Understanding Financing for Loss & Damage Under the UNFCCC

Loss and damage (L&D) generally refers to the economic and non-economic loss or damage associated with slow onset events and extreme weather events caused by climate change, although it is not formally defined under the United Nations Framework Convention on Climate Change (UNFCCC) or Paris Agreement. Vulnerable nations have consistently called for the provision of financial assistance and technical support to help them address L&D since the beginning of international climate negotiations.

This paper provides a brief background and key considerations for understanding finance for L&D under the UNFCCC and Paris Agreement, with a focus on addressing and responding to L&D. It raises the difficulty of defining L&D and types of loss, outlines recent efforts to address L&D finance by UNFCCC Parties, and identifies the financial institutions within the UNFCCC system relevant to the question of how to allocate finance for L&D. It acknowledges the significant gap between the finance needed and the finance available to address L&D and further identifies existing and potential tools and sources for supporting countries facing L&D. Finally, the paper lists other key considerations for Parties as they explore solutions and options.

Key Takeaways:

• Sudden- and slow-onset events exacerbated by climate change cause L&D.
• Climate-vulnerable nations have been vocal about the provision of financial assistance and technical support needed to address L&D.
• The lack of a formal definition for L&D makes it difficult to draw a line between adaptation, resilience, and L&D; to quantify its impacts; to distinguish between financing to address adaptation and financing to address L&D; and for Parties to access L&D-specific finance.
• “Averting and minimizing” focuses largely on preventive and precautionary measures taken before climate impacts occur, such as adaptation and mitigation.
• “Addressing” L&D can be understood as the measures taken after the climate change event(s) occur.
• “Responding” to L&D focuses on both ongoing and ex post action.
• Funding for L&D exists within and outside the UNFCCC, but there is a significant gap between country needs and the finance available to address L&D.
  • Common or more traditional financial solutions include national and international public and private grants and voluntary contributions.
  • Development and humanitarian sources of funding are also relevant sources of finance.
  • One or more of these tools—such as risk insurance facilities, climate risk pooling, contingency funds, and social protection schemes—could be used in tandem.
• The COP27 decision establishes new funding arrangements for L&D that include a fund for responding to—with a focus on addressing—L&D.
  • The agreement includes a political process to identify and expand sources of funding.
  • The funding arrangements and new fund could address gaps in finance for slow onset events and potentially non-economic losses for the first time.
• Parties have called for new, additional, adequate, and predictable sources of funding for addressing and responding to L&D. Efforts to identify and secure these sources will need to be balanced amongst several important considerations.