What loss and damage means under the Paris Agreement, how the new fund works, what GCC filings say about climate losses, and what it means for companies and insurers.
Introduction
“Loss and damage” entered the UN climate vocabulary as a negotiating issue between states: who pays for the climate harm vulnerable countries already suffer. It has since become an institution, a fund operationalised at COP28 in Dubai. For a GCC company, insurer or bank, the term matters for a more direct reason. It names the losses that remain after mitigation and adaptation, and those losses land on balance sheets.
Avert, minimise, address
Article 8.1 of the Paris Agreement recognises the importance of averting, minimising and addressing loss and damage associated with the adverse effects of climate change, including extreme weather and slow onset events. The three verbs describe a sequence:
- Avert through mitigation: less warming, less harm.
- Minimise through adaptation: sea walls, cooling, water security, early warning.
- Address what remains: response, recovery, rehabilitation and, where possible, risk transfer.
Article 8.4 lists the areas of cooperation: early warning systems, emergency preparedness, slow onset events, irreversible and permanent losses, comprehensive risk assessment and management, risk insurance facilities, climate risk pooling and other insurance solutions, non-economic losses, and the resilience of communities, livelihoods and ecosystems.
The decision adopting the Paris Agreement (1/CP.21, paragraph 51) settled one point: Article 8 does not involve or provide a basis for any liability or compensation.
The institutions
| Institution | Role |
|---|---|
| Warsaw International Mechanism (2013) | The UNFCCC mechanism on loss and damage, under the Paris Agreement by Article 8.2. Its executive committee runs workstreams on slow onset events, non-economic losses, comprehensive risk management, and migration and displacement |
| Santiago network (2019) | Technical assistance to vulnerable developing countries |
| Fund for responding to loss and damage | Agreed at COP27 (2022), operationalised at COP28 (2023) |
The fund’s design, set out in decision 1/CP.28:
- Hosting: a World Bank hosted financial intermediary fund for an interim period of four years, with a new, dedicated and independent secretariat.
- Governance: a 26-member board, 12 from developed countries and 14 from developing country groups.
- Purpose: assisting developing countries that are particularly vulnerable to climate change in responding to loss and damage.
- Access: direct budget support through national governments; national, subnational and regional entities, including those accredited to the Adaptation Fund, GEF and GCF; international entities; and small grants for communities and Indigenous Peoples.
- Contributions: developed countries continuing to take the lead; other Parties encouraged to contribute on a voluntary basis. The UAE committed USD 100 million at COP28.
What GCC filings say about losses
The GCC’s own submissions to the UNFCCC put numbers on the losses that loss and damage describes.
- Oman reports climate-related economic losses of about USD 7.30 billion from 2002 to 2021, and projects USD 13.14 billion by 2040 without action (NDC 3.0). Cyclone Gonu in 2007 alone caused about USD 4.2 billion of damage and 50 deaths (second National Communication).
- Bahrain estimates the economic damage from a single occurrence of its severe coastal flood scenario at about BHD 1.4 billion, against BHD 122 to 161 million for the physical interventions that would mitigate it (National Adaptation Investment Plan).
- The UAE recorded 250 mm of rain in 24 hours in April 2024, a year’s rainfall in a day and a national record (first Biennial Transparency Report).
- Kuwait estimates that 0.5 to 2 m of sea level rise would cost 1.4% to 3% of its coastal territory, affecting 5% of GDP (NDC).
What it means for companies
The loss and damage fund is a channel between governments. Companies do not claim from it, and the Paris Agreement rules out liability. For a business, loss and damage is managed through four tools.
1. Insurance and risk transfer. Article 8.4’s reference to risk insurance and pooling reflects how residual losses are financed in practice. For GCC companies, that means checking whether property and business interruption cover responds to flood, storm surge and extreme heat, and whether parametric covers, which pay on a measured trigger such as rainfall or wind speed, fill gaps.
2. Business continuity. The April 2024 floods in the UAE showed that climate events stop operations, supply chains and staff movement. A continuity programme built to ISO 22301, with a business impact analysis that includes climate scenarios, is the operational answer.
3. Physical risk assessment. The national hazard figures (see sea level rise in the GCC) are the starting point for asset-level analysis of exposure and expected loss.
4. Disclosure. IFRS S2 requires companies to disclose physical climate risks, acute and chronic, and their current and anticipated financial effects. Loss events and insurance gaps belong in that disclosure.
For banks and insurers, the same events drive credit losses, collateral impairment and claims. See what your country’s NDC means for your bank’s climate risk.
Sources: Paris Agreement, Article 8; decisions 1/CP.21 and 1/CP.28; NDCs, National Communications, first Biennial Transparency Reports and National Adaptation Plans of Oman, Bahrain, the UAE and Kuwait; WAM, 30 November 2023.
Frequently asked questions
What is loss and damage?
Loss and damage refers to the adverse effects of climate change that are not avoided by mitigation or prevented by adaptation, from extreme events such as storms and floods and from slow onset events such as sea level rise. Article 8 of the Paris Agreement recognises the importance of averting, minimising and addressing it. Economic losses include damaged assets and lost output; non-economic losses include cultural heritage, ecosystems and lives.
Can companies claim compensation under the loss and damage fund?
No. The fund supports developing countries that are particularly vulnerable to climate change, through national governments, accredited entities and small grants for communities. Decision 1/CP.21 states that Article 8 does not involve or provide a basis for any liability or compensation. Companies manage their own climate losses through insurance, continuity planning and adaptation.
Who contributes to the loss and damage fund?
Decision 1/CP.28 invites financial contributions with developed country Parties continuing to take the lead, and encourages other Parties to provide support on a voluntary basis. At COP28 the UAE committed USD 100 million, as reported by the UAE news agency WAM on 30 November 2023.
How does insurance relate to loss and damage?
Article 8.4 of the Paris Agreement names risk insurance facilities, climate risk pooling and other insurance solutions as an area of cooperation, alongside early warning, emergency preparedness and comprehensive risk assessment and management. For businesses, insurance and risk transfer are the main way to handle residual climate losses.