COP28, this year’s UN Climate Change Conference hosted in Dubai, has drawn to a close.

But what happened on day one was hailed by many as the biggest success of the entire conference – the announcement of the formally established Loss and Damage Fund, with initial pledges of $100-million from the United Arab Emirates, this year’s host nation, and Germany; $50-million from the UK and $10-million from Japan).

By the end of COP28, developing countries had pledged a total of $792-million to the fund, just under $700-million of which will go towards the fund and $90-million towards funding arrangements (existing initiatives outside the fund).

The fund was first agreed upon in principle last year, at COP27, after 30 years of developing countries calling for funding to help them deal with the adverse impacts of climate change.

Read more in Daily Maverick: COP27 makes history with agreement on ‘loss and damage’ fund for vulnerable countries impacted by climate change

Richard Sherman, co-chair for developing countries of the Transitional Committee on loss and damage finance, which was set up to flesh out the details of the fund after it was agreed upon in principle last year, told Daily Maverick that “the fund will support both economic and non-economic loss and damage associated with the adverse effects of climate change, including extreme weather events and slow onset events”.

Sherman explained that for SA, this could look like financial support to help respond to events such as those seen in KwaZulu-Natal and the Western Cape, or addressing slow onset events: like the economic costs of agricultural losses owing to a possible decline in pollinators, or economic losses because of a change in weather conditions that could destroy fisheries.

Sherman, who also led negotiations on behalf of South Africa during COP28 on the climate finance agenda items, and has worked on the design and evolution of the Green Climate Fund, explained that the fund would aim to provide a combination of grants and highly concessional finance (non-debt or low-interest) to support recovery and rehabilitation of infrastructure (for example, roads and critical service,) following extreme weather events.

When the text drafted by the Transitional Committee was passed by COP28 President Sultan al Jaber (after no objections from the parties), signalling the operationalisation of the fund, it was met with a standing ovation by delegates and was hailed as a success by scientists, experts and the media around the world.

“I think this is likely to be the biggest outcome of this COP,” Laura Pereira, associate professor in sustainability transformations and futures at Wits University’s Global Change Institute, told Daily Maverick while she was at COP28.

“I know that the Africa group, the G77 and China are really pleased with this outcome, and this will be something significant that we can actually say, progress has been made.”

But many are sceptical – about the World Bank as interim host; about who will get access to the fund and about the amount pledged not being close to enough to cover the real cost of loss and damages.

Economist Anton Cartwright, a researcher at the University of Cape Town’s African Centre Cities whose work focuses on Africa’s urban transition and green finance, told Daily Maverick that when considering the principle of “common but differentiated responsibilities” – that we are not all equally responsible for climate change, and do not experience the impacts equally – the fund was a good idea.

However, he believes the application of the fund is inadequate and that there will be unintended consequences that will have an impact on how Africa is perceived.

“Relying on loss and damage risks being a distraction to the real prize and plays into the hands of the oil majors, global financiers and unimaginative (and in some instances corrupt) national leaders, looking for one last round of fossil fuel rents,” Cartwright said.

Not enough money

Developing country representatives on the Transitional Committee made a submission in September calling for “at least” $100-million a year in loss and damage funding by 2030.

This was based on a UN-commissioned report by the Independent High-Level Expert Group on Climate Finance, which stated “recent events suggest [costs] could be as high as $150-billion-$300-billion by 2030 to cope with immediate impacts and for subsequent reconstruction”.

Cartwright said Africa alone needed between $130-billion and $170-billion of investment every year for the next 20 years just to meet its infrastructure needs, noting the African Development Bank estimates more than doubling existing investment.

But the $100-billion figure never made it into the final text, and so far the pledges don’t even amount to $1-billion.

Entrenching Africa as beneficiary and victim

“For me, the most damaging unintended consequence of the loss and damage fund is what it does to the headspace of African countries. Psychologically, it entrenches us as recipients of donor aid; victims, I suppose,” Cartwright said.

Cartwright explained that this victim or laggard status makes it expensive for developing countries to borrow money, pushing up the cost of capital.

How can African countries have better autonomy and leverage power?

“Loss and damage should not be the exclusive strategy of African countries,” Cartwright said, explaining that the region couldn’t rely on the Global North to get us out of this, and these negotiations were the chance to gain a competitive advantage in the global economy.

“Africa needs to position itself as offering the world what it desperately needs in the next 10 years,” Cartwright said. “That’s how you’re going to attract that investment it needs.”

He outlined a number of strategies:

Carbon sinks

The rainforest in Democratic Republic of the Congo — the Congo Basin — is the most important rainforest carbon sink in the world (Photo: Daniel Beltrá / Greenpeace)

Africa has the world’s biggest carbon sink, the Congo Basin, which spans six countries.

Carbon sinks – where CO₂ is trapped and stored – is vital for mitigating climate change (reducing greenhouse gas emissions).

According to Cartwright, the Congo Basin doesn’t have high levels of deforestation at the moment, but that could change.

“We’ve got to play this game a bit smarter. We could chop this forest down, but obviously, that would be a global catastrophe, right? So how much is this carbon sink worth?”

Rare earth minerals

Africa has some of the world’s best resources of the rare earth minerals that are vital for the global transition to renewable energy and for electric cars.

“Let’s talk about how we actually bring these rare earth minerals to market in a way that’s good for investors and good for host countries,” Cartwright said.

Building cities and low-carbon manufacturing

“Given that African cities will be home to an additional 25 million to 35 million people a year, every year, for the next two decades, how we build them (which is a function of how we finance them) will influence global ability to attain the Sustainable Development Goals [SDGs],” Cartwright, said.

Africa needs to develop its cities, provide electricity to the 600 million people who don’t have reliable access to it. There’s a huge market for development and a huge chance for the Global North to reach its SDGs and Environmental, Social and Corporate Governance [ESG] commitments by getting involved in that market.

Cartwright emphasised the need to shift emphasis from loss and damage funds, which seem destined to be inadequate, to sustainable finance.

“Mobilising Africa’s domestic savings and ensuring these go to the types of projects that people on the ground need, might be the best way to marshal international finance to the same opportunities and needs,” he said.

“The same shift needs to replace the sense that Africa is a risky investment destination with an appreciation that it is even riskier not to invest in Africa’s low-carbon development,” said Cartwright, who is also lead author of Chapter 4 of the IPCC’s Special Report on Global Warming of 1.5°C and a fellow of the Cambridge Institute for Sustainability Leadership

“If international financiers do not make these investments they will incubate risks for themselves in the form of worse climate change, migration and foregone market development.”

Who gets access to the Loss and Damage Fund?

All developing countries have access to the Loss and Damage Fund.

Sherman said that the governing instrument provided for the establishment of minimum allocation floors for least-developed countries and small island states, and other countries.

“The fund will make available a range of financial instruments for developing countries to decide which are the most appropriate forms of finance to address loss and damage events,” Sherman said.

However, Cartwright said that “loss and damage is not a smart game”.

“ ‘You owe us’, won’t end well – which we’ve seen with the Green Climate Fund. The money doesn’t come all the time, it’s difficult to access and the people who get it aren’t the people who need it the most.”

According to a new analysis by The Continent and Carbon Brief, in the past 12 years, for example, the UK has given Africa at least £6.6-billion ($8.3-billion) in climate finance. In theory. But a closer look at the figures reveals that nearly two-thirds of that money went to companies and organisations based in the Global North, and nearly 40% went to groups headquartered either in the UK or the US.

Sherman explained that with this fund, the governing instrument provides for the board to develop procedures to ensure access to small grants that support communities, indigenous people and vulnerable groups and their livelihoods, including recovery after climate-related events.

World Bank as interim host

In what became a controversial decision, the World Bank will host the Loss and Damage Fund on an interim four-year basis.

Sherman said the decision for the World Bank to host the fund secretariat comes with a set of 11 conditions that need to be confirmed by the board within eight months of the conclusion of COP28.

Read more in Daily Maverick: COP28 news hub

Cartwright explained that climate financing often went to the World Bank and not small NGOs because of accountability and trusted channels of distribution. “To be small, and to win that trust is quite difficult,” he said

He said what was needed in Africa was stronger, inclusive institutions to adapt well to mitigate on the ground – “and that’s civil society, that’s NGOs”.

“If you could get the money to NGOs working on informal settlement upgrades, environmental justice, early childhood education or female education, you might end up having even more adaptation benefit,” Cartwright said.

“But that requires a lot of tricky work, which we are not yet good at, while also complying with the reporting requirements of these funds and finance.” DM

This article was amended on 20 December 2023 at 11.25am to correct the reference to G77, which had been written as G7.