UN climate damages fund pledges $21 million to Nepal

Why in news?

UN Fund for Responding to Loss and Damage set aside $21.6 million for Nepal, its first country-specific allocation.

UPSC Relevance

Prelims: Fund for Responding to Loss and Damage (FRLD), Warsaw International Mechanism, Santiago Network, COP venues, climate funds (GCF, Adaptation Fund, GEF). 

Mains GS3: Conservation, environmental pollution and degradation; disaster management; climate finance.

What is loss and damage?

Climate action stands on three pillars. Mitigation means cutting emissions. Adaptation means preparing for climate impacts. But some impacts are too severe to be prevented or adapted to – homes washed away, crops destroyed, islands sinking. These unavoidable harms are called loss and damage. Poor countries that have contributed least to global warming suffer most from them.

• Economic losses: Damage to houses, roads, crops, livestock, income and infrastructure.
• Non-economic losses: Loss of lives, health, cultural heritage, biodiversity, territory and forced displacement.
• Sudden-onset events: Floods, cyclones, heatwaves, glacial lake outburst floods (GLOFs), landslides.
• Slow-onset events: Sea-level rise, glacial retreat, desertification, ocean acidification, salinisation.

Fund for Responding to Loss and Damage (FRLD)

• Established: Decided at COP27 in Sharm el-Sheikh, Egypt (2022); operationalised on the first day of COP28 in Dubai, UAE (2023).
• Purpose: To help developing countries that are particularly vulnerable to climate change respond to economic and non-economic losses, including from extreme and slow-onset events.
• Governance: Serves both the COP (UNFCCC) and the CMA (Paris Agreement).
  • Run by a Board of 26 members – 12 from developed and 14 from developing countries, with dedicated seats for LDCs and Small Island Developing States.
• Hosting: Hosted by the World Bank as a Financial Intermediary Fund (FIF) for an interim period of four years.
  • The Philippines was chosen to host the Board.
• Funding: Contributions are voluntary. Developed countries are urged to lead; others are encouraged to contribute. Pledges exceed $820 million, of which $342 million is for the start-up phase.
• Start-up phase: Under the Barbados Implementation Modalities (2025–26), the Fund gives grants, with at least half of the resources reserved for LDCs and SIDS.
• Demand vs supply: The Fund has received 176 requests from 119 countries worth about $2.8 billion – far more than what it has.
• No liability: The decision under the Paris Agreement (COP21) clearly states that loss and damage does not involve liability or compensation. Rich countries pay as solidarity, not as legal responsibility.

Loss and damage architecture

Other climate funds 

The Nepal case

• The disaster: On August 26, a climate-induced ice-and-rock avalanche triggered a debris flow and floods along the Bhotekoshi–Trishuli–Narayani river system.
• Scale: Nepal estimates recovery needs of at least $4.71 billion and losses of about $5 billion. The allocation is less than 0.5% of this.
• Process: The allocation is provisional, includes $1.6 million in oversight fees, and depends on donors honouring pledges and Nepal submitting project proposals.
• Significance: First time the Fund has earmarked money for a specific country – a test case for how quickly it can respond.

Challenges

• Too little money: Studies estimate loss and damage needs in developing countries at hundreds of billions of dollars a year by 2030; the Fund has under a billion in pledges.
• Voluntary pledges: No binding obligation, so disbursement depends on donor goodwill and timing.
• Slow access: Detailed project proposals and approvals can delay urgent relief, as Ajay Mathur, former DG of the International Solar Alliance, has pointed out.
• World Bank hosting: Developing countries worry about donor influence and bureaucratic procedures.
• Attribution issues: Proving that a disaster is caused by climate change, and not just natural variability, is technically difficult.

Way forward

• Scale up finance: Bring in new sources such as levies on aviation, shipping and fossil fuel windfall profits.
• Fast-track window: Quick release of grants immediately after disasters, with paperwork later.
• Direct access: Let national and local institutions access funds directly, with community-level delivery.
• Link with early warning: Combine with the UN’s Early Warnings for All initiative and GLOF monitoring in the Himalayas.
• Regional cooperation: South Asian countries can share data on glaciers and rivers, since disasters cross borders.

The Nepal allocation is a landmark, but a small one. For the Fund to be more than a symbol, the money must arrive fast, arrive in full and reach the people who lost their homes.

Practice MCQ

Q1. Consider the following statements regarding the Fund for Responding to Loss and Damage (FRLD):

1. Its establishment was decided at COP27 held in Sharm el-Sheikh.

2. It is hosted by the World Bank as a Financial Intermediary Fund for an interim period.

3. Contributions to the Fund by developed countries are legally mandatory under the Paris Agreement.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Answer: (b). Statement 3 is incorrect – contributions are voluntary, and loss and damage under the Paris Agreement does not involve liability or compensation.

Q2. Consider the following pairs:

How many of the pairs given above are correctly matched?

(a) Only one

(b) Only two

(c) Only three

(d) All four

Answer: (c). The Warsaw International Mechanism was set up at COP19 in Warsaw (2013), not at COP21.

Mains Practice Question

Q. The first country-specific allocation by the Fund for Responding to Loss and Damage is a milestone, but it also exposes the gap between climate promises and delivery. Discuss the significance of loss and damage finance for vulnerable countries and the challenges in making it effective. (15 marks, 250 words)

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