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In this article, we’ll look at what the Loss and Damage Fund is, why it took so long to launch, and what happens next.
ESG / CSR
2023-05-26T00:00:00.000Z
2025-06-25T00:00:00.000Z
en-us
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 thatthese 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:
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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.
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Rising visibility of climate justice
The global conversation had shifted. By 2022, it was almost universally recognized that wealthier nations bear outsized responsibility for global emissions. Public pressure and moral arguments were gaining ground.
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Persistent advocacy
Developing countries, civil society organizations, 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:
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Hosting the fund
Hosting the fund temporarily at the World Bank, though with an independent board and secretariat.
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Board establishment
Establishing a 26-member Board representing a balance of developed and developing nations.
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Broadening contributors
Broadening the base of contributors to include private finance and wealthier emerging economies.
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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.
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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.
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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, prioritizing 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. Organizations 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?
The fund is overseen by a 26-member Board, with a balanced representation from developed and developing countries. This Board is responsible for making decisions on funding priorities, eligibility criteria, and disbursement strategies.
In 2024, Ibrahima Cheikh Diong was appointed as the Fund’s first Executive Director, leading the Fund’s newly established Secretariat, which is headquartered in the Philippines.
While the fund operates independently, it is temporarily hosted by the World Bank, which acts as the Trustee – a pragmatic decision designed to speed up implementation while long-term structures are developed.
The fund targets developing nations that are particularly vulnerable to the impacts of climate change. These include:
Small island developing states (SIDS)
Least developed countries (LDCs)
Low-income or climate-fragile nations affected by irreversible or extreme damage
Eligible countries can apply for grants to help them respond to, recover from, or rebuild after climate-related events that go beyond the limits of adaptation.
The Loss and Damage Fund is designed to finance a wide range of climate-related costs that are not covered by existing mitigation or adaptation efforts. This can include:
Emergency relocation and housing for vulnerable communities
Rebuilding damaged infrastructure (eg. roads, water systems)
Restoring lost agricultural land or coastal zones
Supporting displaced communities
National recovery plans after natural disasters such as floods, droughts, wildfires, or cyclones
As of 2025, funding is delivered primarily through grants, with individual project allocations ranging from $5–20 million, based on a detailed assessment of the severity of impact and scale of need.
Countries apply for funding through a streamlined application process set by the Board. While systems are still being finalised in 2025, the aim is to provide timely and needs-based support, with simplified access for low-capacity countries.
Funds are disbursed via national governments or implementing partners, such as UN agencies or development banks, depending on local capacity.
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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.
One of the most pressing issues is the huge shortfall in financial commitments needed to effectively address the escalating climate-related losses. Although over $768 million has been pledged since COP27, this amount is nowhere near what’s actually needed.
Studies suggest that developing countries require over $400 billion annually to address loss and damage effectively, and by 2030, this number could rise to $1.7 trillion per year for all climate-related needs, including adaptation. By comparison, current pledges to the Loss and Damage Fund represent only a tiny fraction of this total.
The question of who contributes to the fund and how much remains a source of tension, complicating ongoing loss and damage finance discussions. While traditional donors have led initial pledges, some developed nations argue that wealthier emerging economies with high current emissions should also pay in.
This has led to pressure on countries like China, which remains classified as a developing nation under UN climate rules, but is now the world’s largest annual emitter. The outcome of this debate will shape the fund’s credibility and financial viability in the years to come.
One of the most worrying developments came in early 2025, when the United States formally withdrew its support, walking back an earlier pledge. As one of the largest historical emitters and a key political player, the US exit sparked concern about whether the fund can retain long-term legitimacy and backing from major economies.
Other countries have reaffirmed their commitment, but the episode underscored how vulnerable the fund is to shifting political winds, especially in donor countries.
Finally, as the fund begins rolling out grants, some small island states and low-capacity nations are raising concerns about slow access, limited clarity around application processes, and potential administrative burdens.
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 finalization 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
⚖️
Support for both economic and non-economic loss (eg. livelihood damage, cultural loss)
🌍
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 finalized.
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 recognizes 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 thatclimate 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?
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Greenly, Sea level rise: what is happening? https://greenly.earth/en-gb/blog/ecology-news/sea-level-rise-what-is-happening
Greenly, What does biodiversity loss mean for humankind? https://greenly.earth/en-gb/blog/ecology-news/what-does-biodiversity-loss-mean-for-humankind?utm_source=adwords&utm_medium=ppc&utm_campaign=1:%20SN%20|%202:%20Brand%20|%203:%20Search%20Brand%20google%20|%204:%20FR
UNICEF, Devastating floods in Pakistan (2022) https://www.unicef.org/emergencies/devastating-floods-pakistan-2022
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The Guardian, $700m pledged to Loss and Damage Fund at COP28 https://www.theguardian.com/environment/2023/dec/06/700m-pledged-to-loss-and-damage-fund-cop28-covers-less-than-02-percent-needed
UNFCCC, Philippines selected to host board of the Loss and Damage Fund https://unfccc.int/news/philippines-selected-to-host-the-board-of-the-fund-for-responding-to-loss-and-damage
UNFCCC, Ibrahima Cheikh Diong appointed Executive Director of the Loss and Damage Fund https://unfccc.int/news/ibrahima-cheikh-diong-selected-as-inaugural-executive-director-of-the-fund-for-responding-to-loss
UNFCCC, Pledges to the Fund for Responding to Loss and Damage https://unfccc.int/topics/climate-finance/funds-entities-bodies/fund-for-responding-to-loss-and-damage/pledges-to-the-fund-for-responding-to-loss-and-damage
Le Monde, US withdraws from landmark climate Loss and Damage Fund https://www.lemonde.fr/en/environment/article/2025/03/11/us-withdraws-from-landmark-climate-loss-and-damage-fund_6739022_114.html#:~:text=The%20Trump%20administration%20has%20withdrawn,already%20struck%20by%20climate%20disasters.
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