Without adequate international climate finance, countries are forced to find resources for adaptation, mitigation and addressing Losses and Damages (L&D) from climate change elsewhere, including taking on more sovereign debt. The L&D finance gap is estimated at hundreds of USD billion per year, and the debt burden of developing countries undermines their responses to address escalating climate impacts. Despite that, discussions about finance for L&D have been overwhelmingly detached from discussions about debt burden and potential solutions such as Debt-for-Climate (DFC) swaps.

This research report discusses and assesses various instruments to raise finance for addressing climate change-related L&D. The report reviews ten of the most promising financial instruments based on existing literature and showcases their potential to raise finance for L&D based on four criteria enshrined in the principles of the UNFCCC and the Paris Agreement – adequacy, predictability, feasibility and fairness. Further, 31 L&D experts from across the world completed a survey on these instruments based on the four criteria, complementing the desk research.

Overall, we find that only a combination of financial instruments will be able to fill the L&D finance gap and respond to the wide range of actions that encompass addressing L&D. Implementing such a ‘winning combination’ can be facilitated by a reform of the multilateral system of public development finance. In the meantime, countries should pursue immediately realisable options to raise L&D finance while preparing for later adjustments and upscaling. Continuous emphasis should be made on sourcing L&D finance based on the principle of equity, the ‘polluter pays’ principle and the UNFCCC principle of Common but Differentiated Responsibilities and Respective Capabilities. To learn more about our key findings, read the full publication.