Switzerland's measured support for new 'loss and damage' fund at COP27

Civil society groups in Sharm El-Sheikh are demanding that a loss and damage fund be set up.Paula Dupraz-Dobias, SWI Paula Dupraz-Dobias

Discussions on the creation of a new loss and damage fund to compensate vulnerable countries for the huge losses incurred by climate change are at the heart of COP27. As the idea gains ground at the talks, Switzerland is asking to first look at existing mechanisms.

This content was published on November 18, 2022 minutes

For the first time in some thirty years of the United Nations annual climate summits, known as COPs, for Conference of Parties, the working agenda has included discussions about payments from developed countries to the nations worse impacted by climate change generated by the former, known as loss and damage. At issue is the demand by affected countries that rich polluters pay for the harm and damage – to infrastructure, lives and livelihoods – caused by years of polluting to countries which have contributed least to climate change.

Climate vulnerable countries and civil society groups on the ground are demanding that a dedicated loss and damage fund be set up to disburse money, immediately available to communities, in the form of grants, and not loans.

United Nations Secretary General António Guterres, who urged a tax on windfall profits of oil and gas companies as a means of paying for losses and damages, said resolving that specific funding gap would be the “litmus test” of success at the COP27.

Over the past week, a number of smaller European countries, including Ireland, Belgium, Denmark and Austria have each pledged several millions dollars to fund loss andExternal link damage in the world’s most vulnerable countries. On Monday, Germany together with the G-7 nations and a groupExternal link of developing countries, launched on the sidelines of negotiations here, the Global Shield, an insurance initiative. The plan would provide funding to affected communities following disasters. It would complement a more comprehensive fund on loss and damage, according to the German Development Minister, Svena Schulze.

Switzerland, meanwhile, has suggested that delegations in Sharm El-Sheikh also consider existing international institutions for loss and damage before adding another mechanism.  

"In the face of the growing need for money due to the rising number of climate change related disasters, we have to strengthen UN institutions that are already in place to address this issue,” Franz Perrez, Switzerland’s chief negotiator, told SWI “Before agreeing on a new fund, important questions should be answered. Who will be the donor base, who will the recipients be and who should manage the fund? These questions are still unanswered.”

He added that the many consequences of climate change cannot be addressed financially alone. “Going for a loss and damage fund today without clarifying these questions may lead away from an inclusive approach that also touches on slow onset events, such as rising sea levels and melting of glaciers, or non-financial losses,” he said.

Long-term damage

Representatives from countries on the frontlines of the global climate crisis told SWI that more frequent and intense disasters have kept them in ever growing cycles of financial need and vulnerability, due to an inability to recover physically and financially, often due to mounting incurred loans.

“In June, July and August, people (in Bangladesh) experienced high tide during every full moon and the new moon (twice a month) due to higher sea level rise than expected. Water entered  their homes, sustained for seven days every time. The community was just under water,” said Ashish Barua, a climate change activist with Swiss NGO Helvetas in Bangladesh.  “People enter into a vicious cycle of losing their livelihoods, their crops and income, and having to take loans.” He said many people end up migrating to cities and elsewhere as a result, as any recovery assistance from the government and humanitarian groups is very limited. “People are experiencing loss and damages on the ground due to climate change, but they are not being compensated,” Barua added.

The World Bank estimates that tropical cyclones cost the country $1 billion annually and that 13.3 million people may become internal migrants in the next 30 years due to climate impacts on agriculture, water scarcity and rising sea levels. Severe flooding can cause GDP to fall by nine percent.

Elsewhere globally, devastating droughts from the Horn of Africa through the Nile Delta in Egypt to the Sahel region in northern central Africa, unpredictable hurricanes in the Caribbean and heat waves such in Pakistan where 49°C was reached ahead of unprecedented flooding, have struck millions of people in developing countries this year, leaving them in a cycle of poverty and often hunger.

Finding funds and hedging risks

Perrez commented to Swiss journalists on Wednesday that negotiations on the topic have been very “emotional” and that big gaps remain on how to formulate wording for a text to be included in the conference’s final statement to set the planning ball in motion.

Nonetheless many agree that the Green Climate Fund, set up in 2010 to disburse climate finance to developing countries, has been overly bureaucratic in getting funds to where they are needed. The new fund would have to fix these shortcomings and raise new capital

A new report presented at the COP27 estimates that developing countries will require a total of $2 trillion a year until 2030 in total climate finance, both for helping to mitigate emission and coping with climate impacts.

“There is a massive funding hole within UNFCCC,” said Harjeet Singh, head of global political strategy at the Climate Action Network (CAN) International, referring to the need for a specific loss and damage facility within the administrative body that convenes the climate summit, the United Nations Framework Conference on Climate Change. “Switzerland is proposing that we not set up a facility but use existing funding arrangements. A country like Switzerland should really come forward and support the idea.”

Debbie Hillier, head of the Zurich Flood Resilience AllianceExternal link, funded by the Z Zurich Foundation – established by members of the Zurich Insurance – supports an additional fund. “While it is true that there are existing financial mechanisms already out there, there is not nearly enough funding within that pot, which is why we are pushing for loss and damage funding.”

Similarly to the insurance industry, the Alliance uses risk assessments in working with humanitarian groups that assist communities to prepare themselves ahead of flooding, including in Peru, SWI reported earlier.

More social protection from government and international aid groups prepared on the basis of risk assessment should also be forthcoming, they argue.

Catastrophic damage in Florida, following Hurricane Ian in September, underscored the current limits to insurance coverage, with large reinsurance companies – including Swiss Re – expressing concern over continuous funding to primary insurers in areas repeatedly hit by extreme weather in the US state.

While the Global Shield proposal has attracted some attention from donors, critics are wary that it becomes a distraction amid the push within negotiations for a more global loss and damage fund developing countries are demanding. Preety Bhandari of the World Resources Insitute, a think tank, warned against money being processed by insurance companies in developing countries.

Hillier, the Alliance’s chief, said that for now, negotiators had their work cut out. The issue of loss and damage funding, “would really need to be kickstarted in the next year, to feed into the next COP (due to take place in 2023 in Dubai). We would need a lot of preparation analysis to make a decision on how we use these different sources of funding, and which is the best one to use or a mix”.

“Thinking creatively about new funding systems is really important,” she added. “But I haven’t heard enough of that in the COP discussions.”

Edited by Virginie Mangin

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