The satirical movie Don’t Look Up was released as 2022 was rung in, warning us not to ignore a crisis until it is too late. The cascade of climate disasters this year – heatwaves in Europe, wildfires in the US, the devastating floods in Pakistan and famine in Somalia – removed any doubt that we are already in the era of losses and damages from extreme climate impacts.
With more than 40,000 people gathered in Sharm el-Sheikh for COP27, the question of how to support communities who are losing their livelihoods and homes due to climate change is centre stage.
Despite fears it would yet again be sidelined, Loss and Damage finance is firmly on the agenda. After years of refusing to engage, developed countries have finally glanced up and realised they must act.
Acting now on loss and damage is in everyone’s interests. The security community is worried about growing climate-driven conflicts; the Global North is waking up to the geopolitical ramifications of their trust deficit with the Global South; and the insurance industry is sounding the alarm about escalating risks.
Progress on finance for loss and damage is not just pivotal to success at COP27. Action is also needed outside the UNFCCC. Researchers have estimated that the costs of climate impacts will reach $400 billion by 2030. This is more than double annual Overseas Development Assistance (ODA). But developed countries are playing a zero-sum game. More climate finance is resulting in less money for other development issues. Campaigners’ calls for additional finance go beyond climate justice – the figures simply don’t add up.
Some developed countries have made new commitments this week. More are urgently needed. But inevitably, additional sources of finance must be mobilised. Multiple proposals are on the table, including windfall taxes on fossil fuel profits, reform of lending rules for MDBs and freeing up IMF Special Drawing Rights.
Until recently, this was a fringe debate. However, political winds are changing. On Monday, world leaders gathered to discuss Innovative Finance for Climate and Development. The UNSG has urged countries “to tax the windfall profits of fossil fuel companies” and President Macron has come out in support of Mia Mottley’s Bridgetown agenda to reform the international financial system.
The other debate is how loss and damage finance should be spent. Clarion calls are being made for a financial mechanism to be established under the UNFCCC, not least because of concerns that this will be the only way to hold donors to account. Compromise proposals include establishing a window or pilot under an existing fund, such as the Green Climate Fund.
The way forward
An ambitious outcome at COP27 is needed. Parties should agree to:
- Establish a funding mechanism under the UNFCCC for loss and damage that is operational by COP29 with funding that is accessible, transparent and additional.
- Have a clear roadmap on what the Glasgow Dialogue should achieve until 2024, including identifying innovative sources of finance for Loss and Damage and calling for an IPCC report on financial gaps
- Operationalise the Santiago Network on Loss and Damage to build capacity and support needs assessments
On the sidelines and beyond
Alongside the formal COP agreement, developed countries must put more cash on the table, grants not loans, and not just insurance. Additional resources can be mobilised through better leveraging of MDB balance sheets and freeing up IMF resources.
Ultimately systemic reforms to finance climate and development will be needed. And climate resilience will need to be embedded into broader economic and financial reforms for a financial architecture fit for the 21st century. This conversation needs to continue outside the UNFCCC process and requires deeper involvement of finance ministries than in the past.
Do Look Up
There are two very different views on offer for world leaders when they stop to look up. One is of acrimony and disappointment as they continue to ignore climate impacts. The other is of new levels of trust, solidarity and global cooperation. An agreement on Loss and Damage can be the missing piece in the puzzle to unlock greater ambition on mitigation and adaptation – an irrefutable COP27 legacy.
Over the course of COP27, which one will they choose?