
“It’s about a systemic approach that's nationally led rather than just sort of a first-through-the-door application process for projects,” he said.
While successful “proof of concept” disbursements are badly needed to help get donors to support the fund, “there are tensions between doing things quickly and doing things that are directly in keeping with the differentiation that this fund is meant to create,” Lund explained.
Acknowledging that loss and damage is a highly pressurised and politicised issue, he added: “It’s never fast enough.”
As the dust settles after a disappointing COP29 in Baku, and ahead of a crucial year for the fund, here is a temperature check on where things stand.
Will the fund be filled?
Despite being at the centre of so much political attention in recent years, the FRLD is short on money – less than 10% of what was promised by donors (and that is a fraction of what is truly needed) has made it into the fund’s accounts.
In a major blow for some campaigners, COP29’s new climate finance goal, known as the NCQG, did not include a clear sub-target for money dedicated to loss and damage financing.
Without dedicated funding, the FRLD risks becoming a “pyrrhic victory” for climate justice, according to Liane Schalatek, an expert on loss and damage policy and associate director of the Heinrich Böll Foundation North America.
But not everyone sees it that way.
During the UN climate summit in Baku, the influential climate economist Avinash Persaud campaigned – to the infuriation of some activists – against a dedicated loss and damage target in the COP29 finance deal. He argued that if the NCQG included loss and damage financing – which, he stressed, should be grants rather than loans – it would “squeeze” the other essential climate finance needs of mitigation and adaptation.
“You only need to look at the political landscape to see where the mandates are for governments, and the mandates are not to dramatically double, treble, quadruple grant-based finance,” Persaud told The New Humanitarian, over an espresso on the sidelines of COP29.
Despite the absence of a dedicated target in the NCQG, there “is enough commitment to loss and damage in the system to support” dedicated funding, Persaud added. There is “no part of the system that says, ‘well, if loss and damage isn't in the NCQG, we're going to forget about loss and damage’,” he added. “We fought a 30-year campaign over this fund… [and] the planet won’t make us forget it.”
Instead, Persaud favours raising money for the fund using "solidarity levies”, which tax highly polluting industries. This could be done through the “expansion of existing mechanisms” like the US Oil Spill Liability Trust Fund, which is funded by a levy of nine cents per barrel. Applying that globally would “fund climate loss and damage” on its own, he pointed out.
Persaud accepted that the current political environment for these levies is “challenging” but took the long view, adding: “I don’t see an alternative.”
Avert, minimise, or just respond?
The prospect of a loss and damage fund has appeared to galvanise humanitarians, who are desperate for new funding and ideas amid a bleak landscape of growing global needs and shrinking aid budgets. And the fund’s glaring money problems haven’t stopped them thinking about how they might become involved in its work.
While the fund’s rules emphasise responding to loss and damage, some humanitarians at COP29 continued to push the need for it to help “avert and minimise” – a popular view in the emergency relief sector that wants to prioritise pre-emptive approaches to disasters.
Support for anticipatory action for loss and damage was a dominant theme of aid policy discussions in Baku, including on a panel about humanitarian perspectives of the fund.
“I totally agree in investing in that anticipatory action and ensuring we are investing in ensuring communities have the ability to withstand shocks that we know for sure are going to come,” said Nimo Hassan, director of the Somalia NGO Consortium.
Zinta Zommers, climate science lead at the UN’s emergency aid coordination body, OCHA, said she was hoping the fund would “help scale” its anticipatory action spending through CERF (the UN’s unearmarked rapid response fund) because it isn’t reaching enough people.
“What the fund can look at is how we work with governments… to scale, for example, shock-responsive social safety nets so they are anticipatory,” Zommers told the panel.
Such perspectives are rejected by loss and damage purists like Persaud, who insist the fund should be for medium-term reconstruction after disasters, and that any money allocated beforehand – even to reduce disasters ahead of time – counts as climate adaptation, which is a separate financing stream, albeit one that is also greatly underfunded.
For Lund, the picture is more nuanced. “I think anticipatory action really serves to minimise loss of damage rather than address it, but that’s not to say that it shouldn't be kind of packaged up alongside some of the work that the fund would be doing,” he said.
Lund added that “pre-arranged finance” would be part of the way the fund addresses loss and damage, “because it's really about making sure that those emergency funds that serve to address the aftermath of a disaster are positioned closer to the users” rather than in various international bodies.
What else do humanitarians want?
While Persaud said he worried about a loss and damage cash grab – “understandable because cash is in short supply” – some senior humanitarians sought to narrow any divisions.
The fund is “not intended as a humanitarian instrument”, noted Greg Puley, head of OCHA’s climate team. “So, that should give some degree of reassurance that we're not going to have a situation where there is inappropriate use of loss of damage resources for humanitarian response,” he said, adding: “We're not in dialogue with the fund about resources passing from the fund into humanitarian instruments.”
OCHA wants the fund “to be able to engage in communities that are receiving humanitarian assistance”, according to Puley. The agency is also “determined to help support [the fund] to engage in contexts of fragility, conflict, and violence that the climate architecture has otherwise really struggled to engage in,” he told The New Humanitarian in a meeting room attached to OCHA’s pavilion in COP29’s so-called Blue Zone.
“Only a very narrow range of the spectrum of loss and damage is manifest as humanitarian needs,” Puley said. “And humanitarian tools are only really able to address one very narrow part.”
Puley’s comments appeared conciliatory, but OCHA has sought an influential role with the fund. A submission to the fund’s board – one of just four so far – suggested that the pooled funds OCHA manages “could initiate a discussion within the FRLD to provide funding for recovery efforts… [and] could support and advise the FRLD on the type of interventions and possible partners to facilitate a quick allocation.”
OCHA’s document suggested the fund could support cash, social protection, and livelihood programmes, and help make permanent the temporary nature of humanitarian responses such as shelter and infrastructure, including water.
Zommers, for one, worried about the prospect of FRLD overlapping with relief work. “The fear is that we have a board that will go and design a fund that doesn't recognise or build on the lessons that exist both on the ground and at the local level or in the humanitarian community,” she said.
She recommended that the FRLD board should be educated on the humanitarian system and “learn more about what we're doing”, including by taking “a trip around the world” to speak to vulnerable communities about how to design the fund.
However, while OCHA and other humanitarians talk a strong game on engaging vulnerable communities, the agency – like the wider sector – has received plenty of criticism for its slow progress on localisation. By OCHA’s own count, local and national groups only accessed 45% of country-based pooled funds in 2023.
People on the move
Another major fear of humanitarians is that the numbers displaced by the climate crisis will soar beyond their ability to cope, and COP29 saw a concerted advocacy push from migration specialists.
“Displacement due to climate change disasters is happening more and more,” Ileana Sinziana Puscas, a climate migration expert at the UN’s migration agency, IOM, told a panel on the sidelines of COP29. “We are not prepared.”
The UN’s refugee agency, UNHCR, has released a major new report that highlights the complexity of crises-related displacement in a warming world, and flags the loss and damage fund as a potential way to “address the devastation already being caused by climate impacts and faced by forcibly displaced people and the communities that host them”.
While concern is growing, the data can be messy. For climate disasters branded as slow-onset – events like coastal erosion that happen far slower than the climate shocks humanitarians usually deal with, like storms – migration agencies like IOM “still do not know how many people are on the move”, said Puscas.
Small island states, in particular, are worried about the prospect of relocating entire communities at risk from rising seas and other climate hazards.
In Fiji, “we have a strong focus on moving people out of harm's way [who] have been already experiencing loss and damage,” said Lund. “Relocating communities is really not a simple project.”
The Pacific nation has the policies and the systems – including standard operating procedures and financial management guidelines – to support community relocations, along with its own fund, according to Lund. But that pot is “largely empty” because it is viewed as high-risk by existing organisations. “We would expect something like the loss and damage fund to have sort of the risk appetite and ability to support it in the long run,” he added.
Lund hoped the FRLD’s emphasis on “country ownership” and providing funding through budget support “rather than intermediaries” would help make up for the climate finance that is currently lost in the international system before it reaches the people who actually need it – sometimes up to 35%. In financing government systems, he explained, “you end up with a much larger proportion of the funding actually going to the activity and less to the overheads and management fees.”
But even if more efficiency could be injected into the climate finance system, what keeps humanitarians up at night is that needs are already vast, often unmet, and could grow sharply from here.
“Are we ready for the scale of the funding needed to move entire communities, for people to change livelihoods, from being fishermen to becoming herders – how are we going to finance that?” asked Puscas. “That is extremely expensive. There's a lot of money involved in that, and the fund has a responsibility to match those needs.”
Edited by Andrew Gully.
