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Climate Finance: ‘Loss and damage’ fund

GS Paper 3

 Syllabus: Environment Conservation


Source: TH

 Context: In the face of the intensifying climate crisis, the focus has shifted towards the prominence of adaptation” and “loss and damage” (L&D) in the climate crisis. Despite acceptance at COP 27, efforts to operationalize the L&D fund have faced significant challenges.


What is Climate finance?

It refers to financing, from public, private, and alternative sources, that seeks to support mitigation and adaptation actions to address climate change. Mitigation tackles the causes of climate change, whereas adaptation tackles the effects of climate change. E.g., Constructing elevated homes in flood-prone areas to mitigate the impact of rising sea levels.

Adaptation finance continues to lag (compared to mitigation), with 98% coming from the public sector

For the 2023 Adaptation Gap Report: Click Here

What is a “loss and damage” (L&D) fund?

 The “Loss and Damage” (L&D) fund is meant for the irreversible consequences of climate change that cannot be avoided or mitigated through adaptation efforts.


Origin of L&D fund:

Historic Pollution AccountabilityFor over 30 years, there has been a call for affluent nations to acknowledge their historical pollution accountability.
COP 19 Agreement (2013)At COP 19 in Warsaw, Poland, in 2013, member countries formalized the creation of the L&D fund. It aimed to provide financial and technical support to economically developing nations grappling with L&D due to climate change.
Subsequent DevelopmentsCOP 25 introduced the Santiago Network for L&D, and COP 26 established the Glasgow Dialogue on finance for L&D. COP 27 in November 2022 saw the creation of the L&D fund and a Transitional Committee (TC) tasked with operationalizing the fund.


Challenges in Creating the L&D Fund

  • Contentious Issues: Transitional Committee (TC) meetings faced challenges over hosting at the World Bank, CBDR principle, climate reparations, and eligibility for developing nations. No consensus on operationalizing the L&D fund, reflecting divisions
  • Developed vs. Developing Nations: Disagreements deepened the divide, hindering progress. Outcome of TC4 and TC5 Meetings
  • Lack of Clarity: There is a lack of clarity on specifics on the fund size of the L&D fund due to pressure from certain developed nations.



Impact of the non-operationalization of the L&D fund:

Impact AreasConsequences
Humanitarian ConsequencesPotential for crises, food shortages, displacement, conflict, and increased suffering.
Economic and Environmental ImpactRisks financial crises, environmental degradation, and global economic instability.
Security ImplicationsClimate-induced instability may lead to security concerns, with conflicts spilling across borders.
Erosion of TrustIt will further aggravate the trust deficit between affluent and emerging economies, widening global divisions.
Undermines global climate negotiations, cooperation, and climate justice.


Way forward:

  • Countries should maintain momentum after incremental gains at COPs, ensuring credibility and meaningful progress.
  • Sustaining political commitment to new finance, targeted emission reduction, and improved vulnerability reduction are crucial.
  • Lessons from recent experiences, especially with the Green Climate Fund, should guide ongoing efforts.
  • The imperative to strike a balance between adaptation and addressing Loss and Damage remains crucial.


Recent Other efforts to boost climate finance:



The prolonged deadlock over the Loss and Damage fund highlights a concerning lack of consensus and trust among nations, posing challenges to climate justice and collaborative efforts.


Other Global Climate Finance Mechanism:

Global Environment Facility (GEF)Established in the 1992 Rio Earth Summit, the GEF is a unique partnership of 18 agencies working with 183 countries to address the world’s most challenging environmental issues.
Adaptation FundEstablished in 2001, the Adaptation Fund finances concrete adaptation projects and programs in developing countries that are Parties to the Kyoto Protocol.
Special Climate Change Fund (SCCF)Established in 2001, the SCCF finances projects related to adaptation, technology transfer, capacity building, energy, transport, etc.
Least Developed Countries Fund (LDCF)Established to support a work program assisting Least Developed Country Parties in preparing and implementing national adaptation programs of action (NAPAs).
Green Climate Fund (GCF)Established under the Cancún Agreements in 2010, the GCF is mandated to support developing countries in raising and realizing their Nationally Determined Contributions (NDC) ambitions.


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Mains Links:

Discuss global warming and mention its effects on the global climate. Explain the control measures to bring down the level of greenhouse gasses which cause global warming, in the light of the Kyoto Protocol, 1997. (UPSC 2022)