Loss and Damage Fund

In the wake of the recent landslides in Kerala, a crucial conversation has emerged around whether subnational entities can seek compensation through the UNFCCC’s Loss and Damage Fund.

What is the Loss and Damage Fund?

• Establishment: The Loss and Damage Fund (LDF) was established at the 2022 UNFCCC Conference (COP27) in Egypt.
• Aim: To provide financial support to regions suffering both economic and non-economic losses caused by climate change. 
• Based on the Polluters Pay Principle: This principle holds accountable entities responsible for environmental damage, making them liable for expenses related to remedial measures and compensating those affected by their actions. 
• Interim Host and Operational Period: The World Bank will serve as the “interim host” for the fund for a duration of four years, operating in line with the principles of the UNFCCC and the Paris Agreement.
• Eligibility and Contributions:
  • All developing nations can apply for funds, and every country has been “invited” to contribute voluntarily.
  • A specific allocation has been set aside for Least Developed Countries and Small Island Developing States.

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Challenges associated with Operationalising the Loss and Damage Fund

• Hosting at the World Bank: The World Bank imposes high overhead fees for fund maintenance, prompting developing countries to seek an independent secretariat and a dedicated funding mechanism.
• Developed Country Contributions: Developed nations, notably the U.S., have shown hesitancy in committing as primary donors to the fund, raising concerns over funding sources.
• Common But Differentiated Responsibilities (CBDR) Principle: Developed nations have opposed references to CBDR, equity, and liability within the fund’s draft, diluting its original purpose and essence

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