Overcome vulnerability with Loss & Damage funding

Imagine if every time you spent money in your daily life, you made it more likely another devastating coronavirus pandemic would emerge—shutting down society, destroying jobs, taking a shocking number of lives, and destabilizing international trade. Your spending would also degrade other nations’ capacity to respond to that next novel pathogen, once again exacerbating the future threat to you.

This is what happens when we pay for anything made with or delivered by climate-polluting energy. Those purchase and investment decisions help to destabilize the climate system and generate the related dangerous effects. In doing so, they also undermine the more vulnerable countries’ capacity to operate, to respond to crisis, and to develop sustainably.

The effect of that spiraling degradation of capacity is a contagion of impact, destabilization, and cost. These effects cascade and compound, making it ever more challenging to address past harm and cost and to reduce future risk. 

  • Deloitte has projected that unchecked climate disruption will cost $178 trillion in economic damage over the next five decades.
  • The Financial Stability Oversight Council, a joint body across U.S. financial regulators, projects unchecked climate change could collapse the financial system and erase its ability to support the wider economy. 

The key question about spending on loss and damage is not whether the money will be spent, but whether it will be spent intelligently and in an ordered and constructive way or else work in a chaotic, inefficient way that ultimately fails to address real-world needs. If we are too slow in reducing the cost of past, present, and future climate damage, we will begin losing the opportunity to achieve any kind of climate resilient development.

As the Climate Action Network notes in its brief on creation of a Loss and Damage Finance Facility:

extreme climatic events have been observed in all regions, with unprecedented consequences, especially related to 127 key risks identified by the IPCC.

Everywhere climate resilience capability is eroded, major and cascading threats to human security and wellbeing will gain ground, and proliferate. If we take an integrated and holistic approach to addressing the complex global threat of human-caused climate change—as all nations have agreed to do—we can reduce the risk of proliferating crisis and save millions of lives and trillions of dollars.

To achieve that better outcome, investing to minimize, avert, address, and overcome loss and damage will be crucial. 

  • The breakthrough achieved at the COP27 round of U.N. Climate Change negotiations in Sharm el-Sheikh, to create a Fund to address loss and damage, is partly due to the recognition that future harm and cost for everyone must be reduced.
  • Both wealthy and vulnerable countries have recognized that significant resource mobilization may need to happen through existing institutions, and with a careful eye to better accounting for vulnerability, risk, harm, and the value of recovery and resilience.
  • Progress on establishing innovative international non-market cooperative arrangements can be part of this integrated and holistic work to rapidly scale up resources to minimize, avert, address, and overcome loss and damage.

Right now, our financial institutions largely ignore the cascading and compounding risks and costs associated with climate damage. Choosing to do better than that has been voluntary, for the most part, and in many cases symbolic. In some cases we see climate risk accounting used exclusively to drive the creation of newly profitable business models. This is, of course, a necessary step, but also an incomplete and insufficient evolution.

  • The Loss and Damage Fund itself won’t exist until after a design process. It should be agreed at COP28 next November, and become operational soon after.
  • The Transitional Committee, however, will start work in the first quarter of 2023 and could begin facilitating and tracking the repurposing, expansion, and mobilization, of resources through existing institutions as soon as the first half of the year.

This start of work presents an immense and unprecedented opportunity. At least 54 countries are in urgent need of debt relief, while dozens more are facing serious risk of debt distress. International financial institutions and multilateral development banks are under unprecedented pressure to comprehensively reform, to be better suited to deal with the cascading and compounding crises of this century. For the first time, we have an agreed mechanism for materially assessing and responding to macrocritical forces that could catastrophically disrupt the global economy and erode the foundations of human civilization.

The Transitional Committee is an opportunity to mainstream climate risk and resilience accounting, across sectors and regions, and to generate sustained funding of appropriate responses. This can reduce the risk of dangerous destabilization of nations and regions, ease the incidence of climate-induced involuntary migration, and rationalize the projected future burden on insurers and reinsurers from cascading and compounding impacts. We cannot manage this threat if we don’t measure it, and we are best positioned to manage it if we do the measuring well, and through mainstream institutions connected to everyday activities at the human scale.

Loss and damage is more than recompense for harm caused. It is also an overarching value function, through which we can get a clear multidimensional look at our progress on mobilization of efforts to mitigate global heating risk from climate pollution and to finance adaptation and resilience measures. Bonds, development finance, fiscal rescue packages, including Special Drawing Rights backed by the IMF, multilateral cooperative financing arrangements, and climate resilient trade, can all reduce the incidence, reach, and cost of climate-related loss and damage.

Addressing climate-related loss and damage for the most vulnerable is a project for the benefit of all people and all societies. We cannot afford to miss this moment.

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