Context: At the recently concluded COP27 summit, delegates from the United Nations agreed to create a 'Loss and Damages' fund which will compensate the most vulnerable countries for their losses due to climate-related disasters.

• The fund will be aimed at helping developing countries that are “particularly vulnerable” to the effects of climate change.

• The fund would initially draw on contributions from developed countries and other private and public sources such as international financial institutions.

'Loss and Damage' Funding

• 'Loss and Damage' refers to impacts of climate change that cannot be avoided either by mitigation (cutting greenhouse gas emissions) or adaptation (modifying practices to buffer against climate change impacts).

• They also include not only economic damage to property but also loss of livelihoods, and the destruction of biodiversity and sites that have cultural importance.

• This broadens the scope for affected nations to claim compensation.

What is the issue with this fund?

• Crucial questions such as who will manage this fund, whether contributions are expected from large developing countries and what the fair share of contributors will be — have been left to a “transitional committee” that will make recommendations at the next COP to be held in the UAE.

• There is no agreement yet on what counts as "loss and damage" caused by climate change - which could include infrastructure damage, property damage, and cultural assets whose value is hard to quantify.

• Note: Climate funding so far has focused mostly on cutting carbon dioxide emissions in an effort to curb global warming, while about a third of it has gone toward projects to help communities adapt to future impacts.

Will India be a donor to the Loss and Damage fund?

• Developed countries had been asking to expand the donor base of the loss and damage fund by including big economies like India and China as contributors to the fund.

• However, India during the discussions made its stand clear that though the country has voluntarily been doing its bit to help vulnerable countries through a different mechanism, it will not be mandatorily contributing to the proposed fund.

• On the question of whether India would be one of the beneficiaries of the fund as it’s primarily meant for most vulnerable countries, India argued that the country too has many vulnerable areas.

How has the Concept of Loss and Damage Evolved?

• Since the United Nations Framework Convention on Climate Change was formed in the early 1990s, loss and damage due to climate change have been debated.

• The Least Developed Countries Group has long aimed to establish accountability and compensation for loss and destruction.

• However, historically blamed for the climate catastrophe, rich countries have overlooked the concerns of vulnerable countries.

• Warsaw International Mechanism on Loss and Damages (WIM) was founded in 2013 without funding after extensive pressure from developing countries.

• However, during the 2021 COP26 climate summit in Glasgow, a 3-year task force was established to consider a funding arrangement for loss and damage.

• So far, Canada, Denmark, Germany, New Zealand, Scotland and the Belgian province of Wallonia have all expressed interest in loss and damage funding.