New solidarity funds could ringfence finance for loss and damage

On Adaptation, Loss and Damage Day at COP26, Clara Gallagher and Saleemul Huq consider how National Solidarity Funds for loss and damage could get new and additional finance to countries experiencing devastating and relentless loss and damage caused by climate change.

Clara Gallagher's picture Saleemul Huq's picture
Clara Gallagher is researcher in IIED’s Climate Change research group; Saleemul Huq is director of the International Centre for Climate Change and Development
08 November 2021
UN climate change conference (COP26)
A series of pages related to IIED's activities at the 2021 UNFCCC climate change summit in Glasgow
Woman waling with crutches steps outside a hut to a flooded road

Khulna in Bangladesh after cyclone Amphan in May 2020 (Photo: UN Women/Fahad Kaizer, CC BY-NC-ND 2.0)

Deep and irreversible loss and damage from the impacts of climate change is devastating lives across the world: climate and weather-related disasters have affected 1.7 billion people during the past decade and killed more than 410,000.

And the poorest countries are hit hardest – IIED estimates that over the last 50 years almost 70% of worldwide deaths caused by climate-related disasters were in the least developed countries.

Some countries, like Bangladesh, have developed expertise in managing loss and damage through the tragic and repeated need to respond to extreme weather events. Bangladesh now suffers fewer deaths when a catastrophic cyclone passes through – it recorded fewer deaths during the last cyclone than Germany did during the 2021 summer floods.

But the destruction of livelihoods, economies and ecosystems persist, and countries like Bangladesh have no choice but to push forward in dealing with the impacts of loss and damage, and without the support of dedicated international public finance.

At COP26 in Glasgow, we are finally seeing the start of such finance being provided: Scotland became the first nation to pledge £1 million (US$1.4m) to help developing countries deal with loss and damage.

This move from Scotland is hugely significant – the first step towards developing a distinct flow of finance for loss and damage, on top of that which is purposed for mitigation, for adaptation or for development.

Yet much much more financing is needed: in developing countries alone, the economic cost of loss and damage is estimated (PDF) to be $290-580 billion by 2030, increasing to between $1 to $1.8 trillion by 2050.

More finance is vital – but how it is delivered matters

The range of loss and damage impacts is vast, from slow-onset events such as sea-level rise, ocean acidification and desertification, to rapid events like cyclones, drought and flash flooding.  

This variety must be reflected in any response. And the impacts cannot be measured in economic terms alone: while some loss and damage can be replaced at a cost – damaged buildings, destroyed crops, lost livestock – other impacts are personal, immeasurable and irreplaceable such as loss of life, culture or experience of trauma. These will require social interventions.

The different responses to these different impacts need to be locally led and the mosaic of financing arrangements to support action must be locally accessible.

National Solidarity Funds for loss and damage – an appropriate mechanism?

Providing support in solidarity with those people and communities unable to adapt to the impacts of climate change is one step towards climate justice. Loss and damage is happening today. The devastation it wreaks is destroying the lives of real people. We need a just response to this crisis from everyone.

A practical way forward is to finance the myriad challenges facing those enduring loss and damage.

This calls for many different types of finance from different sources, and for appropriate ways of channelling it:

  • A combination of parametric insurance (a pre-defined payout based on the magnitude of an event), contingency finance, social protection and emergency relief may be required to enable activities such as planned relocation
  • Managed migration with portable social protection
  • Anticipatory and responsive shock payments through social protection
  • Debt and loan repayment holidays, and
  • Building back better funds or indeed psychological support services.

Working together, climate finance providers and climate vulnerable countries could establish National Solidarity Funds for loss and damage to bring together this mosaic of finance and ensure it effectively supports a comprehensive response to cope with climate impacts. A national platform would incentivise collaboration between social development, humanitarian and climate actors.

The National Solidarity Fund could bring in and disburse finance over the range of timeframes and contexts in which loss and damage is experienced. Setting up these funds will take time and effort and require innovation and learning.

Some countries have already started.

Bangladesh is considering ways to transform its cities into becoming ‘migrant friendly’ – attracting those people that will need to escape unavoidable loss and damage on the coast by generating jobs, and providing key services such as housing, education and healthcare to the ten million-plus climate migrants the country predicts over the next 30 years.

Initiatives like this could draw on the National Solidarity Fund for loss and damage to aid planned-for climate-induced migration.  

Money identified for this fund could be considered loss and damage finance and thereby ringfenced – clearly separating it from development, adaptation or mitigation responses. It could attract finance from the range of sources suitable for the anticipatory and responsive activities required, pooling funds to be released rapidly when needed.

Could this idea get traction in Glasgow?

COP26 continues and we must wait for the outcome of the negotiations. But practical action on loss and damage cannot wait. It is required today. It was required yesterday and it was required 20 years ago when the Alliance of Small Island States called for a mechanism to compensate countries affected by sea level rise.

Pooling additional international finance at the national level to respond to loss and damage impacts through a National Solidarity Fund for loss and damage could present one practical way forward, desperately needed by people on the ground.