Africa needs a loss and damage fund, but with real vision

The UN defines loss and damage as the negative impacts of climate change that occur despite, or in absence of, mitigation and adaptation.

This includes economic impacts such as damaged infrastructure and declining agricultural output, as well as issues such as community displacement and biodiversity loss.

We are already seeing these impacts manifest in Africa, and the effects are only set to accelerate over the coming years. This new funding mechanism will help address these negative effects by creating a new source of finance distinct from adapting to future climate risks or mitigating emissions.

However, loss and damage should be seen as synergistic with adaptation funding because a faster recovery from climate shocks is key to building long-term resilience. Adaptation funding lags significantly behind mitigation worldwide (see below).

A new loss and damage arrangement could help plug this multi-trillion-dollar gap, while failure will see the cost to developing countries spiral. Researchers from the Basque Centre for Climate Change estimate this cost will be between USD290 and USD580 billion by 2030.

The current system has proven unable to meet the scale of the funding challenge. A pledge by the richest nations at COP15 in 2009 to channel $100bn a year to poorer nations by 2020 fell short by $16.7bn.

Even if this target had been met, it represents only 5% of the USD2 trillion a year until 2030 required by the developing world, according to a report presented at COP27 by the UN-backed Independent High-Level Expert Group on Climate Finance.

Exactly how the loss and damage mechanism will work is set to be decided at COP28 in November 2023. But even if delegates can thrash out an agreement, the scale of the failure to raise finance thus far highlights that the current global finance system needs to be reshaped to meet the systemic challenges posed by climate change.

The Bridgetown Initiative, devised by Barbados Prime Minister Mia Mottley, envisions a new specialist fund that would automatically disburse money to the governments most in need when they’re affected by a loss and damage event.

This would help to quickly offset the impact of events like Cyclone Freddy, which has displaced over 650,000 people in Malawi since February 2023. With support from the US, France and the IMF, it could mark an innovative paradigm shift in how climate finance will be sourced.

‘Climate change Catch-22’

The final model that results from COP28 is likely to blend a Bridgetown-style arrangement with innovations to existing sources of financing, such as multilateral development banks and bilateral aid, as outlined in the COP27 agreement text.

Ongoing weaknesses in funding at the regional level will therefore remain key, even if global reforms are achieved.

Sub-Saharan Africa demonstrates the need to reform regional finance architecture through two key problems: Africa’s risk landscape combines high exposure to climate change with the most limited institutional and political capacity to respond to environmental shocks.

This is shown by Africa’s score on Verisk Maplecroft’s Climate Change Adaptive Capacity and Climate Change Exposure indices (see below).

The implication of this climate change Catch-22 is that the African states with the greatest need for loss and damage funding are the most likely to see its utility hindered by corruption, political instability, or institutional weakness. As a consequence, many of the most climate-exposed African states receive a disproportionately small amount of adaptation funding.

Indeed, 15 of the 20 highest risk African countries on the Climate Change Exposure Index sit outside the top 20 in terms of received funding. This includes the likes of Sierra Leone, Guinea, Angola, and Gabon. Funding is instead concentrated in a small group of African states: Ethiopia, Nigeria and Mozambique received $595m more than the top 15 most at-risk African countries combined.

The upshot is that adaptation is not happening quickly enough in the most affected areas and, without genuine innovation along the lines of The Bridgetown Initiative, the new loss and damage fund risks repeating these mistakes. This problem is likely to be exacerbated by the crossover between loss and damage, humanitarian aid and adaptation funding

Cascading risks will mount without loss and damage

This would be a mistake because without loss and damage funding provided at scale, sub-Saharan Africa faces mounting cascading climate risks caused by structural vulnerabilities.

Every country in sub-Saharan Africa is classed as vulnerable according to Verisk Maplecroft’s Cascading Climate Risk Resilience Model, which analyses performance across 32 factors encompassing political, social, health, economic development, and climate risks.

For example, pastoralist communities could be forced to migrate due to persistent drought as they are often underserved by state relief programs and health services. This would put pressure on water supplies in other areas, potentially exacerbating existing conflicts over water consumption, and these social tensions would then drive political instability and undermine public institutions.

However, loss and damage funding to tackle drought fallout immediately could prevent these cascading cycles from gathering momentum.

Decisive loss-and-damage reforms needed

The Bridgetown Initiative’s automatic dispersion mechanism would help offset the cost of humanitarian relief, saving governments money and contributing to long-term economic development.

Building short- and long-term resilience to physical and cascading risks is a key plank of economic advancement and a truly far-sighted loss and damage finance mechanism can secure a more stable present and future for sub-Saharan Africa.