Climate change “Loss and Damage” fund

The mobilisation of finance to help countries mitigate, and adapt to, the effects of climate change has been a central part of UN climate negotiations for many years. To date, the majority of climate finance has aimed to help countries reduce carbon dioxide emissions to constrain global warming (“mitigation”) or “adapt” to future impacts (such as through new crops).

From 1991 the Alliance of Small Island States (AOSIS) and developing countries (as defined by the UN Climate Framework), have been seeking funds for “loss and damage” as a third pillar of climate finance. There is no agreed definition of this, but it generally refers to the negative consequences arising from climate change that cannot be avoided by adaption or mitigation.

The costs of loss and damage may be substantial. The V20 group of 58 vulnerable countries estimate for them this totals US$525 billion since 2000.

At the Sharm el-Sheikh Climate Change Conference (COP 27), countries established a transitional committee to develop an organisational and funding model for loss and damage.

This Commons Library research briefing sets out the background to the decision, countries committing funding, and related debates.

What was agreed at COP 27?

In November 2022, at COP 27, countries agreed to establish a transitional committee to determine the structure and financial commitments for a loss and damage fund. The committee will report at COP 28 in November 2023.

The UK is one of the committee’s members, and the Government says it will be encouraging the committee to consider mobilising a broad range of finance. It will not announce any funding plans until the fund’s structure is clearer.

While a loss and damage funds is often framed as an act of compensation or reparation from more developed countries, these terms are not used in the COP agreement. However, some small island states are exploring avenues of legal redress on the liability of historically high emitters (particularly in North America and Europe but also emerging economies such as China) for human-induced climate change.

However, the United States has said “under no circumstances” would it pay reparations. Prime Minister Rishi Sunak has said “reparations” for climate change were “not on the table” at COP 27.

What are the challenges facing the fund?

The COP 27 agreement states the fund will target those countries “particularly vulnerable” to climate change. This suggests that not all countries in receipt of wider climate finance will be eligible (it may exclude China, for example). The European Union is among those who have called for China to contribute to the fund, while the AOSIS has called for India and other substantial contributors to global emissions to provide funding. India and China have opposed their mandatory participation. Other challenges include:

• How to raise climate finance additional to the existing US$100 billion a year commitment from developed countries in grants, loans and export credits to developing countries (the target has never been met but may be in 2023).
• The role of the private sector, other non-government sources, and multilateral development banks (including the World Bank and International Monetary Fund). The UN Secretary General has also proposed a windfall tax on oil and gas profits.

Debate and actions in the UK

At COP 26 in Glasgow in 2021, the Scottish Government became the first government to commit funding to address loss and damage (its commitment now stands at £7 million). Then First Minister, Nicola Sturgeon, acknowledged the sum was small but hoped it would encourage other governments to act. In contrast to other governments, she described it as an “act of reparation.”

In 2022, the first UN-member states pledged loss and damage funding:  Denmark, Germany, Austria, Belgium, Ireland, New Zealand and Canada. Pledges ranged from US$2.7 million (Belgium) to US$180 million (Germany).

In the UK, the Labour Party have welcomed the COP 27 agreement as an “important step forward,” and called for the government to set out its funding commitments. The Shadow Secretary of State of Climate Change and Net Zero, Ed Miliband, has said UK funding should go towards countries where the UK has existing aid commitments, and exclude­ China.

Green Party MP, Caroline Lucas, has also called for any finance to be grant-based and to be additional to the UK’s existing aid commitments.

At COP 27, the UK committed £5 million to the Santiago Network. This provides technical support for developing countries to respond to climate change. The UK Government says it is “actively engaging” with the transitional committee to ensure it “delivers results” at COP 28. It will not set out any UK funding until the committee has determined the fund’s structure.  

Westminster Hall debate, 5 September 2023

Chris Law MP led a debate on the issue of loss and damage on 5 September 2023.