Sustainability-linked derivatives

Sustainability - climate change - environmental risk management - UNFCCC - loss and damage.

(L&D Fund).

Author: Charitarth Sindhu, Environmental Sustainability & ESG Consultant

The concept of loss and damage is that developed nations historically emitted the majority of greenhouse gases driving the climate crisis, which has a had a disproportionately large impact on developing and economically vulnerable countries.

The Loss and Damage (L&D) Fund is a financial tool aimed at tackling the consequences of climate change that elude avoidance or mitigation through climate adaptation. These consequences range from extreme weather occurrences like hurricanes and heatwaves to gradual processes including desertification, sea level rise, and ocean acidification.

The Loss and Damage Fund operates with the mission to compensate historic losses already suffered by communities, countries, and ecosystems due to the adverse effects of climate change.

Loss and Damage Fund timeline

COP19 (2013): Witnessed the establishment of the L&D Fund mechanism and the formulation of its provisions.

COP25 (2019): Saw the inception of the San Diego Network for L&D; however, countries refrained from committing funds to support the initiative.

COP27 (2022): Marked a turning point as member states agreed to establish the L&D Fund. A Transitional Committee emerged to propose novel mechanisms for countries to deliberate on and adopt during COP28.

COP28 (2023): Operationalized the Loss and Damage Fund as an entity accountable to and functioning under the guidance of the Conference of the Parties.

As per decision 2 of COP19 (see third link in Other resources below) outlining the functions of the L&D Mechanism drafted during COP19, the L&D Fund aims to assist countries through the following strategies:

(A) Enhancing knowledge and understanding of comprehensive risk management approaches: Addressing gaps in comprehending how to manage loss and damage due to climate change. This includes understanding the impacts on migration, displacement, and human mobility. The fund will facilitate the collection, sharing, management, and utilization of relevant information, offering overviews of best practices, challenges, experiences, and lessons learned.

(B) Strengthening dialogue, coordination, coherence and synergies among relevant stakeholders: Providing leadership and coordination under the COP for the assessment and implementation of approaches to address loss and damage.

Additionally, the L&D Mechanism will foster cooperation and collaboration across relevant work outside of the Convention at all levels.

(C) Enhancing action and support, including finance, technology and capacity–building: Providing technical support and guidance on approaches to address loss and damage, aiming to catalyse relevant information and recommendations to the financial mechanism's operating entities within the COP.

Challenges faced by the L&D Fund

Reluctance of developed nations: The United States, among other developed nations, has refrained from committing to being primary donors to the fund.

The voluntary nature of their support raises concerns about the fund's objectives, undermining faith in global climate negotiations and hindering the cooperative spirit essential for addressing climate change.

Uncertainty Surrounding the Fund: Agreements at COP28 did not specify the size of the L&D fund.

Attempts to outline the fund's size faced resistance, particularly from the UK and Australia.

See also

• Climate change
• Climate change adaptation
• Climate change mitigation
• Climate finance
• Climate physical risk
• Climate-related financial disclosure
• Climate risk
• Climate transition
• Climate-washing
• Conference of the Parties (COP)
• Conference of the Parties - historical milestones
• COP27
• COP28
• Corporate social responsibility (CSR)
• Damages
• G77
• Intergovernmental Panel on Climate Change (IPCC)
• Loss
• Loss and damage (L&D)
• Natural capital
• Organic
• Paris Agreement
• Sustainability
• Sustainable Development Goals (SDGs)
• Task Force on Climate-related Financial Disclosures (TCFD)
• Transition
• UK Climate Change Committee
• United Nations
• United Nations Framework Convention on Climate Change (UNFCCC)
• V20
• World Business Council for Sustainable Development
• World Economic Forum (WEF)

Other resources

• Loss and Damage Fund - Conference of the Parties (COP) decisions 2/CP.27 and 2/CMA.4 – COP28 Dubai - 2023
• COP28 agrees to establish loss and damage fund for vulnerable countries - World Economic Forum – December 2023
• Report of the Conference of the Parties on its nineteenth session – COP19 Warsaw - Addendum. Part two – 2013