First Compensation for Climate-Related Damage

Poor countries in the Global South suffer the most from climate change and bear the highest costs for loss and damage. The fund set up specifically for this purpose is now disbursing its first funds: This will be used to pay for projects to deal with damage following climate-related devastation and to provide financial support to governments. It’s a success for international climate policy and a step towards climate justice.

After years of tough negotiations, the governments of poor and rich countries alike agreed to set up a new fund at the 2022 UN Climate Change Conference (COP27). It is intended to provide vulnerable low-income countries with rapid and straightforward support in coping with climate-related damage and losses as a result of global warming.

Damage and loss refers to the consequences of climate change that people can no longer adapt to: Destroyed houses and bridges due to flooding, crop failures due to prolonged droughts, or flooded cultural sites and coastal dwellings due to rising sea levels.

The Loss and Damage Fund was launched at the 2023 Climate Change Conference (COP28). The foundation was considered a success of the conference and was celebrated accordingly. However, attention quickly turned to the difficult task of activating the fund with financial resources in order to start paying out money this year.

Rapid but meager allocations

Individual governments communicated initial funding commitments immediately after the fund was launched. The highest pledges were made by the United Arab Emirates (the host country of the conference) and the industrialized European countries Italy, Germany, France and the United Kingdom.

The rapid pledges were important and welcomed, but fell well short of expectations. UN Secretary-General António Guterres summed up the mood among the observers when he said that the initial capitalization of the fund was “an essential tool to achieve climate justice,” but not nearly enough to make up for the injustices inflicted on the vulnerable.

What he meant by this was that the countries that contribute the least to greenhouse gas emissions and therefore to global warming are the least equipped to deal with droughts, flash floods and rising seas. The further the climate crisis progresses, the more frequently these events will occur, and the more serious the consequences will be for the countries and people affected.

First decisions during the initial phase

After the great relief at the launch of the fund, it soon lost some of its momentum. As a result, only a few new pledges were submitted at COP29 last year. Switzerland made no pledges to the fund at all, although shortly after its establishment it announced that it “would have liked all countries with high greenhouse gas emissions and the financial means to be invited to contribute.”

However, the board of the newly founded UN fund, consisting of twelve members from so-called “developed” countries and 14 members from so-called “developing” countries, is not discouraged by this. At a three-day meeting in Barbados in April 2025, it decided that grants of between five and 20 million US dollars would soon be awarded for projects in affected countries, with the first round of approvals already planned for the next board meeting. In the event of disasters, direct budget support is also planned for emergency measures, such as the provision of emergency accommodation for displaced people. It is expected that around $250 million will flow from the fund by the end of 2026 toward an initial series of measures. 

It is also agreed that small island development states and the world's least developed countries should receive at least half of the fund's resources during the initial phase. It is crucial that the affected communities on the front line not only receive external aid, but also have direct and self-determined access to resources and are involved in decisions regarding the reconstruction of their livelihoods.

Thinking beyond the norm

However, the financial resources currently available to the fund are dwarfed by the escalating costs of climate damage. And although $763 million has been pledged to the fund, governments have so far only paid $321 million. The cost of damage and loss by 2030, on the other hand, is estimated to rise to between $290 and $580 billion per year.

The head of the fund, Senegalese banker Ibrahima Cheikh Diong, promised to present a plan to mobilize further funds by the end of 2025. The Prime Minister of Barbados, Mia Mottley, wants to “think beyond the norm” when it comes to financing global climate protection. She mentioned levies and taxes on flights, shipping and oil and gas production. Those responsible at oil and gas companies in particular should finally take part in the discussion on how the industry could contribute money to climate protection. Together with France and Kenya, Barbados is chairing the Global Solidarity Levies Task Force, which will present concrete proposals before COP30 this November in Belém, Brazil.

Progress was made a few days ago on one of Mottley's proposals, the polluter pays levy on international shipping. After years of negotiations, the member states of the International Maritime Organization (IMO) have agreed on a global framework for reducing emissions in the shipping industry. Binding fuel standards and a global CO₂ price for shipping are to be introduced starting in 2027. Low-emission ships are to benefit financially, while “dirty” ships will have to make compensation payments. The IMO intends to use the revenue to support infrastructure projects, research and technology transfer to countries in the Global South. Particularly vulnerable countries, such as small island states and the least developed countries, are also to receive targeted assistance. Not for loss and damage, but at least something is happening in terms of true costs and polluter-pays levies.