Loss and damage fund agreed at first day of COP28

In a perhaps surprising turn of events, the opening hours of the COP28 climate talks today have seen a landmark agreement to operationalise and provide initial funding for the much-discussed loss and damage fund, that is designed to help the countries that are most vulnerable to the adverse effects of climate change.

The fund had been agreed on back at COP27 and much-discussed ever since, with agreements as to who should fund it, how that funding should be used, what kind of financing products should disburse funding and how should funding be triggered, all still seeming to be up in the air, to a degree at least as COP28 began.

Which is why we say ‘perhaps surprising’, as most had expected discussion and negotiation over the loss and damage fund to run on for at least a few days, if not the majority of the COP28 event.

There have always been discussions about whether some of the funding could be used to pay risk transfer premiums, to help the countries most vulnerable to the effects of climate change lock-in long-term insurance-like risk financing.

Agreements as to how the loss and damage fund will be put to work remain missing or unclear so far, but the agreement to operationalise it today and the initial funding announced is a good step towards this actually becoming reality, despite all the disagreement that has gone before.

The UAE, the host of this years COP28 climate talks, said today that it will commit $100 million to the loss and damage Fund, a move it hops will pave the way for other nations to make pledges.

COP28 President Dr. Sultan Al Jaber said, “What was promised in Sharm El Sheikh, has already be delivered in Dubai. The speed at which the world came together, to get this Fund operationalized within one year since Parties agreed to it in Sharm El Sheikh is unprecedented.”

“This Fund will support billions of people, lives and livelihoods that are particularly vulnerable to the effects of climate change,” added Dr Sultan, “I want to thank my team for all their hard work to make this possible on day one of COP28. It proves, the world can unite, can act, and can deliver.”

Other significant commitments to the loss and damage fund included Germany, which committed $100 million, the UK, which committed £40 million for the Fund and £20 million for other arrangements, Japan, which contributed $10 million and the U.S., which committed $17.5 million.

The agreement and initial funding for the loss and damage fund was welcomed by the most vulnerable nations, but there is a clear recognition that the details will matter, as well as the follow-on funding, with over $400 billion a year estimated by some studies to be the cost of loss and damage each year.

Other countries are going to be expected to commit, while there will also be efforts to see how private capital can be crowded in to support the loss and damage financing needs of the world’s climate vulnerable nations.

The insurance, reinsurance and insurance-linked securities (ILS) industry do have a role here, albeit likely further down the line, once agreement has been reached on financing tools, structures and how to disburse capital, are made.

Risk transfer and insurance products remain at the heart of discussions and it’s clear that, as private capital gets considered as an elastic source of funding, the catastrophe bond and insurance-linked securities (ILS) could be up for discussion as potential options.

So too should responsive risk transfer options, using parametric and index triggers that could provide rapid payouts for use in disaster relief after climate-related events.

It’s a positive start to COP28, with agreement on an issue that has been discussed now for years.

Although, in reality, the perhaps lengthy discussions can now begin on the details that really matter.

Including, implementation, how funding will be gathered, used, and disbursed, as well as whether any of it can fund premiums to pay for upfront, longer-term risk transfer instruments, to support the most climate-vulnerable nations and their populations.

Also read: Risk-sharing systems must be a pillar of Loss and Damage architecture: Report.