Finance for loss and damage: A comprehensive risk analytical approach

This paper examines a comprehensive risk analytical approach on finance for loss and damage. The climate policy discourse on Loss and Damage has been considering options for averting, minimizing and addressing critical and increasingly systemic climate-related risks in vulnerable countries. Research has started to identify possible finance sources and mechanisms, but stopped short of positioning those options along a comprehensive risk management framework in line with the whole scope of Loss & Damage.

Taking a risk analytical perspective, this paper presents a comprehensive Loss and Damage finance taxonomy and framework made up of three pillars: finance for transformational risk management to reduce risks and adapt to climate change, risk finance to provide insurance and other risk transfer for residual risks in vulnerable countries as well as curative finance for potential unavoidable loss of ecosystems and livelihoods. The paper applies this taxonomy and sets of finance options to recently identified limit-prone sectors and regions that are projected to experience soft and hard limits as a consequence of slow-onset climate-related phenomena.