A fund to support developing countries in addressing the irreversible impacts of climate change is finally opening up to funding applications. The first call for requests to the Fund for responding to Loss and Damage was made at the UN’s COP30 climate summit held recently in Brazil. Developing countries can submit project applications from December to access support from a pool of US$250 million.
After decades of advocacy and stalling, the fund had been formally launched at COP28 in 2023. Its priority is to support developing nations “particularly vulnerable” to climate impacts, such as from rising sea levels and extreme weather events, though all developing nations are eligible.
As of July 2025, pledges to the fund amounted to US$768 million from 27 countries. But this remains a drop in the ocean against annual climate-induced losses among developing nations running to more than US$100 billion.
Insufficient funds, along with unsound criteria for allocating them, remain huge challenges. What is needed is a more objective and even-handed approach to international climate financing.
There would be value in broadening the working definition of “loss and damage” to include indirect as well as direct economic losses. This suggestion has emerged from our research, at Tsinghua University’s Institute of Energy, Environment and Economy, into the impacts of extreme weather.
For developed countries, assisting developing countries with adaptation not only builds local capacity but also mitigates supply chain risks for themselves.
The funding gap, and uneven allocation
To understand the full range of loses for the countries most vulnerable to climate change requires a global understanding of the losses extreme weather events can send rippling along supply chains.
This year, my colleagues and I published a study into global economic losses from droughts, floods and storms. Drawing on attribution studies, it focused on the portion of those losses that can be attributed to human-induced climate change.
We found that in 2009-2019, direct attributable losses, such as from damage to physical assets, averaged US$60 billion per year. When you include the US$65 billion of indirect losses, such as from supply chain disruption, that figure rises to US$125 billion, or 0.16 per cent of global GDP. These losses attributed to human-induced climate change account for 46 per cent of all losses from these weather disasters.
Not included in our study are related extreme events such as heatwaves or wildfires, or slow-onset events such as sea-level rise, or the potential impacts associated with climate tipping points.
Many nations around the world are already struggling to recover from climate impacts but the problem is particularly stark for certain developing countries. While richer countries tend to be buffered by insurance, fiscal strength and post-disaster resilience, small island states, there are minimal safeguards for African countries and emerging economies in Asia. They may, in the wake of climate-induced disasters, succumb to economic stagnation and debt traps.
Which industries are most affected?
Our research shows that, globally, 70 per cent of the losses during 2009-2019 occurred in manufacturing, agriculture, construction and transport. Assets and infrastructure in these sectors are most exposed to climate-related hazards. Manufacturing was worst affected, accounting for 40 per cent of direct and 30 per cent of indirect losses.
The finance, trade and service sectors experienced heavy losses due to disrupted supply chains and trade but were not directly affected otherwise. The financial and property sectors, for example, sustained indirect losses of US$9.74 billion, or 15 per cent of all indirect losses.
The pattern of losses also varied with income levels. In low-income countries, agriculture, transportation and mining bore the brunt of direct losses. Richer economies experienced a higher proportion of indirect losses, conveyed via global supply chains into their financial, property and service-related industries. The resulting disruption affected production costs and profitability in trade and in business services, and undermined investor confidence in those sectors.
Which countries are most vulnerable?
Losses due to drought were more severe in low-income countries such as Vietnam, Zimbabwe and Ethiopia, where the economy rests to a large degree on agriculture. Small island and coastal economies, such as Puerto Rico, Mozambique, the Philippines and Vietnam, were predominantly impacted by storms.
In the Americas, storms were responsible for the heaviest economic losses, totalling US$66.2 billion across the period, largely because of North America’s high property values and sophisticated property-insurance market. Low-income countries in Asia, such as Thailand, Pakistan, Cambodia and Nepal, along with Peru and El Salvador in the Americas, were mainly affected by floods.
Mozambique, Ethiopia, Zimbabwe and Madagascar were the African countries most severely hit by droughts, floods and storms, despite many other African nations having similarly low levels of income. This does not necessarily mean these other countries experienced less damage but likely reflects lower levels of disaster-related reporting and research. In Asia, emerging economies such as Vietnam and the Philippines were particularly vulnerable.
Total losses were greater in high-income countries owing to greater asset exposure and more extensive reporting. However, when relative losses were expressed as a share of GDP, those of European countries – blessed with comparatively high per capita GDPs – were below the global average. And over half of those losses reflected indirect, trade-related impacts.
It is worth bringing these findings to bear on the concept of “vulnerability” which is at the heart of climate negotiations. It generally means how far a system is liable to suffer adverse impacts as a result of exposure to climate hazards. However, there is no consensus yet on how exactly vulnerability should be defined and quantified.
Article 4.8 of the UN climate convention predominantly lists vulnerable country groups based on the “adverse effects of climate change and/or the impact of the implementation of response measures”.
We suggest broadening the economic understanding of “adverse impacts” beyond direct economic impact, to encompass indirect impacts relating to regional trade and supply chains. These have a significant bearing on the stability and economic security of global supply chains, in addition to affecting vulnerable countries at local and regional level.
Viewed from this perspective, emerging countries such as China and India are more vulnerable than most countries in Africa. Their direct and indirect losses are substantial, in absolute terms, and their relative losses, measured as a share of GDP, are above the global average.
Fair, transparent funding mechanisms are essential
At COP29 in Azerbaijan last year, countries agreed on a “New Collective Quantified Goal” for climate finance. The goal calls on all parties to ramp up the supply of public and private financing for developing countries, with a target of US$1.3 trillion per year by 2035. Further impetus was given to the goal at COP30 in Brazil, in the form of the “Baku to Belém Roadmap to 1.3T”.
Our research shows that expanding the pool of funds and establishing fair, transparent mechanisms for rapidly directing funds to the most vulnerable communities and sectors, will be an important test for today’s climate-financing mechanisms.
Scaling up the loss and damage fund is an urgent priority. Losses are already enormous and can only increase. Targeted measures to adapt to climate change are vital for dealing with the intensifying impact. As well as being adequately financed, support for the fund will be needed from a broader range of multilateral or bilateral mechanisms.
An equitable, science-based allocation of funds is essential. The international community must finalise the specifics for climate financing without delay, increase the speed and scale of finance mobilisation and ensure funds are deployed in a transparent manner.
There is also a need to establish allocation criteria based on objective definitions of vulnerability, prioritise support for small island states, least developed countries and regions with little capacity for adapting to climate change, and develop sustainable mechanisms for responding to climate loss and harm.
Countries with different vulnerabilities will have different priorities when it comes to addressing climate-induced losses. These priorities are also informed by the challenges of cutting greenhouse gas emissions, adapting to climate change and sustainable development.
They will therefore need to individually assess their respective circumstances, with developing countries identifying their core needs and developed countries quantifying their contributions.
Coastal economies such as Puerto Rico and its Caribbean neighbours, along with Mozambique, Vietnam and the Philippines, experience especially high climate losses as a proportion of GDP: direct losses account for more than 60 per cent of their total losses.
Such countries are mostly economically disadvantaged. Therefore, they will need direct support from the international community to strengthen their disaster-prevention and adaptation capabilities, in the face of future loss and harm.
This story was published with permission from Carbon Brief.
