Introduction

Climate change is a pressing crisis with far-reaching consequences, including rising sea levels, persistent heatwaves, severe storms, shifting precipitation patterns, wildfires, droughts, and cyclones causing long-term losses and damages^[a] to vulnerable populations worldwide. Further, climate change is expected to stress water and food availability in many developing countries. According to the World Health Organization (WHO), over 3.6 billion people live in areas susceptible to climate change-related damages.^[1] Changes in weather patterns may also increase the spread of vector-borne diseases, stressing health systems. Heatwaves killed an estimated 47,000 people in Europe^[2] and 37,000 in China^[3] in 2023 alone. Extreme weather events damage key infrastructure, incurring recovery costs and long-term opportunity losses. Such events have displaced nearly 23 million people annually between 2010 and 2019.^[4] A study in Bangladesh concluded that individual households could suffer economic losses and damages up to US$419 per household.^[5]

Unfortunately, the burden of these impacts falls disproportionately on developing and low-income nations. Small Island Developing States (SIDS) and many developing economies in Africa and Asia are more prone to climate disasters despite contributing far less to global emissions than developed nations in the West.

Figures 1 and 2 reveal the segregation of economies based on climate vulnerability scores and income groups.

Figure 1: Climate Vulnerability Scores by Income Group

Source: ND Gain Index^[6]

Figure 2: Greenhouse Gas Emissions by Income Group

Source: EDGAR^[7]

The data shows that the bulk of the global climate vulnerability is borne by lower- and lower-middle-income nations (with a larger blue area in Figure 1), while upper- and upper-middle-income nations contribute the majority of greenhouse gas emissions (with a larger orange area in Figure 2). This imbalance has resulted in long-term or even permanent losses and damages for vulnerable populations. Scientific literature provides ample evidence of such impacts due to global warming and climate change,^[8],[9] including land losses from sea-level rise in the Mexican delta^[10] and the Bay of Bengal^[11] and extreme weather events causing permanent losses and damages in human lives, livelihoods, and ocean ecosystems (e.g., coral reefs). These examples underscore the interconnectedness between climate change^[12] and loss and damage.

While efforts to combat climate change through mitigation (such as energy transition and nature-based carbon sequestration)^[13] and adaptation (like climate-resilient infrastructure and adaptive agriculture)^[14] continue, economies globally, especially in the climatically vulnerable Global South, suffer unavoidable and irreversible losses and damages  due to global warming. Figures 1 and 2 suggest that lower- and lower-middle-income economies are victims of unbridled emissions from the developed world, facing irreversible or ‘permanent’ losses and damages.^[15]

From the perspectives of climate justice and global equity, this imbalance is unfair. Climate justice acknowledges that low-income and vulnerable communities, which have historically contributed the least to climate change, bear its most adverse effects, particularly in the context of L&D. Thus, building climate justice and global climate equity requires solutions that address the wide spectrum of social, cultural, and environmental inequities. It is imperative to ensure that affected communities receive due compensation for the losses and damages inflicted by the disproportionate, human-induced climate impacts originating primarily from the Global North. This necessitated the development of the Loss and Damage Fund.

A Brief History of the L&D Fund

Advocacy for an L&D Fund started in the early 1990s, when the Alliance of Small Island States (AOSIS)^[b] proposed to the United Nations Framework Convention on Climate Change (UNFCCC) to create a fund and insurance pool to support small island nations and low-income countries in combating the adverse effects of climate change. These include permanent land loss due to coastal erosion, salinity ingression leading to long-term changes in agricultural cropping patterns, and losses in other provisioning services of the ecosystem like drinking water.^[16] The proposal called for mandatory contribution from developed countries, whose actions were and continue to be the largest contributors of the climate catastrophe. The fund was thus conceived as a compensation mechanism based on the Polluter Pays Principle.^[c]

The fund remained unimplemented for over two decades as climate debates centred on mitigation, with the UNFCCC focusing on strategies to reduce climate risks and carbon emissions. In 2013, the UNFCCC announced the establishment of the Warsaw International Mechanism (WIM), intended “to address loss and damage associated with impacts of climate change, including extreme events and slow onset events, in developing countries that are particularly vulnerable to the adverse effects of climate change.”^[17]

The WIM’s efforts, however, focused on risk management through strategies like risk retention, risk reduction, and adaptation—an approach that is fundamentally flawed in addressing L&D. By definition, L&D includes damages that occur despite adaptation and mitigation efforts and are irreversible. While mitigation attempts to reduce greenhouse gas emissions and adaptation aims to manage adverse climate impacts (e.g., constructing embankments to prevent flooding), L&D occurs when these measures fail to protect communities and their socio-ecological systems^[d] from the inevitable and irreversible consequences of the climate crisis.

The next milestone for L&D occurred in 2016 when it was included in Article 8 of the Paris Agreement,^[18] which urged countries to recognise the “importance of averting, minimising, and addressing loss and damage”.^[19] Although it encouraged cooperation on issues such as non-economic losses and risk insurance facilities, its overall approach was no better than the WIM, prioritising risk management as the primary solution to L&D. Article 8 also highlighted that it “does not provide any basis for liability or compensation.”

The watershed moment for L&D came with COP27 in 2022, which witnessed the establishment of the L&D Fund after years of relentless advocacy by developing and less-developed nations impacted by global warming and climate change. The COP and the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA), through decisions 2/CP.27 and 2/CMA.4, agreed to establish a dedicated fund to address both the economic and non-economic impacts of climate change.^[20] This included responding to challenges arising from extreme weather events and gradual onset events, with a focus on assisting the most affected developing nations. A Transitional Committee comprising 24 members from various geographies to oversee the fund’s operations was also established at COP27. The agreement to operationalise and capitalise the fund and finalise funding arrangements was passed on the first day of COP28 in  2023.^[21]

At their 28^th and fifth sessions, respectively, the COP28 and the CMA in 2023 formalised the Fund for Responding to Loss and Damage (FRLD) as the main body managing the financial mechanism of the Convention while also serving the Paris Agreement’s objectives. During COP29 in Baku in 2024, the decision to operationalise the fund from 1 January 2025 was taken.^[22] The fund aims to “avert, minimise, and address” L&D associated with adverse effects of climate change. Twenty-four developed countries have pledged nearly US$800 million,^[23] though this initial amount falls far short of the financial resources needed to adequately tackle the scale of L&D experienced by vulnerable nations. The fund’s board has chosen the World Bank as its trustee and financial mediator, with the Philippines chosen as the host country.^[24]

The Current Lacunae in the L&D Fund

Despite being the result of a long and relentless advocacy for climate justice, the present situation with the fund is not free from lacunae. Many unaddressed concerns and questions could impair the operational efficiency of the fund. A primary issue is the ‘voluntary’ nature of funding,^[25] which deliberately avoids terms like ‘compensation’ and ‘liability’. This approach undermines the essence of addressing L&D and the very principle of the violator paying the victims.

Furthermore, L&D has been misunderstood and conflated with the adaptation in both mainstream media and global forums. However, L&D inherently addresses the impacts of climate change that cannot be adapted to or mitigated, ensuring that climate-vulnerable countries have resources to rebuild after inevitable damages. This, at its core, is compensation. Notably, this principle does not apply to all forms of L&D. There might be instances of permanent losses in ecosystems (at various scales) or cultural practices that may not be revived at all. Non-economic L&D also presents valuation problems, especially in the valuation of permanent losses in qualitative attributes like cultural, religious, and spiritual elements. This is explained later in the paper. At the same time, the framework lacks clarity. It does not provide a comprehensive definition of what constitutes “loss and damage” nor methodologies for valuing damages and equitable mechanisms for fund distribution. Although existing scientific definitions endorsed by the UNFCCC may guide fund operations, this assumption is yet to be made clear. Ambiguities in eligibility criteria further hinder the mechanism’s potential to effectively address the needs of those suffering the worst impacts of the climate crisis.

This paper identifies four unresolved concerns: (a) definitional issues, (b) attribution challenges, (c) valuation problems, and (d) financing avenues. It also offers suggestions to take the discourse forward.

Definitional Issues

The notion of L&D in the context of climate change presents a complex and multifaceted challenge due to the absence of a universally accepted definition. Despite various attempts to conceptualise L&D, divergent perspectives persist. At its core, L&D encompasses both tangible economic losses and intangible non-economic damages resulting from climate-related events, such as extreme weather phenomena and slow-onset events. Boyd and co-authors^[26] have discussed perspectives ranging from adaptation and mitigation to existential concerns, focusing on addressing harm to vulnerable countries. The UNFCCC is yet to clarify its stance on these perspectives. The Sharm El-Sheikh Implementation Plan discusses the economic and non-economic losses of L&D, including forced displacement and impacts on cultural heritage, human mobility, and the lives and livelihoods of local communities. However, the lack of specificity in existing definitions hinders both the development of targeted policy responses and effective resource allocation.

Within the UNFCCC framework, L&D is recognised as a critical issue requiring global attention. The UNFCCC acknowledges that loss encompasses a wide array of impacts, including the loss of lives, livelihoods, and ecosystem services, particularly in climatically vulnerable regions such as SIDS and Least Developed Countries (LDCs) or in other parts of the developing and underdeveloped world.^[27] Damages, meanwhile,  are classified as losses affecting infrastructure and property that impair a country’s economic, environmental, and social state. Economic losses and damages, such as the destruction of homes, schools, and roads by natural disasters, are monetarily quantifiable. In contrast, non-economic losses like culture remain unquantifiable.^[28] Despite these acknowledgements, the absence of a clear and comprehensive definition of L&D creates ambiguity and leaves room for interpretation.

International institutions such as the WIM and the wider community have often defined L&D within the broader context of climate adaptation and knowledge gathering rather than raising or operationalising a financing mechanism, causing further confusion.^[29] While adaptation focuses on building resilience and reducing vulnerability to climate impacts, L&D addresses the residual impacts that cannot be mitigated or adapted to, often resulting in irreversible harm.^[30] The Intergovernmental Panel on Climate Change (IPCC) warns that anthropogenic climate change has initiated “irreversible impacts” impervious to adaptation and mitigation efforts.^[31] Therefore, any incremental increase in L&D can further undermine adaptation efforts, creating a compounding effect on vulnerability.

Decision 1 of COP28 regarding the L&D fund acknowledges that climate change has caused and will increasingly cause losses and damages, particularly affecting large parts of the developing and underdeveloped world.^[32] It also acknowledges the significance of non-economic losses and damages associated with climate change. However, the fund’s scope remains limited, focusing primarily on displacement, reconstruction, and recovery. To summarise, existing definitions of L&D are overarching and broad, and the UNFCCC has yet to come up with a universally accepted definition. Until this is achieved, challenges related to financing will persist.

Problems of Attribution

The problem of attribution in L&D arises from two sources. The first concerns identifying which aspects of L&D can be attributed to climate change. The second, more contentious issue pertains to determining responsibility for L&D, raising the fundamental question: Who pays? During COP27, the European Union agreed to the establishment of the L&D Fund but proposed that only “major economies”, as tagged by the UNFCCC, should contribute. This proposition underscores a critical challenge: nations like China, notorious for their massive greenhouse gas contributions but still tagged as ‘developing’ under UNFCCC rules, blur the lines. It is a conundrum that begs the question: How do we define a donor country in a warming world?

The first issue of attribution poses a bigger problem due to the paucity of knowledge in the domain of attribution science. Since 2015, the world has experienced over 350 natural disasters per year, causing economic damages worth 0.3 percent of the global Gross Domestic Product (GDP), valued at around US$250 billion annually.^[33] The incidence of disasters has exhibited an upward trajectory (see Figure 1), a trend likely to exacerbate as decades of fossil fuel combustion continue to accelerate glacier melting and intensify the adverse impacts of climate change on humanity. The L&D fund has received only US$759 million in pledges so far^[34]—an insufficient amount with no guarantees of future contributions. It is crucial, therefore, to discuss how this limited funding will be utilised. Questions naturally arise about whether the funds will be directed towards averting, minimising, and addressing anthropogenic climate change-related disasters and slow-onset events in beneficiary countries or if they will be allocated for managing other calamities as well.

It is important to categorise naturally occurring disasters and those caused by anthropogenic climate change to ensure that the limited L&D funding is used effectively and strategically. For example, the Indian Sundarbans in the Ganges-Brahmaputra-Meghna delta are shrinking not only due to sea-level rise but also due to a decline in sediment flows from the mainstream Ganges to its distributaries. The decline in sediment flow is due to the construction of a barrage on the Ganges at Farakka, West Bengal,^[35] which traps sediment upstream. Therefore, attributing the shrinkage of the Sundarbans entirely to sea-level rise in the Bay of Bengal would be inaccurate.

On the other hand, the extreme heatwaves that hit the Sahel region in West Africa in April 2024, can be directly attributed to anthropogenic climate change. During this period, temperatures soared to 45 degrees Celsius for five days in Mali and Burkina Faso. While the actual death toll remains unknown, one hospital in Mali alone reported 102 deaths within those five days of extreme heat.^[36] The heatwaves have led to L&D in the local communities, which can be attributed to anthropogenic climate change. The extreme five-day event in Mali and Faso would have been 1.5 degrees Celsius cooler if not for human-induced climate change.^[37]

It is crucial to assist countries during natural disasters, though not all are linked to global climate change. Funding should come from sources such as international financing institutions, multilateral funds, humanitarian aid, and regional governments. The L&D Fund should primarily address issues related to anthropogenic climate change and slow-onset events. While the fund aims to prevent an over-concentration of resources in a particular country or region, it does not specify funding allocation based on the type of disaster.

It is important to discuss attribution science and its involvement in L&D policy. While attribution helps understand the cause-and-effect relationship in climate change, policymakers’ awareness of it remains limited.^[38] Moreover, it has become a controversial issue^[39] in the political context due to the uneven understanding of L&D by different stakeholders. While some see it as being conceptually closer to adaptation and mitigation, focusing on risk-reduction measures, others view it as an existential issue, where damage has already occurred and will occur due to anthropogenic climate change.

Attributing L&D from disasters to anthropogenic climate change is a complex process. A place to start is greenhouse gas emissions, though they cannot be directly linked to natural disasters. Suggestions include examining the effects of greenhouse gases on global warming and other climate variables, such as heatwaves, and how they intertwine with natural climate variability to cause disasters and weather events.^[40] The complexity of the science lies in isolating the effect of human-induced greenhouse gases from the natural climate variability on such events.

According to the UNFCCC, L&D encompasses natural weather hazards and slow-onset events, which can be even more complex to attribute to a single cause. Hence, it is imperative to design an attribution mechanism capable of isolating anthropogenic climate change. Establishing a dedicated department for post-disaster attribution within the Board would streamline the process. Transparency is paramount in this process; making the data and the mechanism publicly accessible ensures transparency, minimises bias and error, and enables scrutiny and refinement by the scientific community.

The Problem of Valuation: The Worth of Loss and Damage

The problem of the valuation of L&D has hardly been discussed in academic and policy circles. Therefore, a key question arises: if “loss and damage” financing is a compensation mechanism, what normative principles should underpin this financing? The UNFCCC document “Operationalization of the New Funding Arrangements, including a Fund, for Responding to Loss and Damage”^[41] outlines directives for funding allocation, emphasising the need to consider “the priorities and needs of the developing countries” and “the scale of impacts of climate-related events.”^[42] However, it does little to create a valuation mechanism for damages. The necessary condition to allocate funds is to know the worth of damages.

A report by Lowy Institute titled “A Climate Loss and Damage Fund That Works”  outlines the criteria for funding allocation and the weight of each criterion in fund distribution.^[43] The report argues that the fund should consider climate vulnerability, greenhouse gas emissions, and their impact on GDP, giving high weight to emissions and GDP. These criteria represent ex-ante loss and damage and place nominal emphasis on ex-post damages.^[e] They also fail to include non-economic damages while allocating resources.

Under L&D, both economic and non-economic attributes must be considered. Economic damage refers to losses that can be quantified in monetary terms, e.g., loss of infrastructure and rebuilding costs. On the other hand, it is difficult to assign a direct monetary value to non-economic losses, such as loss of life, environmental and ecosystem damage, cultural loss, and biodiversity.

The UNFCCC document includes a directive addressing economic damages regarding the estimation of recovery and reconstruction costs: “The Fund will provide support for responding to economic and non-economic loss and damage associated with the adverse effects of climate change. This support may include funding that is complementary to humanitarian actions taken immediately after an extreme weather event; funding for intermediate or long-term recovery, reconstruction or rehabilitation; and funding for actions that address slow-onset events.”^[44]

While this provides broad directions for the funding mechanism, it avoids addressing the scope of damages and how to evaluate them. The recovery and rebuilding costs raise several questions: Should they include only the cost of materials and labour or also account for the present value of infrastructure, considering the losses incurred over time due to damage? Even if the latter is considered, there is no discussion of opportunity loss. When critical infrastructure, such as a bridge, a school, or a hospital, is damaged, the loss extends beyond mere property loss—it disrupts vital services. For example, the reconstruction of a healthcare facility means reduced medical services for the community, while rebuilding a school disrupts education. Destruction of hotels and infrastructure may severely impact the tourism industry. Opportunity costs associated with the loss of livelihood-sustaining infrastructure are borne by the affected community. Similarly, the loss of an important bridge or embankment may have long-term impacts on economic activity. This leads to a loss in productivity and income, exacerbating negative impacts on the affected communities.

Valuing Non-Economic Losses: Existing Gaps and Some Suggestions

While the objective of the fund is to address both economic and non-economic damages due to the adverse effects of climate change, the directives fail to mention or specify any non-economic losses or offer solutions for them. Nonetheless, non-economic damages are an essential loss incurred by vulnerable communities due to climate-change-related catastrophes.

One such non-economic damage is biodiversity loss, which can be estimated through the valuation of ecosystem services (services provided by the natural ecosystem through its organic function). Climate change leads to losses in ecosystem services, especially provisioning services that sustain livelihoods. Research has introduced the ecosystem dependency ratio, which is the ratio of the values of the ecosystem services and the incomes of the community,^[45] showing that this measure is greater than one in many poverty-stricken regions.^[46] So, when climate change damages ecosystem structure and function, resulting in the loss of these services, poor communities suffer substantially from such irreversible losses. It may take years to create an alternative system or ecosystem that can provide the community with the same benefits. Hence, future decades of losses should be compensated by considering the Present Discounted Value (PDV)^[f] criterion.

In other words, if a livelihood-enabling infrastructure is lost and it takes 10 years to revive, the loss needs to be expressed in terms of the PDV of the flow of the benefit or income loss for the next 10 years, using an appropriate rate. Similarly, when ecosystems are lost that may take 20-50 years to regenerate, the community should be compensated based on the PDV of the ecosystem service losses during that period.

The PDV formula is represented as:

PV_m = Present Discounted Value in year m

Bt = benefit obtained in year t

r = rate of discount

m = the present year

N = the terminal year

Equation (1) should set the principle to estimate the mode of compensation for both economic and non-economic losses. Its application will vary based on the timeframe in consideration, i.e., N–m, depending on the nature of loss and damage and the expected time for the community to recuperate from the L&D.

There may also be ethical considerations with loss of human life and permanent disability. Even then, some compensation mechanisms can be prepared without value-judgmental orientations. Present Value of Human Life (PVHL) considers life expectancy for different gender and age groups, the percentage of people in the labour force or keeping house, the current pattern of earnings at successive ages, an imputed value of household production, and the discount rate. The following formula is a modified version from Max et al. (2004):

where

PVHL_y = Present Discounted Value of Human Life in terms of lifetime earnings for a person of age y

n = variable denoting age

 = probability that a person of age y will survive to age n

x = age of premature death of a person

Z = life expectancy of an individual (assumed to be the maximum age one lives)

Y(n) = mean annual earnings of an employed person of age n

E (n) = proportion of the population of gender g and age n that are employed in the labour market

p = rate of increase of labour productivity

s = real discount rate

The implicit assumption in equation (2) is that labour productivity and wages are independent of gender. Though the reality is different, this assumption has been made due to the unavailability of data on the gender of the casualties. The purpose of including equation (2) is to provide a quantitative basis for estimating something that has largely been considered non-quantifiable from a moral-ethical perspective. Yet, from a compensation perspective, a conservative estimate remains very important. Therefore, both equations (1) and (2) can help set principles for compensation, though much work remains to be done in this domain.

Other Non-Marketed, Non-Economic Losses 

Other forms of non-economic losses can include losses in cultural heritage, psychological distress, and socio-economic implications.

Losses in Cultural Heritage: Climate-change-induced hazards can destroy important religious and cultural sites, leading to the loss of cultural heritage. Rising sea levels endanger coastal indigenous settlements, making them disproportionately vulnerable to climate change and ill-equipped to adapt. It can lead to the loss of indigenous knowledge systems, undermining cultural identity and collective memory. Slow-onset events can further disrupt both livelihoods and traditional practices^[47] within these communities. 

Psychological Distress and Socio-Economic Implications: Climate-change-induced disasters and environmental degradation engender profound psychological impacts, including anxiety, depression, and post-traumatic stress disorder.^[48] The loss of homes, livelihoods, and natural landscapes disrupts social networks and community cohesion, exacerbating feelings of isolation and helplessness.^[49] These psychological impacts not only impair individual well-being but also challenge mental health systems and hinder community resilience.^[50]

Valuing these types of losses and damages, even approximately, is indeed challenging. In certain cases, a negotiation process is required to agree on a monetary value. Recent literature on ecosystem service valuation offers methods for assessing the cultural services of the ecosystem. Benefit transfer methods, based on existing studies on valuing cultural heritage, could be applied in such circumstances. On the other hand, economic valuation methods, such as productivity approaches, may help partially. But these can only offer conservative baseline values on the basis of which negotiations can take place.

Setting the Principles

Without a comprehensive assessment of non-economic losses, the fund does not adequately address the multifaceted impacts of climate change. While not all non-economic damages can be assigned a monetary value, some can be partially estimated and included in the disbursements to vulnerable nations and communities. Hence, we propose the following principles to establish a comprehensive framework for valuing L&D:

 Top of Form

• L&D should be based on the PDV criterion, with the choice of an appropriate discount rate and planning horizon.
• L&D should account for losses in private property.
• L&D should account for losses in public infrastructure and other public goods.
• L&D should account for losses in ecosystem services across all four forms: provisioning, regulating, cultural, and supporting.
• L&D should account for losses in human productivity and contribution to the macroeconomy, including human life loss and permanent disability.
• Non-monetised aspects like cultural, spiritual, religious, and psychological nuances should be impacted through a negotiation process.

Permanent loss and damage impacts all four forms of capital that contribute to the “inclusive wealth” of nations: human capital, natural capital, physical or manufactured capital, and social capital. Losses in all these four forms of capital undermine the adaptive capacity of an economy to withstand systemic shocks, whether climatic or financial.

Financing Avenues and Instruments

The already unattainable goal of US$100 billion in annual funding for climate change has now increased to US$300 billion. The New Collective Quantified Goal (NCQG) is US$1.3 trillion annually by 2035, with at least US$300 billion of that amount specifically allocated for climate change each year.^[51] The 2024 UNEP Adaptation Gap Report presents a sobering reality: the financial needs for climate adaptation in developing countries far outweigh available funding from all sources, including governments, businesses, non-governmental organisations, philanthropy, and multilateral and development financial institutions.^[52] The gap between required and available funding is widening dramatically, with an estimated 10- to 18-fold difference. Developing countries alone need US$215 billion annually for climate adaptation this decade.^[53] However, the financial injections required to implement domestic adaptation blueprints are even higher, reaching US$387 billion yearly.^[54] Despite the urgent call for action, public multilateral and bilateral adaptation finance to the Global South saw a concerning 15 percent dip in 2021.^[55] As such, loss and damage financing needs to be closely linked with adaptation and mitigation financing.

The IPCC^[56] has pointed out that, despite robust adaptation and mitigation measures, the inevitable consequences of climate change in terms of loss and damage will persist. Therefore, the importance of L&D financing cannot be overstated. In this context, a pledge of US$741 million (as of 23 January 2025)^[57] seems too small an allocation for L&D, and the need for raising finance only seems to be increasing. The staggering amounts underscore the rising financial needs to combat climate change, emphasising the urgency for global cooperation and innovative funding solutions to address this pressing challenge.

While voluntary contributions from developed countries may help pool funds for L&D through Overseas Development Assistance (ODA) or otherwise, they will not be sufficient to address the scale of the issue. It is crucial to ensure a diverse range of funding sources. The involvement of the private sector in L&D can prove vital in terms of funding avenues. Climate change is not only the responsibility of developed-world governments but also of multinational corporations. Innovative financial instruments, such as L&D bonds and insurance schemes, offer alternative pathways to expand funding for L&D. Similar to green bonds, L&D bonds allow investors to finance projects and initiatives aimed at enhancing climate resilience, disaster preparedness, and recovery efforts in affected regions.^[58] These bonds can be issued by governments, international organisations, or development banks, with proceeds allocated to L&D initiatives, such as infrastructure upgrades, ecosystem restoration, and social protection programs. Additionally, insurance mechanisms, such as parametric insurance and catastrophe bonds provide financial protection against climate-related risks, enabling timely recovery and reconstruction efforts following extreme weather events.^[59]

If G20 governments pass Acts for profit-making corporations to direct 50 percent (or any specific number) of their Corporate Social Responsibility (CSR) fund to L&D and adaptation efforts, it would bolster climate finance in essential yet underfunded areas. The role of philanthropy and the mobilisation of global wealth should not be forgotten in this context. According to the Global Wealth Report 2023, the world’s total net private wealth stood at a gargantuan US$454.4 trillion by the end of 2022^[60] and is projected to increase by 38 percent, reaching US$629 trillion by 2027.^[61] Given this, apportioning and mobilising even less than 1 percent of this global wealth could bridge the annual Sustainable Development Goals (SDG) financing gap (that is US$4.5 trillion annually as of 2023) till 2030.^[62] Climate financing, including L&D, could similarly be supported from this financing source, as climate action is integral to SDG 13. The role of philanthropy emerges here: mobilising components of global wealth to meet unmet developmental finance goals. This specific type of financing can be utilised to bridge the current shortcomings in climate finance organisations, such as the Green Climate Fund.

This idea can be taken further by incorporating liability and compensation elements, where regional groups require Multinational Corporations (MNCs) to contribute a percentage of their profits annually to the L&D fund as accountability for their role in worsening the climate challenges. This contribution will be separate from the CSR component. This can be a small amount in the beginning proportional to the size of the company, which can be later increased. Governments and international organisations would need to establish clear criteria for determining contribution levels and mechanisms for monitoring and enforcing compliance.

Conclusion

Loss and damage poses a critical challenge in the context of escalating climate change impacts. Addressing this issue requires not only efforts to avert and minimise harm but also a perspective rooted in redistributive climate justice. Climate change has already caused, and will continue to cause, disproportionately severe impacts on vulnerable developing nations. This paper attempted to raise a few questions that remain unattended in the context of L&D financing. It underscores the need for a more in-depth exploration of facts, figures, and models to develop mathematical formulas and establish the normative standards for financing L&D.

Therefore, the FRLD must adopt a clear and comprehensive framework delineating the bounds of loss and damage. Treating L&D merely as an extension of adaptation efforts is a flawed approach. Instead, the mechanism must embrace ex-post compensation strategies to fully account for the diverse impacts experienced by vulnerable communities, encompassing both economic and non-economic losses. This shift is crucial to ensure the fund effectively addresses the realities of those most affected by the climate crisis.

The existing knowledge gaps in attribution science and valuation need to be bridged to prevent deserving cases from being overlooked and avoid wrong compensation numbers. Further, financing is crucial and needs to be substantially increased.

Endnotes

• Climate Change
• India
• 2024 un climate change conference
• climate change in developing countries
• cop29
• cop29 summit
• impact of climate change on developing countries
• l & d fund
• loss and damage fund cop29
• loss and damage fund financing
• loss and damage fund for developing countries
• small island developing states
• unfccc cop 29
• unfccc framework
• united nations framework convention on climate change

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