Compensation for Loss and Damage under the GCF

Legal assistance paper

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Date produced: 12/06/2021

Can the Green Climate Fund compensate for loss and damage?


  1. Potential argumentation lines

As neither the Paris Agreement nor the GCF investment framework provide for a formal compensation mechanism for L&D (see below 2. for more details), an argument based on (direct) compensation for L&D would be difficult if not at all impossible to sustain. In order to increase the chances of L&D being ultimately taken into account, the argument should rather be that compensation would not only represent compensation for L&D, but also for an adaptation in the sense of the Paris Agreement (and thus covered by the compensation scheme):

  • The focus of the argumentation must therefore be set on demonstrating that the relevant financial needs are associated with an adaptation measure. The fact that the financing of the adaptation measure would – depending on the case at hand – also (indirectly) lead to a L&D compensation would not be a barrier in our view and not hinder financial support.
  • We believe that in many cases it will be necessary to compensate for L&D in the course of implementing adaptation measures, because compensation is inherently part of the adaptation process itself. This is likely to be the case in particular in situations where the elimination of the cause of the disturbance (= adaptation) also includes (or even requires) the elimination of the consequence of the disturbance (= L&D), e.g. because the mere elimination of the cause of the disturbance would not be sufficient. A split in these cases between L&D components (= no financing) and adaptation components (= financing granted) would appear artificial and, as a result, make it more difficult or even impossible to access financial resources. Instead the measure should be viewed as whole, with the adaption objective being the decisive factor.
  • This is particularly likely to be the case if climate change leads to social displacement because livelihoods are destroyed. Affected regions needing to adapt, in the sense of strengthening their climate-related resilience for the future without simultaneous restoration of livelihoods, in the sense of “building back better”, would be a pure end in itself. Rather, it follows from the investment criteria of the GCF that (among other things) social concerns must also be taken into account. As part of the adaptation impact indicator, projects applying for GCF funding should describe the expected change in loss of lives, value of physical assets, livelihoods, and/or environmental or social losses due to the impact of extreme climate-related disasters and climate change in the geographical area of the GCF intervention. This is also in line with the special emphasis on people and livelihood protection in the Paris Agreement (cf. Art. 7 para. 2). Refusing financial support only because it (de facto) includes an L&D component would therefore not be in conformity with this objective.
  • Thus, it could be argued that it is not a just matter of compensating for a L&D that has occurred, but rather a formative climate adaptation measure that is being pursued by the provision of financial support. The financial support of developing countries in their reconstruction efforts is of particular importance in order to help these countries to achieve the next level with respect to climate adaptation (in the sense of “building back better”). Without said financial support, it would be rather difficult for developing countries to achieve such next (adaptation) level. Even worse, without financial support, the measures taken to restore livelihoods and infrastructure may not meet climate standards and therefore run counter to a long-term (climate) adaptation strategy.
  • Consequently, we would argue that a measure that aims to restore livelihoods and to build back the infrastructure better compared to what was there before (i.e. by leading to a more resilient infrastructure) should constitute an adaptation measure under the Paris Agreement even if it also has a L&D component. In these cases, the adaptation element would predominate and financial support would not constitute a politically undesirable reparation payment.
  1. Background / legal framework

In our view, the basis (and prerequisites) for financial support can be either found in the Paris Agreement itself or in the GCF investment framework (b.).

(a) Paris Agreement

According to Art. 9 para. 1 the developed country Parties shall provide financial resources to assist developing country Parties with respect to both mitigation and adaption in continuation of their existing obligations under the Convention. Further, Art. 9 para 4 states that the provision of scaled-up financial resources should aim to achieve a balance between adaptation and mitigation, taking into account country-driven strategies, and the priorities and needs of the developing country Parties […]. As a first finding, it follows therefrom that the focus of financial support is on mitigation and adaptation.

L&D on the other hand is (only) mentioned in Art. 8. According to Art. 8 para. 1 the Parties recognize the importance of averting, minimizing and addressing loss and damage associated with adverse effects of climate change, including extreme weather events and slow onset events, and the role of sustainable development in reducing the risk of loss and damage. However, since financial support is given formally (only) with regard to mitigation and adaptation, the content of these categories/measures must be determined especially with regard to a (potential) delineation from L&D.

The Paris Agreement does not define/specify the terms mitigationadaptation and L&D. An approximation must therefore be conducted by an interpretation on the basis general language usage, systematic context and intended purpose of the respective articles. Further, other EU-level regulations addressing sustainability can serve as guidance.

Based thereon, from our perspective the above terms can be defined/specified (and delineated from each other) as follows:

  • Adaptation aims to come to an accommodation with climate changes that have already occurred and to adjust to expected changes in such a way that future damage can be avoided. Adaptation can therefore be either reactive or proactive (precautionary) and affects both social and natural systems. The definition from the EU Taxonomy Regulation (2020/852) can also be used as an orientation aid. According to its Art. 2 para 6 climate change adaptation means the process of adjustment to actual and expected climate change and its impacts.
  • Mitigation can be defined as the avoidance and reduction of climate-damaging gases. Also the definition from the EU Taxonomy Regulation (2020/852) can help by way of context. According to Art. 2 para. 5 climate change mitigation means the process of holding the increase in the global average temperature to well below 2 °C and pursuing efforts to limit it to 1,5 °C above pre-industrial levels, as laid down in the Paris Agreement.
  • L&D describes the effects of climate-related adverse events that occur despite efforts to reduce greenhouse gas emissions worldwide in general and to adapt to climate change.

Based on the above, from our perspective L&D refers to a retrospective view of conditions that have already occurred with the aim of preventing their future (re-) occurrence. In this function, L&D can, in our view, be regarded as a trigger for climate protection measures in the first place, because only the occurrence of climate-related L&D makes climate protection necessary. Adaptation and mitigation on the other hand describe the functional elements of preventive measures to prevent future L&D. The financial compensation provided for under the Paris Agreement is embedded in this dichotomy:

The provision of financial support for adaptation and mitigation, as set out in Art. 9 para. 1, reflects the fact that the aim is not to compensate for (immediate) L&D. Rather, the objective is to prevent future losses (in the medium and long term) through adaptation and mitigation measures. The focus is therefore not on one-off loss compensation payments, but on financing to achieve structural changes towards climate-neutrality. This view is also in line with governmental perspectives (e.g. from the German Federal Ministry for the Environment) on the structure of the financial support according to which the Paris Agreement does not offer developing countries the possibility to claim compensation or liability for climate change impacts.

(b) GCF investment framework

Also pursuant to the GCF investment framework, direct compensation for L&D is not provided. Rather, funding sourced from the GCF is also directed towards adaptation and mitigation (cf. the GCF initial investment framework).