Introduction and Context

The Earth’s climate is becoming increasingly more unpredictable due to climate change. As more severe and frequent disasters and increased heat and sea level rise continue, adverse effects on humans, biodiversity and the built landscape get harder to avoid. Loss and Damage (L&D) incurred due to climate change impacts is closely related to countries’ past development choices and policies, including its adaptation efforts which can dramatically reduce both economic and non-economic L&D. However, even when efforts to reduce vulnerability, enhance resilience and increase adaptive capacity are successfully undertaken, these actions are increasingly becoming insufficient.

When natural or man-made systems are meeting soft or hard adaptation limits it leads to economic and non-economic L&D.

IPCC (2022). Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Available at: https://www.ipcc.ch/report/ar6/wg2/  

In short, L&D can derive from sudden-onset and slow-onset events. The former includes forest fires, heat waves, heavy rainfall, flooding, cyclones and hurricanes. The latter includes sea level rise, ocean acidification, glacial retreat, temperature rise, desertification, biodiversity loss, land degradation and salinization. For both slow- and sudden-onset events, the losses and damages can be categorized as economic and non-economic. Economic losses can be quantifiable losses of property, assets, infrastructure, agricultural production/revenue, goods and services. Non-economic losses include impacts that are not easily quantifiable in economic terms, such as impacts/loss of life, health, biodiversity, ecosystem services, Indigenous knowledge, cultural heritage, and societal/cultural identity.

Parties differentiate between averting, minimizing and addressing L&D.

The Paris Agreement, article 8

Averting and minimizing focuses to a great degree on preventive and precautionary measures prior to the climate change effects, and overlaps to a great degree with adaptation measures. However, responding or addressing is often understood as measures taken after the climate change event(s) has happened, i.e., ex post. These measures can also be seen as overlapping with post-adaptation measures.

For an in-depth definition of L&D including ‘addressing’ L&D, please see: Wenger, C., et al (2023). A Gap Analysis of Financial Flows for Addressing Loss and Damage – Technical Paper. Center for Climate and Energy Solutions (C2ES). Available at:  https://www.c2es.org/wp-content/uploads/2023/06/LD-Funding-Arrangements-Gap-Analysis.pdf

Sometimes, the actions to address L&D will need to be taken in the context of ongoing climate change, such as sea level rise. The distinction is therefore not clear cut.

L&D is unequally distributed, affecting the most vulnerable and least developed countries the worst, many of which have miniscule emissions and have contributed the least to climate change globally. This puts already strained developing countries’ economies worse off and has led the global community to come together under the UN climate negotiations to support these developing countries financially.

Wenger, C. et al (2023). Understanding Finance for Loss and Damage Under the UNFCCC – Technical Paper. Center for Climate and Energy Solutions. Available at: https://www.c2es.org/wp-content/uploads/2023/06/Understanding-finance-for-LD_FINAL.pdf

The urgent need to enhance efforts to avert, minimize and address loss and damage associated with the adverse effects of climate change has been iterated by the Intergovernmental Panel on Climate Change (IPCC).

There are many stakeholders at all levels involved in activities to avert, minimize and address loss and damage. In financing these actions, there are overlaps with finance for humanitarian assistance, international development assistance, disaster risk reduction, migration and displacement, the adaptation policy cycle, biodiversity and so on. However, there are also gaps within the current funding arrangements in which loss and damage is not comprehensively addressed, as has been highlighted in the dialogue under the Transitional Committee.

The discussions on L&D have been with the Parties since the drafting of the UN Framework Convention on Climate Change (UNFCCC). The call for addressing L&D was first brought forward by the Association of Small Island States. Since then, steps have been taken to strengthen the global response to avert, minimize and address L&D, culminating in a breakthrough decision on financing for L&D at COP27 last year.

Decision -/CP.27 –/CMA.4. Funding arrangements for responding to loss and damage associated with the adverse effects of climate change, including a focus on addressing loss and damage. Available at: https://unfccc.int/documents/624440

In Sharm-el Sheikh, the discussions on L&D resulted in a decision to establish new funding arrangements responding to L&D, including a fund with focus on addressing L&D for developing countries that are particularly vulnerable to the adverse effects of climate change.

Please note that it is not certain what the name of a fund for L&D will be. For the sake of simplicity, this paper refers to it as ‘the L&D fund’.

The funding arrangements and the fund should be operationalized at COP28 in Dubai in December 2023. A Transitional Committee has been established to put forward recommendations on how to operationalize the funding arrangements and the fund, with meetings and workshops held throughout the year. In addition, the parallel process under the Glasgow Dialogue gives the Parties and non-Party stakeholders additional space to discuss financing for L&D.

Parties have agreed that finance for addressing L&D is insufficient, and public sources of funding are falling short of what is needed. Simultaneously, the covid-19 crisis, more prolonged conflicts, as well as the ongoing invasion of Ukraine by Russia have affected global progress and stability and led to a setback in achieving the sustainable development goals, highlighting the need for increased finance. Further, risks connected with levels of unsustainable debt together with the deepening climate crisis affect the most vulnerable and poorest countries and communities disproportionately.

In this context, the decision on financing for L&D necessitates a deeper dialogue on how to ensure new, additional, predictable and adequate finance for responding to and addressing L&D.

The report/study aims at assessing potential sources that can enhance finance for L&D through the funding arrangements and for the L&D fund.

Please note that the name of the fund is not decided. For the sake of simplicity, the Report uses the term ‘L&D fund’ when referring to the fund established in the context of the funding arrangements for L&D under the UNFCCC and the Paris Agreement.

More information on the Project and methodology for the Report, please see Annex I.