Making use of mutuality-solidarity-accountability-transparency principles

The Warsaw International Mechanism (WIM) for Loss and Damage and its ongoing review were hot topics at COP25. Hopes for a step-change on the issue of finance to scale up action and support have not been translated into action. Negotiating Parties remain divided over the way forward and the question of what kind of finance and for whom. We suggest to build on principles of risk governance, including insurance, and international cooperation  – mutuality, solidarity, accountability and transparency – and to combine these in novel ways in order to upscale action on both averting and minimizing as well as addressing loss and damage under the WIM in a manner that truly shows responsibility for responding to the climate crisis.

Why do we need a step-change on Loss and Damage finance?

Hard limits to adaptation are creating situations beyond adaptation; think for example of communities fleeing desertification or sea-level rise that can only retreat so far. There is an urgent need to scale up efforts to address their loss and damage under the WIM. The WIM has made substantial strides on its objectives to advance knowledge and exchange since its creation, but now the time is ripe to take the next steps on addressing loss and damage from climate change. 

So far, this third WIM priority has mostly been addressed through insurance approaches, such as the Fiji Clearing House. While there is value in scaling up risk transfer options, insurance comes with drawbacks: insurance premium costs often exceed financial capacities of vulnerable groups or may result in a false sense of protection that undermines further resilience-building action. Additionally, risk transfer options remain focused on sudden onset events. 

Loss and damage from climate change is not just linked to sudden events; sea-level rise, desertification, and glacial melting take years to unfold, but once these tipping points are reached, recovery and reconstruction, and thus the typical logic of humanitarian assistance, are out of the question. As the climate crisis spirals forward tipping points may be reached sooner than expected, also challenging the sustainability of resilience building actions within the framework of development cooperation. 

How to make a principled case for funders and affected to generate support for addressing loss and damage?

Most vulnerable countries agree that the WIM needs to advance on enhancing action and support for addressing loss and damage from climate change. Discussions at COP25 focused heavily on the issue of mobilizing finance for addressing loss and damage, but little headway was made, as views on the exact modalities of finance and its access differ vastly amongst Parties. Unfortunately, this means that the ongoing WIM review faces a certain risk of replicating the stalemate that characterised the Paris Agreement negotiations on the question of liability, when notions of compensatory justice were crossed out from Article 8 at the request of several developed, high emitting countries. 

In order to propel the discourse forward in future rounds of climate talks and in the WIM review, we have suggested to recall the principles of international cooperation and insurance, mutuality, solidarity, accountability as well as the transversal principle transparency, and combine them in novel ways: 

• As the underlying insurance principle, mutuality is found in risk pooling and sharing – several parties pool funding to mobilise finance for offsetting losses in times of crisis, essentially spreading out and mutualising risks across participants.
• Solidarity describes the shared responsibility for supporting others in times of hardship. As a principle it underpins development cooperation and humanitarian assistance and is at the heart of the Agenda 2030. 
• Accountability links actions with outcomes in a mutually responsible relationship and is motivated by a perceived ethical or legal obligation for supporting each other in addressing climate-attributed loss and damage. 
• As a transversal principle, transparency adds itself as a critical enabler of a finance architecture that expands the WIM to support those who are suffering loss and damage in ways that cannot be addressed through business-as-usual. 

All principles lend themselves to the WIM as a ground for advancing on its priority to enhance action and support for addressing loss and damage from climate change, but also offer inspiration for thinking out novel ways to advance further.  

What could this mean concretely?

These deliberations are not merely theoretical in nature but are seeing attention. For example through the further development of the African Risk Capacity (ARC) pool, a regional drought pool established in 2012 as a specialised agency of the African Union to help member states improve their planning, preparation and response capacities. Disbursements from the pool support participating governments’ drought relief efforts, with requirements on how these are used (transparency and accountability). 

Initial donor funding (solidarity) and ARC member annual premium payments (mutuality) capitalise the ARC. The pool is currently preparing for the launch of an additional capitalization mechanism, the Extreme Climate Facility (ARC-XCF). This would issue climate catastrophe bonds, resulting in pay-outs whenever the index tracking frequency and magnitude of droughts and extreme temperature exceeds a predefined threshold (transparency). While using the capital markets to access additional funding needs, accountability for climate change is factored in to some extent through the international support divested to setting up the mechanism.

The ARC-XCF is one way to address loss and damage and offers practical inspiration for setting up facilities for addressing loss and damage under the WIM. Especially where hard limits are pushed beyond adaptation and traditional insurance is no longer feasible, drawing on the experience from such risk pooling facilities can be useful input for setting up a specific facility under the WIM that supports those at the frontiers of climate change. 

In doing so, it will be important to keep the principles of international cooperation and insurance - mutuality, solidarity, accountability and transparency – in mind to equitably address loss and damage, especially where risks are increasingly intolerable and beyond adaptation. 

For more on the topic of Loss and Damage financing have a look at these resources: 

Deubelli, T.  and Mechler, R. (2019). Finance for Loss & Damage: Towards a comprehensive principled approach, unpublished. 

Linnerooth-Bayer, J. Surminski, S., Bouwer, L., Noy, I., Mechler, R., McQuistan, C. (2018). Insurance as a Response to Loss and Damage? Mutuality – Solidarity – Accountability. Policy brief COP 24, December 2018

Mechler R, Bouwer L, Schinko T, Surminski S, Linnerooth-Bayer J (2018). Loss and Damage from climate change. Concepts, methods and policy options. Springer