Loss and Damage Fund for Developing Countries

A new fund will help developing countries compensate for losses and damages from natural disasters caused by climate change.

January 26, 2024
Photo credit: UNDP in Belarus

The summer of 2023 was the hottest summer worldwide on record since 1850. Across the globe the rise in extreme weather events, including hurricanes, storms, floods, and fires, has been a recurring trend, escalating each year. This alarming pattern is primarily attributed to the far-reaching impacts of climate change, affecting every nation indiscriminately. However, the consequences are particularly severe in developing regions, particularly small island states, rendering them exceptionally vulnerable to the destructive aftermath of climate-related disasters. The vulnerabilities of these communities transform routine extreme weather events into full-fledged humanitarian crises.  

The United Nations Office for the Coordination of Humanitarian Affairs reports that in the year 2023, at least 12,000 people died globally because of floods, forest fires, cyclones, storms, and landslides, representing a 30% increase compared to the figures recorded in 2022.

Developing countries are the most vulnerable on the list and bear a disproportionate burden in terms of experiencing the adverse impacts of climate change, including rising sea levels and extreme weather events. According to the Intergovernmental Panel on Climate Change (IPCC), developing countries have 15 times more victims of natural disasters than developed countries. Confronted with the substantial financial burdens associated with post-disaster recovery, many developing countries are seeking more support in overcoming the impacts of climate change.  

According to a report by the United Nations Environment Program, that developing nations will require an annual financial commitment ranging from $215 billion to $387 billion throughout this decade to effectively address and mitigate the impacts of global warming.

At the UN Climate Change Conference 2022 (COP27) in Egypt, an agreement was reached to create a fund that will help low-income developing countries offset the damage from natural disasters caused by climate change. Named the "Loss and Damage Fund," this financial mechanism was designed to provide crucial support to vulnerable nations facing the brunt of climate-related challenges. To facilitate the implementation of the fund and related climate finance mechanisms, a Transitional Committee was formed, comprised of representatives from 24 nations encompassing both developed and developing countries.  

The topic of climate finance for developing countries became one of the priorities on the agenda of the UN Climate Change Conference 2023 (COP28) in Dubai, UAE. During the inaugural plenary session on the conference's first day, the participants made a historic decision to create a dedicated fund aimed at addressing and compensating for the losses and damages incurred due to climate change. 

Negotiators applaud as the loss and damage fund is agreed in Dubai

Photo credit: Kiara Worth/UNFCCC

“Loss and damage” refers to the adverse consequences brought about by climate change, and resulting in a range of impacts, such as loss of human lives, damage to infrastructure and buildings, loss of property and crops, as well as the deterioration of ecosystems. These impacts extend beyond the purely economic realm to encompass a broader spectrum of both economic and non-economic losses.

Financial support will be provided in the form of grants, concessional financing that can be utilized by any eligible country. The World Bank will assume the role of overseeing the fund's overall coordination, ensuring the efficient allocation of resources and aiding nations in their endeavors to recover from the aftermath of natural disasters.  

The establishement of the Fund marks the initial phase in the implementation of financial instruments aimed at addressing consequences and fostering recovery from climate-induced disasters. Discussions and negotiations are currently underway to determine the management structure of the Fund, with active involvement from United Nations Development Program (UNDP) experts.  

UNDP serves as a member of the Technical Support Unit advising the UNFCCC Secretariat and the Transitional Committee on the operationalization of the new funding arrangements for responding to loss and damage. In playing this role, UNDP draws on the experience and insights gained in providing the UN system’s largest portfolio of support to developing countries and communities on climate change. This includes a range of support to address loss and damage related to the impact of adverse events associated with climate change, including, for example, support on climate change adaptation, NDCs, disaster risk reduction, resilience recovery, sustainable resource management, human mobility, and human rights, among other relevant support areas.

Particular attention in the organization of the fund is planned to be paid to gaps in existing mechanisms for financing the response to loss and damage. This also includes financing humanitarian assistance in the immediate aftermath of a disaster, as well as addressing medium – and long-term impacts. Thus, with UNDP support, a detailed assessment of the short- and long-term needs affected countries in the aftermath of disasters and catastrophes has been prepared.

Following the announcement of the fund, several developed countries pledged more than $420 million in voluntary contributions at the Conference. To date, total commitments have already amounted to $661 million. More voluntary financial commitments from individual countries, the private sector and philanthropic organizations are expected to be announced in the future.