So-called ‘Loss and Damage’ is set to be a key debating point of this year’s UN COP27 climate summit, which opened yesterday in Sharm El Sheikh, Egypt.
The debate will be of keen interest to the (re)insurance market in a year which is likely to see extremely high natural catastrophe-related losses, as well as a number of players re-balancing volatility in their portfolio by deciding to substantially reduce their exposure to such risks.
Already in H1 2022, global estimated insured losses from natural catastrophes were some $35 billion, 22% above the average of past ten years ($29 billion), according to Swiss Re.
Loss and Damage relates to compensation funds provided by wealthy nations to vulnerable lower-income countries that bear little responsibility for climate-warming emissions.
Diplomats from more than 130 countries are expected to push for the creation of a dedicated loss and damage finance facility at COP27.
At COP26 last year in Glasgow, high-income nations blocked a proposal for a Loss and Damage financing body, instead supporting a new three-year dialogue for funding discussions.
Delegates will begin the two-week negotiation process by approving the conference agenda during the opening plenary session, with all eyes on whether wealthier nations agree to have the compensation listed formally on the agenda.
Currently, a session to address Loss and Damage is on the provisional agenda, but policymakers will decide today whether to adopt it onto the official agenda.
“We know the Europeans are supporting us,” said Saleemul Huq, director of the International Centre for Climate Change and Development. “Now we need to see whether the US is going to block on their own or not.”
Why does loss & damage matter now?
According to a recent analysis by the London School of Economics, for two decades, climate-vulnerable developing countries have called for finance and technical support to minimise and address their loss and damage from climate change.
However, developed countries have historically viewed providing finance for ‘Loss and Damage’ – the name given to policy in this area in the international climate arena – as a major red line, in case it is seen as an acceptance of legal liability. This is despite the fact that a COP decision in 2015 based on the Paris Agreement ruled out any requirement for developed countries to provide compensation.
COP27 is an opportunity to leverage this momentum and formalise Loss and Damage finance and monitoring within the UNFCCC architecture. Finance would go towards unavoidable or unprevented loss and damage that is not eligible for adaptation finance.