What is the climate loss and damage fund and where is the cash?

The United Nations climate change conference agreed this week to start disbursing money from a new fund to support developing nations suffering losses from climate change.

The Fund for Responding to Loss and Damage (FRLD) broadens the world’s response to climate change from its two main pillars of mitigation and adaptation to also pay for the harm vulnerable nations sustain from increasingly frequent cyclones, droughts and other extreme weather events.

Delegates at COP29 in Baku signed off on the FRLD at a ceremony on Tuesday, and officials said it will start paying out in 2025.

But the FRLD is still undercapitalised, with contributions left to the discretion of rich countries.

In Baku, U.N. Secretary General Antonio Guterres called loss and damage financing “a must” but lamented that contributions to the FRLD so far do not “come close to righting the wrong inflicted on the vulnerable.”

Developing nations expect COP29 to expand the size of the FRLD and outline concrete ways they can receive the financing in a timely manner – rather than the drawn-out process required to access most other climate funds.  

Here is what you need to know about the loss and damage financing mechanism.

What is the loss and damage fund?

The FRLD is designed so that wealthier countries that burn more fossil fuels can support poorer nations most impacted by climate change, ranging from the destruction of crops and infrastructure to the loss of life and harm to cultural heritage.

To date, global financing has only targeted two types of climate action: reducing carbon emissions and helping communities adapt to a warmer world.

But global emissions grew by 1.1% last year, compared with a U.N. goal of slashing greenhouse gases by 43% between 2019 and 2030.

Meanwhile, financing for developing countries to adapt to climate change stood at a record $28 billion in 2022. Still, that only amounted to a 5% reduction in the U.N.’s estimate of a finance gap of between $187 billion and $359 billion each year.

The main focus at COP29 is to replace the goal of an annual $100 billion pledge, set in 2009 and expiring this year, by wealthy countries to help developing nations transition to clean energy and adjust to climate change. That target was only fully met once, in 2022.

Climate campaigners are calling for annual pledges to substantially increase, arguing the current figure is far too low to mitigate the worsening impacts of climate change.

They also want the financing to encompass the FRLD to hold rich nations to account.

Since the FRLD was launched at COP28 last year, it has appointed a board and executive director. The World Bank was named the interim trustee, and the Philippines will serve as the host for the board.

How much money is in the fund?

Developed nations have pledged $720 million to the fund, with Sweden becoming the latest to join, promising $19 million, at the climate summit this week.

The United States, the world’s second-biggest emitter of greenhouse gases, has pledged just $17.5 million.

The total amount is far below the financing needs of developing countries, which is about $400 billion, according to a report by Heinrich-Böll-Stiftung and the Loss and Damage Collaboration.

Contributions to the fund are voluntary, with rich countries expected to provide money in the spirit of solidarity.

Instead, experts argue that the fund needs innovative sources, such as a levy on international air travel, a major source of emissions, or redirecting fossil fuel subsidies that could annually yield $210 billion.

How will the fund provide support?

With 3.6 billion people around the world highly vulnerable to climate change, the fund is presently ill-equipped to help families on the frontline of climate change.  

While the number of disaster-related deaths has declined, economic losses have been steadily rising. The period between 2010 and 2019 accounted for a nearly a third of the $4.3 trillion of losses incurred over the past 50 years.

A central demand of developing countries is that the fund provide grants, rather than loans, to avoid adding to the financial distress of disaster-hit nations. 

They have also called for a “rapid response window” to deliver support to people in real-time when a hurricane or flash flood strikes, in addition to longer-term aid for reconstruction, rehabilitation and coping with “slow onset” disasters, like rising sea levels.

Existing climate funds often require long and complex procedures for approval and disbursement.

A Transparency International report earlier this year said it took an average of 389 days for a developing country like Bangladesh to receive support from the Green Climate Fund, the world's biggest climate fund that helps developing countries invest in lowering emissions and coping with climate risks. 

(Reporting by Md. Tahmid Zami; Editing by Amruta Byatnal and Ayla Jean Yackley.)