Abstract
Purpose of Review
Recent focus on loss and damage within the United Nations Framework Convention on Climate Change (UNFCCC) follows decades of demands by vulnerable countries for compensation for losses due to climate change. Reviewing recent literature on loss and damage finance, we consider how the new UNFCCC Loss and Damage Fund could be transformative for climate finance.
Recent Findings
This article reviews developments within the UNFCCC, including the creation of the new Loss and Damage Fund and changes in the broader field of climate finance. Recent literature indicates that the factors necessary for just loss and damage finance include inclusive governance, new and additional funds, purpose-made instruments and channels, direct access to funds, and burden sharing aligned with the polluter pays principle.
Summary
We overview the history of loss and damage finance, suggest five criteria that could make the Loss and Damage Fund just, and discuss four potential catalysts for just loss and damage finance: ecological and climatic impacts, institutional developments outside the UNFCCC, Global South leadership on debt justice, and legal developments. As the Loss and Damage Fund is operationalized and the need for loss and damage finance grows, scholars must continue to ask whether loss and damage finance furthers core tenets of climate justice, including forms of restitution.
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Introduction
During the Intergovernmental Negotiating Committee meetings in 1991 that would draft the text of the 1992 United Nations Framework Convention on Climate Change (UNFCCC, also referred to as the Convention), Vanuatu, on behalf of the Alliance of Small Island States, proposed an insurance mechanism to compensate particularly vulnerable countries for loss and damage (L&D) from sea-level rise [1•]. This funding would be assessed based on countries’ contributions to atmospheric concentrations of greenhouse gas emissions and their ability to pay. Vanuatu’s proposal was ultimately not included in the text of the Convention. Instead, Article 4.8, which deals with Party commitments, only lists insurance as one of several options to help meet the specific needs and concerns of developing countries [1•]. In hindsight, though, Vanuatu’s proposal was the precursor for a broad coalition of developing countries pushing for appropriate and effective governance arrangements for L&D.
The concept of L&D has been slow to gain traction in the UNFCCC and has faced considerable opposition in negotiations [2••]. At the most basic level, there is no agreed definition of L&D [1•], though it most broadly refers to the effects of climate change that occur beyond the ‘hard limits’ to adaptation [3, 4]. It was not until the 13th Conference of the Parties (COP) to the UNFCCC in 2007 that the term was formally included in UNFCCC documents. At COP19 in 2013, the Warsaw International Mechanism for Loss and Damage (WIM) was established to promote the implementation of approaches to address L&D. The Paris Agreement, adopted at COP21 in 2015, included a full article on L&D – Article 8 – that calls on Parties to enhance understanding of and cooperation on L&D [5]. At COP25 in 2019, the Santiago Network was established to provide technical assistance to support the WIM. The Glasgow Dialogue on L&D, an outcome of COP26 in 2021, was intended to serve as a tool for advancing the agenda on possible funding mechanisms, modalities and sources, and institutional arrangements. At COP27 in 2022, an agreement was reached to establish L&D funding arrangements, including a dedicated Fund (also referred to as the L&D Fund) [6, 7].
Throughout 2023, a Transitional Committee met to determine how the L&D Fund should be operationalized and to make recommendations to COP28 in Dubai in December 2023. The Committee was tasked with making suggestions for how to (1) establish institutional arrangements, (2) define the elements of the new funding arrangements, (3) identify and expand funding sources, and (4) ensure coordination and complementarity with existing arrangements. Shortly before COP28, the Committee published its recommendations for the operationalization of the Fund [8], and, during the COP’s opening plenary, the Fund was formally operationalized. While these recent developments have shed some light on how the Fund will be governed and ideally function, it remains to be seen how this operationalization process will unfold.
This article contributes to the analysis of emerging L&D funding arrangements, particularly the L&D Fund. While not emphasized in the Transitional Committee’s report, we argue that justice is a key requirement to make the L&D Fund transformational for climate finance and to meet the needs of the most vulnerable countries. We first theorize and situate climate justice in the context of climate finance (Section 2). We then describe our approach to reviewing the most recent academic and policy literature (Section 3). From our literature search, we identify a list of potential criteria against which we assess the potential success of the new L&D Fund in terms of transforming climate finance and furthering climate justice (Section 4). The core of the article identifies four catalysts of and obstacles to engendering justice within the L&D Fund (Section 5).
Theorizing and Situating Climate Justice in the Context of Climate Finance
Since the Rio Earth Summit in 1992 where the UNFCCC was adopted and within which the principle of common but differentiated responsibilities and respective capabilities (CBDR + RC) was established, questions over equity and justice have been central to the negotiating positions of Global South countries [9]. Climate finance is a key mechanism of climate justice, and debate continues over who owes what, how much money is necessary, how climate finance should be governed, and what forms finance should take [10, 11•, 12•]. Despite this, finance for adaptation has historically fallen below developing countries’ expectations and needs, and critics are concerned that L&D finance will follow a similar trajectory [12•, 14].
Climate justice is, most broadly, “about paying attention to how climate change impacts people differently, unevenly, and disproportionately, as well as redressing the resultant injustices in fair and equitable ways” [15, p. 118]. The concept emerged from social movements and civil society organizations, largely situated in the Global South, as a means to understand climate change causes, impacts, and socially just responses. At the international level, attention to justice prompts consideration of how climate change has been disproportionately caused by the Global North while the current and future burdens of climate change are disproportionately felt in the Global South [9, 16, 17]. Within the context of the UNFCCC, however, climate justice is not mentioned in the Convention text and is only briefly noted in the preamble of the Paris Agreement [11•]. A climate justice framework at this level would suggest the need for equity in procedures and responses related to a changing climate and would be informed by the outsized role of developed countries in causing the climate crisis, the ongoing unfair distribution of the burdens and benefits of climate change, recognition of the diversity of experiences and values of impacted peoples, representation in decision-making, and the correction of past wrongs through forms of restitution and restoration [11•, 17,18,19].
In theorizing climate justice, it is important to emphasize the historical and structural factors that have created the climate crisis and determine the extent of the unequal distribution of its effects. Just as many present forms of unequal development and global inequality are directly connected to colonialism, scholars have noted the links between historic colonialism and unequal climate impacts [15, 20]. Globalization, unequal exchange, and entrenched forms of dependency perpetuate these inequalities. Countries in the Global North, primarily responsible for the historic emissions that have created the climate crisis, continue to benefit from this unequal world system and are generally better equipped to deal with the effects of climate change [10]. Conversely, many countries in the Global South, already coping with significant climate adaptation needs, are increasingly facing hard limits to adaptation and are now experiencing economic and noneconomic forms of loss and damage due to climate change [4, 21].
These structural features of the world system and their relationship to current climate realities inform the justice-oriented position of many vulnerable countries within UNFCCC negotiations [17, 22, 23]. While scholarship on climate justice has primarily focused on the need for procedural and distributive forms of justice, the ever-growing need for adaptation and the threat of loss and damage emphasizes the need for compensatory, restitutive, and corrective forms of justice [18]. These latter forms of justice emphasize the responsibility of countries in the Global North to provide resources for climate responses in the Global South, aligned with the principle of CBDR + RC. However, these forms of justice are only ideals, and global climate governance has instead assumed a neoliberal bent [24, 25]. ‘Justice’ in this neoliberal framing assumes a synergistic relationship between the strengthening of the market system and climate action. This allows for the continuation of the global economic status quo and the accruing of benefits to wealthy countries, which shirk liability for climate impacts and, by extension, the need to provide compensatory and restitutive funds for adaptation and L&D in developing countries.
Thus, from a climate justice perspective, climate finance is ideally a mechanism through which compensatory and restitutive justice can be recognized, though, in reality, it has often failed to meet the demands of vulnerable countries and perhaps reinforces forms of inequality between countries [26]. Critiques of climate finance from a climate justice perspective have focused on considerations of who is responsible for providing finance, the amounts of funding provided for specific purposes, the types and related debt burden of finance, the governance processes involved, the relative impacts of the funding, and the allocation criteria for recipients [11•]. Finance for adaptation has been particularly problematic [27] and has historically been lower than for mitigation, for several reasons, including the notion that adaptation projects are not ‘bankable’ in the same ways that many mitigation projects are as well as the assumption that adaptation benefits are only locally felt [28••]. Further, much funding for adaptation projects comes in the form of loans rather than grants or more concessional forms of finance, potentially creating a ‘climate debt trap’ [29]. These factors, among others, raise questions of whether climate finance furthers climate justice or instead acts as a method of control and reinforces forms of dependency [27].
These lessons from adaptation finance portend similar concerns with L&D finance, where arguments for reparations or restitutive justice are even clearer than with adaptation finance [14]. Much work remains to be done before L&D finance begins to flow. At the most basic level, contention remains over what counts as L&D. In Article 8 of the Paris Agreement and ongoing UNFCCC negotiations, the concept is framed as ‘averting, minimizing, and addressing’ L&D [5]. Critics have noted that averting and minimizing are synonymous with mitigation and adaptation, respectively [30, 31]. Instead, addressing L&D – that is, providing restitution for the harms caused by climate change – is the unique element of L&D finance. Restitution in this context can be understood as measures to make climate-impacted individuals and communities whole, taking into account the historic and structural factors that have caused L&D [32, 33].
This opportunity to center addressing L&D through restitution creates a window for the new L&D Fund to serve as a mechanism for climate justice. In this paper, we follow Grasso’s [34, p. 53] characterization of adaptation finance justice and consider L&D finance justice in terms “[of being] a fair process, that involves all relevant Parties, of raising funds according to the responsibility for climate impacts, and of allocating raised funds putting the most vulnerable first”. Keeping this in mind, after discussing our approach to reviewing recent literature on L&D, we use that literature to consider five features needed to make the L&D Fund just and identify and discuss four potential catalysts and obstacles.
Conducting the Review
To analyze this new Fund and the quickly shifting field of L&D finance, we conducted a narrative review of recent academic and policy literature. Narrative reviews are useful for providing a comprehensive background on current knowledge and highlighting the significance of new research. This approach helps identify gaps or inconsistencies in the body of knowledge [35]. Admittedly, it is not a systematic approach. However, we followed Levy and Ellis’ [36] framework for conducting such reviews in three steps: 1) searching and screening the literature; 2) extracting and analyzing data; and 3) writing a literature review. We first searched Google Scholar by using several keywords (e.g., “climate change,” “loss and damage,” “finance,” “criteria,” “governance,” etc.), also combining them using Boolean operators in an appropriate manner (e.g., “climate justice” AND “loss and damage finance”). We used three inclusion criteria during the screening process, determining whether the literature is: 1) related to either loss and damage finance and/or adaptation finance in the UNFCCC; 2) mentions one or more of the dimensions of climate justice (i.e., distributive, procedural, recognition, compensatory, restitutive, corrective, neoliberal justice, etc.); and 3) published between 2018 and 2023. The sources that did not meet these three criteria were excluded, though we have selectively included important literature that falls beyond this range. All authors reviewed and verified the short-list of identified sources and evaluated the data against the range of criteria for climate finance mechanisms.
Outlining an Equitable and Just L&D Fund
To assess the potential for the L&D Fund to serve as a transformational source of climate finance that could further climate justice, we examine a range of criteria for justice in climate finance mechanisms, largely informed by the promise and pitfalls of adaptation finance [28••].
Schalatek and Bird [37] outline a normative framework for climate finance, suggesting that funds should be 1) transparent and accountable, 2) follow the polluter pays principle, 3) aligned with respective capabilities, 4) new and additional, 5) adequate, and 6) predictable; fund administration should be 7) transparent and accountable and have 8) equitable representation; and fund disbursement should be 9) transparent, 10) locally owned, 11) timely, 12) appropriate without imposing additional burdens, 13) harmless, 14) direct access, and 15) aligned with gender equality. Müller [38] argues that adaptation finance should meet the criteria outlined in the 2007 Bali Action Plan. That is, finance should be 1) new and additional (over and above official development assistance (ODA)), 2) predictable (in particular, not subject to the ‘domestic revenue problem’), 3) appropriate (e.g., no loans), 4) equitable (reflecting differentiated responsibilities and capabilities), and 5) adequate (it should generate at least US$10 billion per year globally). Van Drunen et al. [39] suggest four similar criteria, including a range of subcategories that add granularity to the outline provided by the Bali Action Plan. Among their primary categories, they suggest 1) feasibility (related to political, institutional, and ethical issues), 2) effectiveness (meeting adaptation targets), 3) efficacy (economic impact), and 4) other criteria (e.g., whether funds further the mandate of the UNFCCC, come from public or private sources, etc.).
While criteria for adaptation finance can inform analysis of L&D finance, aspects of L&D – such as the need to respond to both disasters and slow onset events as well as the vast differences between the problems of solvable vulnerability and permanent loss – demand a slightly different framework. Robinson et al. [40] outline three criteria (as well as additional sub-criteria), suggesting that L&D finance should 1) be appropriate for the type of event/disaster, 2) be sustainable (funding will remain available), and 3) meet other related financing criteria concerning a) fairness (no additional burden for recipients), b) feasibility (interventions are implementable), c) predictability, d) adequacy, e) transparency (fund flows are verifiable), f) newness and additionality, g) direct accessibility (funds are accessible with minimal intermediaries), and h) vulnerability focus (countries with greatest L&D are prioritized).
We build on and synthesize these criteria and propose the five primary criteria outlined in Table 1: 1) governance, 2) newness and additionality, 3) instruments and channels, 4) allocation and recipients, and 5) burden sharing. These criteria, while not exhaustive, encompass the primary attributes the L&D Fund would need to further climate justice. As the Fund is further operationalized and modes of governance and operation become empirically verifiable, scholars can analyze the Fund in a more granular manner.
Governance
L&D has been acknowledged as the crucial third pillar of climate action [44]. However, tensions over addressing L&D through forms of restitution – that is, providing support to the people and communities experiencing climate impacts while having disproportionately low historic emissions – have plagued the UNFCCC over the years. Civil society organizations and social movements have driven much of this agenda, grounding their calls in the language of climate justice [45]. This will almost certainly continue along with questions over other aspects of focus, including how to value economic and noneconomic losses, the thresholds of L&D for providing funding, and how short- versus long-term harm should be addressed.
Governance of the Fund is perhaps the paramount concern and aspect that could most readily promote climate justice. Concerns with previously established climate finance funds include board structure and membership, how projects are selected, whether funds can be earmarked, and overall intent and execution of the funds [28••, 46]. Graham and Serdaru [41] find that voting rules (whether voting is egalitarian or weighted by contribution) and the ability to earmark funds determine in part the willingness of donor states to contribute. This is perhaps one explanation for why funds established under the UNFCCC (such as the Adaptation Fund and the Green Climate Fund (GCF)) remain chronically underfunded when compared with other climate finance delivery channels, such as bilateral agencies and multilateral development banks. With egalitarian voting, no earmarks, delivery through grants only, and a board made up primarily of developing country representatives, the Adaptation Fund is often portrayed as the best existing example of a fund furthering core tenets of climate justice [12•, 47]. Efforts have been made to ameliorate some governance concerns, such as setting up modes of ‘direct access’ in the Adaptation Fund and GCF, but these have failed to fully eliminate access barriers for developing countries [24, 28••].
The Transitional Committee’s Report released before COP28 specifies a twenty-six-member board, with a majority of members from developing countries, including twelve members from developed countries, nine members from three different Global South regions, two members each from small island developing states and least developed countries (LDCs), and one additional member from a developing country [8]. The Report also specifies that the Fund will be situated within the World Bank as a ‘financial intermediary fund,’ though the Board should ideally have significant autonomy.
While having a board led by developing countries signals that the needs of developing countries will be prioritized, the L&D Fund will also need to overcome governance challenges faced by other funds to operate as a mechanism for transformational climate finance. Namely, the Board will need to ensure that contributions from developed countries are sufficient while also prioritizing needs such as direct access to finance and timely distribution of funds as well as issues more unique to L&D, such as addressing noneconomic L&D.
Newness, Additionality, and Adequacy
Since the beginning of international environmental negotiations, developing nations have feared that ‘green aid’ would take away from funding for other needs such as education and healthcare, effectively crowding out other forms of development assistance [43]. Reporting by developed countries shows a broad tendency to overestimate climate finance flows, and ‘double counting’ funds remains an issue [11•, 48,49,50]. As stated in a recent Oxfam report [42, p. 5], “Climate-related development finance is up to one-third of stagnating ODA budgets, rather than being ‘new and additional.’” For the L&D Fund, a just outcome requires that financial contributions supplement existing foreign assistance and climate finance flows, particularly those intended for adaptation. Funding levels also must be commensurate with growing L&D needs in vulnerable countries and communities. Some scholars have also suggested that flexibility is needed to ensure pragmatic spending [51, 52].
In line with the COP27 decision establishing the L&D Fund, the Transitional Committee notes at multiple points in its Report the “need for new, additional, predictable and adequate financial resources to assist developing countries that are particularly vulnerable to the adverse effects of climate change” [8, p. 14]. While this language aligns with principles of climate justice, mechanisms to guarantee these aspects of new and additional funds will need to be operationalized in ways not yet evidenced in existing climate funds. Moreover, clear criteria need to be developed to ensure that L&D funding is additional, distinct, and distinguishable from that provided for climate mitigation and adaptation activities. L&D necessitates clear parameters in relation to adaptation finance, especially to avoid double counting of funding, ambiguity in L&D funding amounts pledged and disbursed, and funding with conflated priorities.
Instrument(s) and Channel
A range of instruments have been proposed for delivering L&D finance, including grants, loans, insurance, social protection funds, and “contingency finance, catastrophe risk insurance and catastrophe bonds” which the UN Environment Programme argues “can provide a certain buffer and rapid pay-outs after disasters” [53, online]. Innovative sources of finance have also been proposed. For example, the LDC negotiating bloc in the UNFCCC has endorsed the creation of an international aviation solidarity levy that would build on the French-led Solidarity Levy on airline travel, first within the European Union and then in other countries [54]. Other innovative sources include taxation or levies on fossil fuel extraction or financial transactions [1•, 40, 55, 56].
Gallagher and Addison [57] argue for the ‘layering’ of financial instruments for L&D to ensure they are adequate and stable. This layering could help to ensure that the diversity of forms of L&D, occurring on different time scales and in economic and noneconomic forms, could be effectively addressed. This raises the question, though, of whether L&D finance will be channeled primarily through this new Fund or if it will also flow through traditional bilateral and multilateral institutions. When the GCF was formed, it was seen as a way for developing countries to have greater influence over funding, as a solution for coordination between multiple agencies, and as a mode of ‘transforming’ and making the climate finance landscape more effective. In practice, however, these goals have not necessarily been achieved [58, 59]. Moreover, the GCF still only channels a small portion of overall climate finance, in the order of 2–4% [12•, 27].
In more recent negotiations in the UNFCCC, developed countries alongside a handful of vulnerable countries such as Maldives have downplayed the need for a single fund for L&D, instead suggesting a ‘mosaic’ of funding pathways [52]. This would involve using existing UNFCCC mechanisms rather than relying on a dedicated fund. A ‘mosaic’ could also rely on non-UNFCCC pathways for finance, such as the World Bank’s Global Shield Financing Facility, which supports the Global Shield Against Climate Risks, a joint initiative launched at COP27 by the G7 and V20 to “better protect poor and vulnerable people from disasters by pre-arranging more financing before disasters strike” [60, online]. However, the ‘mosaic’ approach risks diverting attention away from L&D and might result in less coordination and perhaps only incremental progress rather than transformational change. For climate justice, it is important that such an approach does not replace the need for a dedicated L&D Fund.
While details on the instruments and channels of the L&D Fund are thin, the recent Report from the Transitional Committee states that finance will come “in the form of grants and highly concessional loans,” that the “Fund may deploy a range of additional financial instruments that take into account debt sustainability,” and that the “Fund should be able to facilitate the blending of finance from different financial tools” [8, p. 21]. The full implications of these relatively vague guidelines remain to be seen as operationalization continues. Moreover, funding must be raised and disbursed primarily in the form of public finance; wealthy countries should not shift the burden of payment onto the private sector, which is unlikely to offer debt-free support and financing to the most vulnerable regions.
Allocation and Recipients
Along with the Adaptation Fund and the GCF, other UNFCCC funds have been criticized over their methods of allocating funds, in large part due to high barriers to access. Even with efforts to promote ‘direct access,’ scholars have noted how existing funds often have a range of overt and implicit requirements that make applying for funds difficult, especially for particularly vulnerable countries [28••]. Those seeking funds, especially for adaptation projects, must often go through national implementing entities, which may impose their own barriers [28••]. Beyond technical capacity, institutional and administrative capacity across scales can impact the ease of access to funds. While the reality of financial flows is nuanced, this means that some of the most vulnerable countries have trouble accessing needed funds [27].
The Transitional Committee’s Report suggests that the L&D Fund will provide ‘direct access’ to national governments, subnational governments, and entities accredited by the other UN climate funds, as well as access by multilateral entities. Furthermore, the report mentions access through small grants for communities and particularly vulnerable groups as well as the possibility of “[r]apid disbursement modalities” [8 p. 20–21]. The Report also outlines allocation processes that, while still not particularly detailed, suggest priority for developing countries, especially LDCs, and the Report gives limited guidance for ascertaining impact to inform funding amounts [61, 62].
As with adaptation funding, it will be important to further establish exactly what entities are eligible for funds, alongside the processes for allocating funding. Given the wide range of L&D due to climate change, establishing in more detail what entities and actors can apply for funds and how losses and damages will be valued is an important task. Developing countries and activists have called for broad definitions of L&D finance, suggesting compensation for economic as well as noneconomic losses. Here, a climate justice framework would suggest that funding be provided based on need, rather than on the ‘quality’ of project proposals or a first come, first serve basis. Furthermore, access to funds needs to be guaranteed to ensure that application processes are not impeding the ability to obtain funds and that purview over the use of funds remains locally centered [following 61, 62].
Burden Sharing
Sustainable funding sources for the L&D Fund remain an open question. The Transitional Committee’s Report has relatively little detail on sources, though it notes the need for complementarity with other climate finance funds and flows [8, p. 20, 24]. Developed countries are urged to provide support and to “take the lead to provide financial resources for commencing the operationalization of the Fund” [8, p. 11]. By the conclusion of COP28, approximately US$662 million had been pledged to the Fund, with France, Germany, Italy, and the United Arab Emirates contributing by far the largest amounts [63]. This is, however, a relatively modest start given projections of L&D finance needs [see 64, 65].
The ongoing burden sharing for the Fund will, in large part, determine whether it advances climate justice. Following the polluter pays principle, developed countries historically responsible for carbon emissions should be primarily responsible for supporting the L&D Fund [see 66]. Efforts have been made to calculate the proportional responsibility of individual countries and corporations for climate finance [67,68,69]. However, such questions in practice are deeply contentious, and clear accounting rules and updated reporting are needed to allow comparisons between providers’ efforts [49, 70]. Furthermore, this new Fund has prompted some developed countries to suggest expanding the base of contributors to potentially include China, as well as Middle Eastern oil-producing states and other high-income countries such as South Korea, a member of the Organisation for Economic Cooperation and Development, and Singapore, often grouped with the small island developing states [67].
Identifying Catalysts of and Obstacles to Justice in L&D Finance
Beyond the new L&D Fund, catalysts and obstacles in the broader field of climate finance could influence whether L&D becomes a priority and just finance is delivered to the most vulnerable countries. Considering this broader field, we suggest that ecological and climatic impacts, institutional developments beyond the UNFCCC, leadership from the Global South on debt justice, and legal developments have the potential to catalyze or obstruct equitable and just L&D finance. Many of these factors beyond the UNFCCC have been led by actors from the Global South, where activism for just climate finance has historically been centered and where focus on the need for L&D originated.
Ecological and Climatic Impacts
With the Sixth Assessment Report (AR6) of the Intergovernmental Panel on Climate Change (IPCC) making the increasingly dire nature of the climate crisis clear, much of the world is beginning to experience rapidly intensifying climate effects [see e.g., 71, 72]. Working Group II’s contribution to AR6 highlights that “[w]idespread and severe loss and damage to human and natural systems are being driven by human-induced climate changes”, and that “[e]xtremes are surpassing the resilience of some ecological and human systems and challenging the adaptation capacities of others, including impacts with irreversible consequences” [73,74,75,76, p. 47]. Climate scientists are growing more desperate and bolder in response to their work being overlooked or actively obstructed, and obstruction efforts have created doubt and delays in policy interventions. This is true even as L&D estimates are increasingly informed by attribution studies [see e.g., 74,75,76].
How these intensifying effects of the climate crisis are perceived by the public and policy-makers as well as how they are depicted in the media is important, potentially shaping perceptions of L&D and its financing [77]. In turn, awareness of climate impacts can support social movements [78]. These movements have placed pressure on governments and corporations to phase out fossil fuels by halting new investments in oil, gas, and coal and managing a rapid decline in production [79]. Social movements from the Global South have driven much of the international narrative on climate justice and ecological debt [22], becoming an “effective counter-hegemony to neoliberalism” [80, p. 84]. Representatives from Indigenous groups, grassroots organizations, farmers and peasant groups, and others have had a strong and direct presence at UNFCCC negotiations [11•, 22, 23, 81]. Some organizations such as Slum/Shack Dwellers International have institutionalized their presence at the negotiations, as have larger organizations such as the Climate Action Network, which was a key actor in pushing for the establishment of the L&D Fund.
While the ‘tipping point’ for political and economic destabilization is unclear, it remains to be seen whether the ecological and climatic impacts being experienced in Global North countries will inspire a humanitarian effort or will instead prompt a fortress-building response. Indeed, nascent climate effects and the declaration of ‘climate emergencies’ have garnered significant media and other attention, even though many countries in the Global South have been coping with and adapting to climate effects for some time now with less concern.
Institutional Developments Outside the UNFCCC
Civil society organizations have leveled critiques against the choice and role of the World Bank as the interim institutional host of the L&D Fund [see 82, 83], though conversations have been ongoing over the Bank’s wider role in climate finance. With a new Group President beginning his five-year term in June 2023, the Bank announced its intention to prioritize delivering climate finance, building on a series of initiatives that were started in 2022. Chief among them was the ‘Evolving the World Bank Group’s Mission, Operations, and Resources: A Roadmap’ (informally, the World Bank Evolution Roadmap), which identifies “areas for deeper engagement” and “a process for reaching consensus” and for implementing the Bank’s “collective reform efforts” [84, online]. It has three building blocks, the review of the Bank’s 1) vision and mission, 2) operating model, and 3) financial capacity and model, taking the recommendations of the G20 Capital Adequacy Framework Review into account [84, online]. The roadmap expresses a commitment for the Bank to be more closely aligned with the Paris Agreement and to only support those projects and programs that advance the associated globally-agreed goals [85••]. While there is an emphasis on increasing finance, the intention is to rely on unused reserves and hybrid forms of lending without requiring shareholders to increase their contributions [85••].
However, the Bank has been slow to embrace reform, and there have only been five capital increase decisions (i.e., raising Member States’ contributions) in the Bank’s history, three during the Cold War (1959, 1980, and 1988) and two after (2010 and 2018) [86•]. Furthermore, reforms involving capital increases are among the most contentious in international organizations [86•]. But while increases are likely to trigger negative domestic repercussions in hegemonic countries such as the United States that dominate decision-making in the Bank, a reluctance to call for capital increases is inconsistent with the call for new and additional climate finance that is needed to fill funding gaps in the Global South. Beyond this, scholars such as Bender et al. [87] and Aitken [88] have noted the push by institutional investors to make climate an investable asset and to focus on material financial risk, which can transform the role of the state in sovereign legal and juridical terms with long-term implications for responsibility for environmental protection [see also 89]. This, however, should be approached with caution as similar programs, for example debt-for-nature swaps in the late 1980s and early 1990s, failed “to deliver additional resources to the debtor country and/or debtor government budget” [90, p. 93].
Global South Leadership on Debt Justice
Prime Minister Mia Mottley of Barbados has been particularly vocal in promoting actions that address liquidity constraints and debt sustainability in the Global South [93••]. The World Bank’s recent International Debt Report shows that external debt service payments on public and publicly guaranteed debt by the world’s poorest countries were expected to jump by 35% from 2021 to over US$62 billion in 2022 [94]. Across six action areas, her Government’s Bridgetown Initiative 2.0 calls on UN Member States to use special drawing rights for climate and sustainability purposes and agree on new L&D funding sources; on the International Monetary Fund (IMF) and multilateral development banks to suspend loan surcharges and cut excessive macro-risk premiums; on the need for the G20 to accelerate debt relief and move ‘beyond gross domestic product per capita’ to capture vulnerability in funding eligibility criteria; on the World Trade Organization and major trading partners to increase the resilience of supply chains; and on various stakeholders to make the Bretton Woods institutions more inclusive, equitable, and just [93••]. Through the Initiative, Barbados has been able to use special drawing rights to implement an ambitious set of economic reforms aimed at strengthening fiscal sustainability, advancing structural reforms, unlocking the economy’s growth potential, increasing resilience to climate change, and greening the economy [95]. These reforms are supported by the Extended Fund Facility and Resilience and Sustainability Facility arrangements, which were approved in December 2022.
At the subsequent Summit for a New Global Financing Pact hosted by the French Government in Paris in June 2023, Prime Minister Mottley escalated her call for reform of the global financial system to a demand for its transformation. In the months leading up to the Summit, scholars had voiced concerns about the French Government’s moral authority to champion such initiatives, given its historically extractive relationship with Haiti [see 96, 97]. Concerns were also raised over whether the Summit was capable of actually overhauling the international financial system, whether efforts to finalize the Pact were a distraction from true structural financial reform, and whether the new vision was just a repackaging of the role of the private sector in mobilizing climate finance [85••]. Scholars critiqued the Summit’s focus on debt tension as opposed to ‘debt crisis,’ considering that countries in the Global South are being pushed to capital markets to underwrite the cost of climate action and are dedicating a significant portion of government spending to debt servicing, diverting scarce fiscal resources away from critical sectors such as education, health, infrastructure investment, and social assistance [27, see e.g., 98]. Though the IMF agreed to initiate US$100 billion in special drawing rights for climate-vulnerable countries and the World Bank agreed to suspend debt once an indebted country faces extreme climate shocks, only one county – Zambia – managed to restructure its over US$6 billion debt.
Legal Developments
New legal developments both in domestic and international courts are providing some hope for climate-affected individuals and groups who are looking to secure financial compensation for L&D. While cases that directly invoke climate-change-related claims are not a new phenomenon [99], Tigre et al. [100, p. 67] observe a plethora of peripheral cases that “may not directly mention climate change laws or data but which nevertheless have an impact on climate governance.” Together, such cases have implications for international law [101], and some regions, such as Latin America, are witnessing the growth of novel legal cases that aim to address the impacts of climate change [100].
Two case examples are noteworthy. First, a Peruvian farmer and the NGO Germanwatch sued German electricity company RWE in 2015, requesting damages to protect his hometown from a swollen glacier lake at risk of overflowing from melting snow and ice [102, online]. The case entered its decisive stage in May 2022, and the ruling could set “a precedent for whether, in the face of the climate crisis, the largest emitters worldwide must finance protection and compensation for damages on a pro-rata basis for the people affected by the consequences” [102, online]. Second, four citizens of the Indonesian island of Pari filed an application for conciliation in Zug, Switzerland against Swiss cement company Holcim, which is the leading cement manufacturer in the world and is one of the 50 largest corporate carbon emitters worldwide [103]. The conciliation hearing in October 2022 concluded without results [103], suggesting that such litigation does not necessarily provide an ‘easier’ pathway to climate justice but that it might serve as both a catalyst of and obstacle to transnational lawmaking [104].
At the international level, courts and tribunals are increasingly being asked to offer advisory opinions on climate change, and human rights courts and bodies are hearing rights-based climate change claims [105]. In December 2022, the Commission of Small Island States on Climate Change and International Law submitted an advisory request to the International Tribunal for the Law of the Sea. This was an unprecedented move. It was the first such request that sought guidance on issues specifically related to sea-level rise, and more generally to climate change within the context of the law of the sea [106]. However, scholars have expressed concern over the Tribunal’s advisory jurisdiction [107], procedural issues related to admissibility [106], and interpretational issues concerning the application of other rules of international law not compatible with the law of the sea [108]. Despite these concerns, these proceedings could potentially lead to progressive climate change obligations under the law of the sea [109] as well as present opportunities to bring climate change issues closer to the Tribunal [108].
This development, along with similar potential legal challenges at the international level, could complement other advisory proceedings, particularly the United Nations General Assembly’s request for the International Court of Justice to provide an advisory opinion on state responsibility for climate change [110]. While advisory opinions are not legally binding, experts believe that such developments are important steps to elevate L&D as a legal issue and to open new international venues for hearing L&D claims. Here, attribution research is likely to have direct impacts on key legal questions such as plaintiffs’ standing and justiciability, establishing causation and obligations, redress, and liability [19], though there are doubts over the state of attribution science to provide such answers [111].
Conclusion
While the establishment and operationalization of the L&D Fund in the UNFCCC is a success for developing countries, existing dynamics have not necessarily shifted sufficiently to provide the leverage developing country Parties need to meet emerging L&D needs [1•, 23, 44]. Wealthy nations have yet to meet the goal of US$100 billion in climate finance per year, originally set for 2020. This has reinforced deep frustrations with UNFCCC negotiators from developing countries over the lack of progress on climate finance [66]. The long-standing firewall between developed and developing countries has created starkly differentiated norms regarding obligations to provide or mobilize climate finance. Discussions at the 58th meeting of the UNFCCC Subsidiary Bodies held in June 2023 and at COP28 later that year showed this firewall remains largely in place. For example, negotiations on the Glasgow Dialogue on L&D centered on whether the new L&D Fund would be a ‘fund’ or ‘funding arrangement’ [see 112]. While such concerns were overcome with the establishment of a dedicated Fund, developed country Parties can still force delays and push to make this Fund an incremental rather than transformational mechanism for L&D finance. Complicating this, too, are calls for now-major emitters, such as China, and now-wealthy countries, such as Singapore, that have historically been classified as developing countries to begin contributing to L&D finance [see 113]. In short, while formally operationalized, many questions remain concerning the dynamics, governance, and function of the Fund.
The Transitional Committee’s Report includes many positive recommendations, including that the L&D Fund’s Board be constituted primarily of developing country representatives, that provisions be made for slow-onset and noneconomic forms of L&D, and that recipients be given direct access to funds. However, how these ideals are operationalized remains to be seen, as does the ability of this Fund to mobilize the scale of finance that will be needed as climate impacts worsen. Within this context, though, there is still an opportunity for this Fund to bring transformational change to climate finance and meet the needs of developing countries. But the concerns that we have outlined also indicate that the new Fund could suffer from limitations evidenced in other UNFCCC finance mechanisms, reducing its potential to promote just outcomes in countries experiencing the worst L&D from climate change.
In this article, we have reviewed recent academic and policy literature on L&D. We argue that justice is a critical element necessary to make this new L&D Fund transformational and meet the needs of countries most vulnerable to climate change. We discuss five criteria needed for the Fund to align with climate justice principles: 1) aligning Fund governance with the needs of vulnerable countries; 2) ensuring that L&D funds are truly new and additional, sufficient in scale, distinct from other forms of climate finance, and do not crowd out other forms of climate or development finance; 3) channeling finance through grants or concessional forms of finance rather than loans and continuing to promote the ongoing need for a dedicated fund rather than a ‘mosaic’ of funding pathways; 4) allocating funds based on need and promoting direct and fast access; and 5) aligning the burden of providing finance with the polluter pays principle. Focusing on the broader field of L&D finance, we outline four potential catalysts that could spur focus on L&D: 1) intensifying ecological and climatic impacts, 2) institutional changes outside the UNFCCC, including within international financial institutions, 3) Global South leadership on debt justice, and 4) legal developments that begin to attach liability to climate impacts.
Overall, the UNFCCC has moved into an era characterized by neoliberal governance [11•, 24], where developed countries continue to fall short of just contributions to various finance mechanisms and obstruct other forms of progress, including on L&D finance [2••]. Even with the goals outlined in the Paris Agreement as well as emerging dire warnings from the IPCC, action on mitigation and adaptation lags. L&D, even with these recent developments, remains relatively novel and peripheral [114, 115]. The UNFCCC can, as demonstrated through the creation of the L&D Fund, serve as a forum where focus and action on L&D can be catalyzed. Beyond the UNFCCC, international financial institutions face increasing pressure to align their initiatives with equitable and just climate outcomes, including on the issue of L&D, and changes in other forums, such as international courts and tribunals, might spur further attention. Despite this, barriers remain and calls for the transformation of the international financial system run up against vested interests of the world’s wealthiest and most powerful states. As the L&D Fund is further operationalized and L&D finance continues to develop beyond the UNFCCC, scholarship critically assessing this new pillar of climate finance is needed to understand whether outcomes align with climate justice principles.
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Uri, I., Robinson, Sa., Roberts, J.T. et al. Equity and Justice in Loss and Damage Finance: A Narrative Review of Catalysts and Obstacles. Curr Clim Change Rep (2024). https://doi.org/10.1007/s40641-024-00196-6
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DOI: https://doi.org/10.1007/s40641-024-00196-6