A newly established international climate fund, aimed at providing financial assistance to countries affected by climate-related disasters, recently decided to allocate US$20 million to Nepal to support its recovery from the devastating flash floods in August, making it the first country to receive international funding for Loss and Damage.

Extreme weather events are becoming more frequent and severe, as climate change is becoming evident. Climate Reparations (or Loss and Damage) has been demanded by many developing countries, most notably, by small island States. Developing countries have very little historic contribution to Green House Gas (GHG) emissions that are responsible for global warming and climate change. However, they are most vulnerable to extreme events due to climate change.
Since the formation of the UN Framework Convention on Climate Change (UNFCCC), vulnerable nations have been calling on developed countries to provide financial assistance that can help them address loss and damage due to climate change.

What is ‘Loss and Damage’?

• Events occurring due to climate change are having a deep impact on human lives and economic activities. It has increased the frequency of extreme weather events like floods, cyclones etc. It is also contributing to slow onset events like desertification, loss of biodiversity, sea level rise and ocean acidification etc.

Source: UNFCCC, Guide to Loss and Damage

• These events due to climate change are responsible for both economic and non-economic losses. Economic losses can be measured in monetary terms e.g. damage to infrastructure/property or agriculture production (in INR or US$). Non-economic losses are intangible and can’t be accurately measured in monetary terms e.g. loss of human life, bio-diversity, cultural heritage or indigenous knowledge. For instance, Communities in Kosrae, Micronesia, have lost burial grounds due to coastal erosion caused by sea level rise. Loss of sea ice in the Arctic has affected the cultural identity and hunting practices among Inuit communities.

Source: UNFCCC, Guide to Loss and Damage

• People, communities and nations can adapt to some of these events. For other events, adaptation is not possible, or there is a lack of resources to adapt.
• There is no official definition of ‘Loss and damage‘. It is a general term used in UN climate negotiations to refer to the consequences of climate change that go beyond what people can adapt to; or when adaptation is possible but a community doesn’t have the resources to access or utilise them. A close definition is found in the literature review commissioned by the UNFCCC.

• The developing countries are more vulnerable to climate change events, both due to frequency of events as well as lack of resources to adapt. According to a study, 6 of the world’s 10 most affected countries (between 1996-2015) by extreme weather events were in Asia. Under the Loss and Damage framework, developing countries demand compensation from developed countries for losses/damages suffered due to climate change events.
• Two vital arguments in the context of Loss and Damage are “Historic Emissions Argument” and “Polluter Pays Principle“.

‘Historical Emissions’ and ‘Polluter Pays’:

• At its core, the demand for compensation for loss and damage from climate disasters is an extension of the universally acknowledged “Polluter Pays” principle that makes the polluter liable for paying not just for the cost of remedial action, but also for compensating the victims of environmental damage caused by their actions.
• In the climate change framework, the burden of responsibility falls on developed countries that have contributed most of the greenhouse gas emissions since 1750 (considered to be the beginning of the industrial age). The United States and the European Union, including the UK, account for ~47% of all emissions since 1750. Inclusion of Russia, Canada, Japan and Australia takes this contribution to ~60%.

Source: Our World in Data

• Historical responsibility is important because carbon dioxide remains in the atmosphere for hundreds of years (300-1000 years according to NASA). It is the cumulative accumulation of carbon dioxide that causes global warming. India, currently the 3rd largest emitter, accounts for only 3% of historical emissions.
• Developing Countries that have had negligible contributions to historical emissions and have severe limitations of resources are the ones that face the most devastating impacts of climate change. Hence they demand climate reparations from developed countries.

What is the difference between mitigation, adaptation and addressing Loss and Damage?

• Under the Paris Climate Agreement, countries recognized the importance of ‘averting, minimising and addressing‘ loss and damage.
• Loss and damage can be ‘averted’ by curbing greenhouse gas emissions (mitigation). It can be ‘minimised’ by taking preemptive action to protect communities from the consequences of climate change (adaptation).
• ‘Addressing’ loss and damage is the third pillar of climate action: helping people after they have experienced climate-related impacts.
• Climate adaptation measures include:
  1. Protecting communities from sea level rise by helping them move to higher ground.
  2. Preparing for extreme weather disasters by investing in early warning systems.
  3. Protecting food supplies.
  4. Switching to drought-resistant crops among others.
• Loss and damage happens when efforts to reduce emissions are not ambitious enough and when adaptation efforts are unsuccessful or impossible to implement, sometimes due to limited resources.
• The IPCC’s 6th Assessment Report (WGII) observes that as the magnitude of climate change increases, the ability to adaptation decreases. It has defined soft and hard adaptation limits.
  • ‘Soft Adaptation Limits‘ are when adaptation options exist but communities don’t have the financial resources needed to adopt them.
  • ‘Hard Adaptation Limits‘ are those when climate change becomes so extreme that no amount of resources can avert or minimize loss and damage.
• Coral reefs offer a good example of where adaptation is likely to reach its limits. The IPCC found that 70-90% of tropical coral reefs will die by mid-century even if temperature rise is limited to 1.5^oC (and nearly total loss under the 2^oC scenario). This will lead to irreversible losses of biodiversity and have a major impact on coastal communities that eat and sell fish that live along the reefs.

How has the concept of Loss and Damage evolved over the years?

• At the drafting stage of the UNFCCC in 1991, it was proposed by the Alliance of Small Island States to create an insurance scheme to provide financial resources to countries impacted by rising sea levels. Each country would contribute resources according their relative contribution to global emissions. The proposal was rejected, and Loss and Damage was not mentioned in the Framework Convention adopted in 1992.
• Loss and damage first appeared in the negotiated outcome of the UN climate talks in 2007 as part of the Bali Action Plan. In 2013, Warsaw International Mechanism (WIM) was formed to avert, minimise and address loss and damage. The WIM has been mandated to share knowledge, strengthen dialogues among stakeholders and mobilise expertise to enhance action and support to address loss and damage. But neither the WIM nor any other established mechanism delivers funding to help countries manage loss and damage.
• Loss and Damage is mentioned in Article 8 of the Paris Agreement. However, there is no reference to provision of finance for climate reparation/compemsation in this Article.
• At COP26 in Glasgow, a large coalition of climate-vulnerable countries advocated for creating a new finance facility or fund dedicated to loss and damage. The proposal for loss and damage financing was once again rejected by developed countries. A 2-year Glasgow Dialogue was established at the COP26. It will discuss possible arrangements for loss and damage funding. It was also agreed to operationalise and fund the Santiago Network on Loss and Damage (SNLD).
  

  Santiago Network on Loss and Damage (SNLD): The Santiago Network is a network to enable Loss and Damage fund flow from developed to developing countries. It will work towards the implementation of relevant approaches at the local, national and regional level, in developing countries that are particularly vulnerable to the adverse effects of climate change.

• The first session of the Glasgow Dialogue took place at the Bonn UN climate negotiations in June 2022. In Bonn, the developed nations acknowledged the need to deal with loss and damage, but didn’t commit on any steps they would be willing to take to address the problem. The negotiations also saw limited progress on how to design the SNLD.

What actions has the international community taken to address Loss and Damage?

1. Warsaw International Mechanism (WIM), COP19 (2013): The Warsaw International Mechanism (WIM) was established at the 19th Conference of the Parties (COP19) to the UNFCCC in Warsaw, Poland, in 2013 to address loss and damage associated with the impacts of climate change, particularly in vulnerable developing countries. The WIM marked an important step in recognising Loss and Damage as a distinct pillar of international climate action alongside mitigation and adaptation.
2. Santiago Network, COP25 (2019): Established at COP25 under the UNFCCC to catalyse technical assistance for developing countries that are particularly vulnerable to climate change. It helps these countries avert, minimise and address Loss and Damage by connecting them with relevant organisations, experts and technical assistance providers to assess climate risks, develop strategies and strengthen their capacity to respond to climate-related disasters and slow-onset events.
3. Glasgow Climate Pact, COP26 (2021): It called for enhanced global climate action and established the Glasgow Dialogue to discuss arrangements for funding activities to avert, minimise and address Loss and Damage in developing countries. It also urged developed countries to at least double their collective provision of climate finance for adaptation to developing countries from 2019 levels by 2025.
4. Establishment of the Loss and Damage Fund, COP27 (2022): At the COP27, held in Sharm el-Sheikh, Egypt, in 2022, countries agreed to establish a dedicated Loss and Damage Fund to assist vulnerable developing countries in addressing the adverse impacts of climate change. The fund aims to provide financial support for economic and non-economic losses caused by climate-related disasters, such as floods, cyclones, droughts and sea-level rise.
5. Operationalisation of the fund, COP28 (2023): At COP28 (2023) in Dubai, the Loss and Damage Fund was operationalised to provide financial assistance to vulnerable developing countries facing the adverse impacts of climate change.
6. COP29, Baku (2024): The COP29, held in Baku, Azerbaijan, in 2024, made progress towards addressing climate-related Loss and Damage by advancing the operationalisation of the Fund for Responding to Loss and Damage. COP29 also adopted a new climate finance goal of at least US$300 billion annually by 2035 for developing countries, with a broader ambition to scale up finance from all sources to US$1.3 trillion annually.

What are the key challenges associated with Loss and Damage due to climate change?

1. Major financial gap: The funding available through the Loss and Damage Fund is far below the estimated needs of developing countries. The cost of climate-related losses in these countries could reach US$290–580 billion annually by 2030.
2. Disagreement over climate responsibility: Developed and developing countries differ over who should bear the financial burden. Developing countries emphasise historical emissions and the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC).
3. Lack of a universally accepted definition: There is no universally agreed operational definition that clearly distinguishes Loss and Damage from adaptation, disaster relief and humanitarian assistance. This complicates funding eligibility and allocation.
4. Difficulty in measuring losses: Economic losses, such as damage to infrastructure and crops, can be estimated relatively easily. However, quantifying the loss of human lives, biodiversity, cultural heritage and traditional knowledge is much more difficult.
5. Attribution of climate change: It can be difficult to determine how much damage from a particular flood, cyclone or drought is attributable to human-induced climate change rather than natural variability or other factors.
6. Delayed and complicated access to finance: Vulnerable countries often face complex application procedures, accreditation requirements, limited technical capacity and administrative barriers when seeking international climate finance.

What should be done going ahead?

1. Enhance climate finance: Developed countries and other contributors should mobilise adequate, predictable and additional financial resources to address climate-related Loss and Damage in vulnerable developing countries. Greater emphasis should be placed on grants rather than loans to prevent further debt burdens. Moreover, simplifying access to the Loss and Damage Fund, ensuring transparent disbursement and encouraging innovative financing mechanisms are essential to bridge the funding gap and promote climate justice.
2. Strengthen the Loss and Damage Fund: The international community should ensure adequate, predictable and additional financial contributions to the Fund for Responding to Loss and Damage. Simplifying access procedures, prioritising vulnerable developing countries and providing timely, grant-based assistance can help affected communities recover from climate-related disasters without increasing their debt burden.
3. Promote climate justice: The international community should uphold the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC), recognising that developed countries have contributed a larger share of historical greenhouse gas emissions. They should provide adequate, predictable and additional financial and technical support to vulnerable developing countries to address climate-related Loss and Damage, ensuring equitable burden-sharing and protecting the interests of climate-vulnerable communities.
4. Address non-economic losses: Develop comprehensive frameworks to identify and address non-economic losses, such as loss of human lives, biodiversity, cultural heritage, indigenous knowledge and traditional livelihoods. Strengthen community participation, document vulnerable cultural practices and protect ecosystems to preserve cultural identity and ecological integrity, recognising that some irreversible losses cannot be adequately compensated through monetary assistance alone.
5. Improve risk assessment: Strengthen scientific research, climate modelling and early-warning systems to identify climate-vulnerable regions and estimate potential economic and non-economic losses. Developing comprehensive climate-risk databases and improving data-sharing among countries can help policymakers allocate resources effectively, prepare for extreme weather events and ensure timely assistance to affected communities.

Conclusion: Addressing Loss and Damage requires a shift from reactive disaster relief towards a comprehensive framework of climate justice, predictable finance, risk reduction and international solidarity.