Every year, many climate change disasters are risking the lives and livelihoods of billions of people around the world. The year 2022 also witnessed many climate-led catastrophes like floods in Pakistan, China & South Africa, droughts in Europe & China, hurricanes in Canada & Caribbean, and heatwaves in Europe & Asia.  Such climate change disasters once again alarmed the world to protect our planet before it’s too late. The annual climate change conference (COP-27) was held in Egypt in November 2022, reiterating that world leaders fulfill their commitments. One positive outcome of COP-27 is the consensus to establish the ‘Loss and Damage Fund’ by the next climate change annual conference.

The Loss and Damage Fund is a mechanism to financially compensate underdeveloped/ developing countries who are bearing the costs of climate change disasters as a result of the unsustainable development process of rich nations.

It has been almost three months since the announcement to establish the Loss and Damage Fund has been made. There are several challenges to fully operationalizing this fund to support poor countries facing the brunt of climate change disasters.

First of all, the process to complete procedural matters for the full functioning of the Loss and Damage fund is being delayed. Some deadlines have already been missed by the committees responsible to give the final shape to the proposal related to designing the mechanism of financial support to be presented at COP-28.  Such delays raise questions about the sincere efforts of rich nations to make the Loss and Damage Fund into reality.

Secondly, self-interest and lack of trust among rich nations are causes of failure to fulfilling many commitments made before. The idea to collect 100 billion for Green Climate Fund annually to support projects on mitigation and adaptation fell short of achieving its goals. Similarly, many countries mentioned ambitious targets to phase out fossil fuels and mitigate carbon emissions in their National Determined Contributions (NDC) but in reality, they are not taking practical steps to achieve those targets. According to United Nations Environment Programme Emission Gap Report 2022 “updated national pledges since COP26 – held in 2021 in Glasgow, UK – make a negligible difference to predicted 2030 emissions and that we are far from the Paris Agreement goal of limiting global warming to well below 2°C, preferably 1.5°C. In such a scenario, where previous goals and commitments to tackle climate change on an emergency basis are undermined, how can these rich nations can be trusted to provide financial support to operationalize the Loss and Damage Fund’.

Moreover, developing a consensus on the mechanism of financial support will be another challenge. Several questions need to be discussed and pondered while developing the final proposal of the Loss & Damage Fund to be presented at COP-28. What will be the criteria to fix the number of funds to be collected in this fund? One mechanism can be to collect funds annually equally gathered from rich nations.  If such a criterion is finalized, then rich nations with fewer carbon emissions can raise hue and cry. The second option is to collect funds from a developed nation directly proportional to the amount of carbon emission of that particular nation. This option can also be deliberated while finalizing the draft of the proposal.

If the consensus is developed on this mechanism, then the next step will be to fix the exact amount to be donated against a mutually agreed measuring scale of carbon emission. Another issue will be to allow or forbid any nation to directly invest in green projects of the country affected by climate disaster rather than depositing the amount in the Loss and Damage Fund. If more than one developing/developed nations become a victim of climate disaster in a year then which country will be supported on a priority basis? What factors and elements will be taken into account to make such a decision?

One idea can be to prioritize a nation to get funding from the Loss and Damage Fund witnessing a greater magnitude of the climate-led disaster. Other criteria can be to support a nation having more concrete plans to deal with the impacts of disaster.

The second option can also be criticized if elements of empathy and human suffering are ignored just because the suffering nation could not develop solid plans due to lack of capacity or any other reason.

Another question is to decide areas of investment for funding received from the Loss and Damage Fund. The priority areas can only be immediate relief efforts like rescue missions, food, and medicines, or funds can be utilized for long-term plans of resilience and rehabilitation. Then, another area to be discussed is channels of fund transfers. The funds can be allocated to the government of affected underdeveloped/developing nations or other entities like NGOs and International Organizations can also be given funds to utilize in disaster-affected poor countries. Deciding a mechanism of accountability for governments and other entities who are offered these funds is another big challenge to ensure the trust of donors in the Fund before it is transformed into a reality. Nations receiving funds must submit comprehensive plans of transparency and accountability for the effective utilization of these funds.

Loss & Damage Fund is a dire need of underdeveloped/developing nations that are directly impacted by the negative impacts of climate change despite their minimum contribution to global carbon emissions. Several questions are required to be discussed to develop consensus. The procedural delays and challenges ahead are putting a question mark on the time working and activation of the Loss and Damage Fund.