A Gap Analysis of Finance Flows for Addressing Loss & Damage

Funding for loss and damage (L&D) is available within and outside of the UN Framework Convention on Climate Change (UNFCCC). However, there is a significant gap between the finance available and the finance needed for responding to and addressing L&D. The gap is likely to widen considering future climate scenarios and larger macroeconomic drivers unless the global community comes together to enhance the actions taken to fill this gap, increase current funding streams, and secure new and innovative finance directed toward responding to L&D.

The COVID-19 pandemic has had devastating impacts on development trajectories and projections for increased climate change impacts. Development, particularly in the least developed countries (LDCs), has stalled and poverty has risen for the first time in a generation. These changes place greater burdens on all countries, with acute repercussions for LDCs and those countries that are particularly vulnerable to the adverse effects of climate change. Finance needs are growing rapidly but increases in funding globally are too incremental to close the funding gap. An assessment of finance flows for addressing and responding to L&D must be taken in a broader context of finance for humanitarian assistance, disaster risk reduction, development assistance, achieving the Sustainable Development Goals (SDGs), halting biodiversity loss, mitigation, and adaptation action.

Key Takeaways

• Finance needed for L&D is likely to be considerable: estimates range between U.S. $20–580 billion in 2030 per decade rising to U.S. $1.1–1.7 trillion in 2050 per decade.
• More frequent and intense natural disasters as well as several prolonged conflicts have strained available humanitarian finance.
• Increasing climate change impacts place greater burdens on developing countries, in particular those countries that are least developed and most vulnerable to the adverse effects of climate change. Additional hardships include impacts from the ongoing war in Ukraine; the global economic vulnerability, including risk of recession; and growing debt.
• The greatest gap in funding is for addressing non-economic losses and slow onset events, particularly those leading to internal migration or cross-border displacement, given the need for transformational development in the aftermath of relocation.
• The quality of funding for reconstruction and development in the aftermath of extreme weather events is an issue. MDB funding is heavily loan-based with only 15 percent of finance provided as grants.
• There is little information on the extent of private sector investment in addressing and responding to L&D.
• How the call for international financial system reform, including debt-restructuring and new and innovative sources of finance, is addressed may have positive repercussions for financing for L&D.