What is the EU Taxonomy?
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Discover the EU Taxonomy: what it is, how it defines sustainable activities, and its impact on businesses and financial markets.
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What is the COP27 Loss and Damage Fund?
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The Loss and Damage Fund is widely seen as one of the most significant outcomes in the history of international climate negotiations. Agreed at COP27 in Sharm El-Sheikh, Egypt, the fund marked a historic agreement and a major breakthrough after more than three decades of pressure from developing nations.
Its aim? To provide financial support to the world’s most vulnerable countries as they deal with the devastating impacts of climate change – impacts they did little to cause.
Since the concept was first proposed in 1991, progress had been painfully slow, blocked repeatedly by wealthy nations wary of financial liability. But in 2022, momentum shifted. The creation of the fund was hailed as a historic victory for climate justice.
“Fast forward to 2025, and the picture is beginning to change again – the fund is now operational, early disbursements are underway, and new questions are emerging about governance, transparency, and long-term financing. Meanwhile, major contributors like the United States have already pulled out, casting uncertainty over its future.”
In this article, we’ll explore:
- What the Loss and Damage Fund is and why it matters
- How the fund came to be – and why it took over 30 years
- The key turning points at COP27 and COP28
- How the fund is being structured and where the money is coming from
- Challenges and political tensions in 2025
- Why this fund is only part of the bigger picture for global climate action
What is the Loss and Damage Fund?
Climate change is no longer a distant threat – it’s a daily reality. From relentless heatwaves and rising sea levels to severe flooding, droughts, and vanishing biodiversity, communities across the globe are feeling the pressure. But while climate change affects everyone, some countries are bearing the brunt far more than others.
These are often developing nations, with limited financial resources, fragile infrastructure, and less capacity to prepare for or recover from climate disasters. And what makes this even more unjust is the fact that these same countries have contributed the least to the problem.
“Take Pakistan. In 2022, catastrophic floods submerged nearly a third of the country, displacing millions. Yet, Pakistan is responsible for less than 1% of annual global greenhouse gas emissions.”
The Loss and Damage Fund was created to acknowledge and address this stark imbalance. It's designed to provide financial assistance to nations dealing with the unavoidable impacts of climate change, whether sudden disasters or slow-onset events that unfold over time, such as sea level rise or permafrost thaw.
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A long road to recognition: the history behind the Loss and Damage Fund
The idea behind the Loss and Damage Fund has been around for over three decades, but its journey to becoming a reality has been slow and fraught with resistance.
1991 – The first proposal
The concept of a dedicated fund to address climate-related loss and damage was first introduced by Vanuatu, on behalf of the Alliance of Small Island States (AOSIS), during early negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) in Geneva. These nations were among the first to highlight the injustice of climate change, being highly vulnerable yet least responsible.
2007 – Official recognition, but little progress
It wasn’t until COP13 in Bali (2007) that the term “loss and damage” appeared in official UNFCCC documents. From then on, it became a recurring topic at climate summits, but not one that gained much traction.
2013 – The Warsaw Mechanism
At COP19 in Warsaw, countries agreed to establish the Warsaw International Mechanism for Loss and Damage (WIM). While this marked progress on paper, the mechanism lacked any financial structure, offering support only in the form of dialogue and technical assistance.
2015 – A cautious nod in the Paris Agreement
The Paris Agreement (COP21) did include a reference to loss and damage in Article 8, acknowledging it as a distinct area alongside mitigation and adaptation. But once again, the language was carefully worded to avoid any legal or financial obligations for developed nations.
Years of stalled negotiations
In the years that followed, developing countries repeatedly pushed for a proper financing facility. Yet wealthier nations, particularly those historically responsible for the majority of emissions, resisted. Their concern? That financial commitments could be interpreted as an admission of legal liability for the impacts of climate change.
By the time COP27 came around, the frustration among vulnerable nations had reached a tipping point.
COP27 and the Loss and Damage Fund
COP27, held in Sharm El-Sheikh, Egypt, marked a historic turning point in global climate negotiations.
“After decades of stalled progress, world leaders finally agreed to establish a Loss and Damage Fund – a financial mechanism to support vulnerable countries already suffering from the devastating effects of climate change.”
It was one of the most closely watched and hotly debated topics of the summit. After tense negotiations, and years of resistance from wealthier nations, the deal was struck in the early hours of the final day. The decision was hailed as a major victory for climate justice, particularly for developing nations and small island states who had fought tirelessly to bring the issue to the table.
But what changed? Why did developed countries, many of whom had previously blocked the idea, finally come on board?
Several key shifts helped pave the way:
Shared financial responsibility
Unlike earlier proposals, the COP27 agreement stated that funding should come from a broad range of sources, not just from historical emitters, but also from public, private, and multilateral channels. This broadened donor base made the idea more politically palatable.
Rising visibility of climate justice
The global conversation had shifted. By 2022, it was almost universally recognised that wealthier nations bear outsized responsibility for global emissions. Public pressure and moral arguments were gaining ground.
Persistent advocacy
Developing countries, civil society organisations, and climate justice campaigners kept the pressure on, refusing to let the issue fade. Increased media coverage also brought global attention to the unfair burden climate change places on the world’s poorest.
The result was a long-overdue acknowledgment that the climate crisis is not just about future risks – it’s about real losses happening right now, and the urgent need to respond.
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What’s happened since COP27?
The agreement struck at COP27 was a major political breakthrough – but it was only the beginning. In the two years since, the focus has shifted to the harder part: turning promises into action.
Here’s how things have unfolded since 2022:
COP28: Laying the groundwork
At COP28 in Dubai (2023), countries formally agreed on how the Loss and Damage Fund would be structured and governed, solidifying its role as the first truly global fund for responding to climate-induced loss and damage.
Key decisions included:
Hosting the fund
Hosting the fund temporarily at the World Bank, though with an independent board and secretariat.
Board establishment
Establishing a 26-member Board representing a balance of developed and developing nations.
Broadening contributors
Broadening the base of contributors to include private finance and wealthier emerging economies.
Transitional Committee
Launching the Transitional Committee’s final recommendations, which shaped how the fund would operate.
“The initial pledged money reached around $700 million. While welcomed, this fell far short of what’s actually needed to meet the rising costs faced by many developing countries on the front lines of climate breakdown.”
COP29: Fund becomes operational
By late 2024, at COP29 in Azerbaijan, the fund was declared officially operational.
Agreements signed
Agreements were signed with the World Bank to host the Trustee and Secretariat.
Permanent location
The Philippines was chosen as the permanent location for the fund’s Secretariat.
Executive Director
An Executive Director, Ibrahima Cheikh Diong, was appointed to lead the institution.
Financial pledges
Pledges rose slightly above $768 million, and disbursements were greenlit for 2025.
This marked a major step forward, but some cracks were already starting to show.
March 2025: US withdrawal
In a move that sparked international criticism, the United States withdrew from the fund in early 2025 under the Trump administration, walking back its initial pledge of $17.5 million. Climate advocates warned this could undermine confidence in long-term financing, especially if other countries followed suit.
2025: First disbursements begin
In April 2025, the fund’s board approved a $250 million start-up package for use through 2026. Funds are being distributed as grants, primarily focused on:
- Emergency housing and relocation
- Infrastructure repair
- Rapid disaster response and humanitarian assistance
Grants range from $5–20 million per project, prioritising national-scale interventions in the most climate-vulnerable countries.
But some governments, particularly in small island states and parts of Africa, have raised concerns about slow disbursement timelines, access barriers, and a lack of transparency around how decisions are made. Organisations like the Loss and Damage Collaboration have continued to call for greater inclusivity, accountability, and urgency in how the fund is governed and delivered.
How does the Loss and Damage Fund work?
“The Loss and Damage Fund is designed to provide financial support to developing countries that are already facing the unavoidable consequences of climate change – from rising sea levels and desertification to extreme weather events and infrastructure collapse.”
But how does the fund actually function in practice?
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What challenges does the Loss and Damage Fund face?
While the creation and operational launch of the Loss and Damage Fund represent major milestones, serious questions remain about whether the fund can deliver at the scale and speed required. As of mid-2025, several key challenges are threatening to slow its impact.
If the fund is to succeed, it must be not only well-funded, but also accessible and responsive in responding to loss, especially for the countries on the front lines of the climate crisis.
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Early funding in action: where the money is going?
While the Loss and Damage Fund is still in its early stages, significant steps are being taken to prepare for the start of funding disbursements. In early 2025, the Fund’s board approved a US $250 million start-up package for the 2025–2026 period, marking the initial phase of its rollout.
The Fund aims to prioritise rapid-response support for climate-vulnerable countries, particularly those affected by sudden disasters such as storms and flooding, as well as those grappling with the long-term impacts of rising sea levels and extreme heat. Formal disbursements are anticipated to begin in early 2026, pending finalisation of the application and approval processes.
Prioritising the most vulnerable
At least 50% of the initial funding has been reserved for Small Island Developing States (SIDS) and Least Developed Countries (LDCs) – regions most exposed to climate impacts but with the fewest financial resources.
This includes support for:
- Sea wall repairs in low-lying Pacific Island nations
- Early warning systems and disaster-readiness infrastructure in small Caribbean islands
- Non-economic loss measures, such as the preservation of cultural heritage at risk from climate-driven displacement
The Barbados Implementation Modalities
The early disbursements are being guided by a temporary operating framework known as the Barbados Implementation Modalities. Key features include:
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Grant sizes between $5 million and $20 million
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A simplified climate finance application process, especially for lower-capacity governments
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Support for both economic and non-economic loss (eg. livelihood damage, cultural loss)
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Country-led proposals, ensuring local ownership of projects
This framework is designed to get funds flowing quickly while longer-term systems and new funding arrangements are finalised.
National-level support
Rather than funneling aid through international NGOs or third parties, the fund is working directly with national governments and public agencies, giving countries the ability to lead their own recovery strategies.
To support this, the Board also plans to coordinate with existing mechanisms like the Green Climate Fund and the Adaptation Fund, aiming to streamline disbursement by working through already accredited partners.
This signals a move toward damage funding arrangements rooted in sovereignty and self-determination, rather than dependency.
“It's hoped that the Loss and Damage Fund will become a fast-moving, justice-oriented response mechanism for the realities of climate breakdown. But for that vision to scale, and for real climate resilience to take root, political will and sustained financing will be key.”
Looking forward
The creation of the Loss and Damage Fund marked a long-overdue shift in the global climate conversation, one that recognises not just emissions, but responsibility, and the reality of a growing climate emergency. For countries on the front lines of climate disaster, it's more than just a pot of money - it's a signal that climate justice is finally being taken seriously.
But symbolic breakthroughs only matter if they’re followed by real results.
“As the fund enters its first full year of operations, it faces a pivotal test: can it move from a carefully negotiated framework to a robust, reliable system of support? That means not just disbursing grants, but doing so quickly, transparently, and at a scale that matches the crisis, especially for the most at-risk communities, particularly small island states.”
The biggest challenge remains what it has always been - finance. Current pledges, while meaningful, are still dwarfed by the actual costs of climate-driven loss. Without sustained and predictable funding, the promise of the fund risks being reduced to one-off gestures rather than long-term impact.
Public and political pressure is mounting, reinforced by stark warnings from the Intergovernmental Panel on Climate Change (IPCC) about the increasing severity and frequency of climate impacts. In the face of worsening climate impacts, wealthy nations can no longer distance themselves from their historical role or their obligations to those now suffering the consequences.
And we must not lose sight of the bigger picture. While the fund plays a vital role in helping countries recover from climate-related losses, it is not a substitute for deeper climate action or a coordinated global political strategy to address the root causes of global heating.
“Addressing the root causes of the crisis – including curbing greenhouse gas emissions, holding fossil fuel companies accountable, ending fossil fuel dependence, and reducing global inequality – is the only way to prevent these damages from escalating in the first place.”
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What about Greenly?
At Greenly, we believe that achieving climate justice starts with action, and that businesses have a powerful role to play. While international funds like the Loss and Damage Fund support countries already facing climate devastation, the private sector must do its part to reduce emissions and accelerate the global transition to a low-carbon economy.
Our suite of sustainability services is designed to help companies do exactly that.
Here’s how we can help:
| Our services | Description |
|---|---|
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Carbon footprint assessments
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We calculate your Scope 1, 2, and 3 emissions, giving you a clear view of your environmental impact. |
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Life Cycle Assessments (LCAs)
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Get detailed insights into the emissions linked to your products, services, or supply chains, from raw materials through to disposal. |
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Emission reduction strategies
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We help you turn data into action, with tailored decarbonisation plans that align with your business goals and regulatory obligations. |
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Compliance and reporting support
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Whether it’s CSRD, SECR, or the latest EU regulations, we’ll guide you through your reporting requirements and help you stay ahead of evolving standards. |
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Supplier engagement and Scope 3 optimisation
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We provide tools and strategies to engage suppliers, fill in data gaps, and reduce value chain emissions across your entire business ecosystem. |
Get in touch with Greenly today to learn how we can help your organisation measure, reduce, and report its emissions – and become part of the global solution.
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