Loss and damage fund

Also called: Fund for responding to Loss and Damage · Topic: Climate Change: Causes, Evidence and the Global Response · NCERT: Beyond NCERT

Meaning

The Fund for responding to Loss and Damage (FRLD) is a global climate fund. It was agreed at COP27, Sharm el-Sheikh (Egypt), 2022 and made to work at COP28, Dubai (UAE), 2023. It gives money to vulnerable developing countries for climate harm that adaptation (getting ready in advance) cannot prevent, such as land lost to sea-level rise and homes and crops lost in extreme floods.

It matters because it turned a long-time demand of small island states and the poorest countries into a real fund. It is also a key test of climate justice between rich and poor countries.

Explanation

What "loss and damage" means

• Loss and damage: harm from climate change that still happens after a country has done all it can to get ready.
• Compare it with adaptation:
• Adaptation = getting ready, such as building sea walls and growing crops that can survive drought.

• Loss and damage = the harm that still happens anyway.

• Its legal base is Article 8 of the Paris Agreement (2015). Article 8 recognises harm that cannot be avoided.

• Common examples:
• land lost to sea-level rise in small island states (Tuvalu, Maldives)
• homes and crops lost in extreme floods, as in Pakistan in 2022

How the fund came about (timeline)

• Long-time demand of small island states and the least-developed countries.
• COP27, Sharm el-Sheikh, 2022: the fund was agreed (decision 2/CP.27).
• COP28, Dubai, 2023: the fund was set up and made to work on the first day of the conference (decision 1/CP.28).
• June 2024: the World Bank's Board approved the Bank's role as host and interim trustee [2].
• A trustee is the body that holds and manages the money.

• The fund runs as a World Bank-hosted fund for an interim (temporary) period of four years [2].

• July 2024: the Philippines was chosen to host the fund's Board at the Board's second meeting [1].

• 25 October 2024: the trustee agreement with the World Bank came into effect [2].

Its parts and how it works

• Board: the group that runs the fund and makes its decisions. It is hosted by the Philippines [1].
• Trustee: the World Bank holds and manages the money for now [2].
• Who pays and who gets:
• Under CBDR-RC (Common But Differentiated Responsibilities and Respective Capabilities), rich countries polluted first and have more money, so they should do more.
• So money is expected to go to vulnerable developing countries that did little to cause the warming.

The weak spot: the money gap

• Pledges (promises of money) add up to only a few hundred million dollars.
• The yearly need is estimated in the hundreds of billions of dollars.
• So the fund exists, but it is far too small for the damage it is meant to cover.

Where it occurs

• Where it was agreed: Sharm el-Sheikh, Egypt, at the southern tip of the Sinai Peninsula on the Red Sea (COP27, 2022).
• Where it was made to work: Dubai, UAE (COP28, 2023).
• Who runs it:
• Board: hosted by the Philippines (chosen July 2024) [1]

• Host and interim trustee: the World Bank (approved June 2024; trustee agreement in effect from 25 October 2024) [2]

• Countries it is meant for (world):

• Small island states such as Tuvalu and the Maldives, which lose land to sea-level rise

• Flood-hit countries such as Pakistan, after its 2022 floods

• Relevance for India: India's disaster-prone coasts and its Himalayan states face the same kinds of harm from floods and rising seas.

Don't confuse with

• Adaptation (Article 7): adaptation is getting ready before the harm (sea walls, drought-proof crops). Loss and damage (Article 8) is the harm that happens even after getting ready.
• Green Climate Fund (GCF): set up at COP16, Cancún (Mexico), 2010, with headquarters in Songdo, Incheon, South Korea. It is the largest multilateral climate fund and pays for mitigation (cutting emissions) and adaptation. The FRLD is only for loss and damage, and its Board is in the Philippines.
• New Collective Quantified Goal (NCQG): this is a finance target, not a fund. It was agreed at COP29, Baku, 2024, for developed countries to take the lead in mobilising at least $300 billion a year by 2035 [3].
• "Agreed" vs "operational": the fund was agreed at COP27 (2022) but made to work at COP28 (2023). Exam options often swap these two.

Prelims Hooks

• COP–outcome pair: COP27, Sharm el-Sheikh (Egypt), 2022 → loss and damage fund agreed (decision 2/CP.27). COP28, Dubai, 2023 → fund made to work on the first day (decision 1/CP.28).
• Fund–host pairs: FRLD Board – Philippines [1]. FRLD interim trustee – World Bank [2]. Green Climate Fund – Songdo, South Korea.
• Paris Agreement article: loss and damage = Article 8. Adaptation = Article 7. Finance = Article 9.
• Interim period: the fund runs as a World Bank-hosted fund for four years [2]. The trustee agreement came into effect on 25 October 2024 [2].
• Trap: the Philippines hosts the fund's Board, not its money. The World Bank is the trustee that holds the money [1][2].
• Trap: Sharm el-Sheikh is in Egypt, at the southern tip of the Sinai Peninsula on the Red Sea. It is not in the UAE.

Mains Points

• From a demand to a fund, but a small one:
• Small island states and the least-developed countries won the FRLD (agreed 2022, made to work 2023, World Bank as trustee, Board in the Philippines).
• But pledges of a few hundred million dollars are tiny next to a yearly need in the hundreds of billions.

• So the fund is more a symbol of climate justice than real support so far (GS-III environment; GS-II international relations).

• A North–South equity issue:

• Rich countries polluted first, but poor and island countries suffer most from sea-level rise (Tuvalu, Maldives) and floods (Pakistan, 2022).
• Under CBDR-RC, developing countries, including India, argue that the money should come from developed countries, and in grants rather than loans.

• Slow and small finance, such as the $100 billion goal met only in 2022, weakens trust in climate talks.

• Relevance for India's disaster management:

• India's disaster-prone coasts and Himalayan states face harm that adaptation alone cannot stop.
• India can use the loss and damage idea to press for fair finance as a voice of the Global South. It has also bid to host COP33 (2028).

Related concepts

• Paris Agreement
• Nationally Determined Contributions
• Net zero
• Global Stocktake
• Green Climate Fund
• New Collective Quantified Goal on climate finance
• COP30 Belem (2025)

Read more

• The Paris Agreement and the COPs since: NDCs, stocktake, loss and damage, finance