The concept of loss and damage may have risen on the international agenda in the past five years, but the idea was first officially proposed in 1991. Vanuatu’s then-ambassador, Robert Van Lierop, asked for an “insurance pool” based on a “polluters should pay” model that would cover the losses and damages. Vanuatu became a leading voice for the reality faced by many small island and developing states: They experience the worst impacts of climate change while often contributing the least to it.

The response was slow and hesitant. But now, thirty-five years later, the Fund for responding to Loss and Damage (FRLD) has finally been operationalized and has opened its first call for proposals. 

However, this open call has brought to attention a core and longstanding question: what constitutes losses and damages? 

The core question: How to define loss and damage? 

Notably, for its first open call for funding requests, the FRLD did not set formal parameters for what constitutes “losses” or “damages.”  

Under the fund’s $250 million pilot grant program, the Barbados Implementation Modalities (BIM), the definition of these terms is country-led. Specifically, it calls for submitting countries to “detail in their funding requests what responding to loss and damage means to them according to their context and priorities.”  

The first provisional disbursement was in response to a petition from Nepal after a devastating flood. Approved during an emergency meeting of the board, the fund agreed to allow Nepal to submit a proposal under BIM despite the standard submission having closed. However, this initial provisional approval still doesn’t clarify what losses are included. The press release acknowledges that the recovery and reconstruction costs will “place an extraordinary financial strain on the nation […alongside the] massive non-economic loss and damage faced by the Nepalese people and ecosystems that they depend on.” 

But what constitutes a noneconomic loss and damage? That’s the issue. The fund does not define either economic or noneconomic losses. 
 
As the fund continues to offer disbursements and secure the financial commitments from twenty-seven countries, this question will persist. 

The current issue: What is lost when definitions are gained

For loss and damage, economic losses include direct and consequential losses. Direct economic losses cover losses to physical assets and infrastructure. Consequential losses are secondary losses like the cost of business interruption. These losses are more visible and, thus, more readily defined.

However, the FRLD accounts for the noneconomic costs as well. This sets it apart from other major UN-backed climate funds. In part, it’s because these are subjective costs and difficult to measure. These losses include impacts to Indigenous culture, heritage, or knowledge; human health; human mobility; and ecosystem damage. Indeed, while consequential economic costs can prove challenging to measure, it is even more challenging for noneconomic impacts.  

While the fund leaves space for that recognition, it also creates a dual-pronged question: What losses are noneconomic? And how can you estimate the cost of those losses? 

It is not clear why the fund avoided an established definition. However, other major agreements, especially those related to financing, often use broad definitions to avoid political deadlock. Further, to be relevant and binding, the definition must be embedded within an official UN convention or treaty. This requires drafting, legal review, and diplomatic negotiations. Including clear and strict definitions imply a level of liability that would likely prevent many parties from signing the agreement. Therefore, creating a definition that is broad enough to respond to the evolving reality is often an accepted compromise.  

The fund was first proposed in 1991 and took three decades to become established. Clarifying what does—and does not—constitute a climate-related loss or damage could have added years to the negotiation process. Worse, it could have even effectively tabled the conversation. 

The challenge: The questions coming on the COP31 agenda

However, there are clear arguments for clarity and specificity. Some have argued that imprecise parameters have limited the success of other comparable funds, like the Green Climate Fund. There is an understood need to have clear frameworks to protect investors and beneficiaries. 

The ambiguous approach to defining “losses and damages” comes with clear challenges. Because the fund is designed to fill a critical gap, it must be immediately noncompetitive.  

Loss and damage is often conflated with humanitarian response. Thus, it is critical to ensure that applications do not divert resources from other essential needs. The fund should “complement, not replace, existing funding streams.” It can be challenging for impacted countries and donors to properly distinguish between traditional adaptation finance, humanitarian aid, and true loss and damage funding. Without an agreed upon definition of what constitutes a loss or damage, the lines can become quickly blurred.  

This is especially the case for noneconomic losses. There are concerns that broad guidance will deprioritize noneconomic losses for the more measurable direct economic damages. Clearer parameters—and disbursement thresholds—could allow for more equitable distribution between noneconomic and physical damages. 

Countries are left to estimate the cost of losses to biodiversity or the mental health impacts to affected communities. As a result, there will likely be differing assessments and methodologies, given the lack of standardized market or financial metrics.  

The FRLD’s very nature requires clear, transparent processes. Because of its multilateral structure, the United Nations is mandated to have robust auditing and accounting. The fund’s fiduciary frameworks are managed by its trustee—the World Bank—and its independent secretariat. So, clearer definitions can also enhance reporting requirements for both beneficiary and donor countries. 

The short term: What to expect at COP31 

This year, the BIM will serve as a litmus test. The challenges and opportunities created by an open definition process will likely impact the first round of approvals. The first official funding allocations and project approvals are now anticipated to be announced by the board at the 31st United Nations Climate Change Conference (COP31). 

In July 2026, the board increased the BIM allocation over 36 percent to $342 million. The board framed this increase as essential to “ensure the operational continuity of the BIM while transitioning to the long-term model of the FRLD.” 

However, this prioritization of long-term processes has recently come under fire. After flash floods killed hundreds in Nepal, the disaster put a spotlight on the fund’s reactivity and responsiveness. On August 31, the Nepalese finance and environment ministers sent a letter to the FRLD board to request an emergency meeting. The FRLD board was not expected to meet until December, and so had to convene its first extraordinary meeting. Despite the Nepalese ministers’ call for an “urgent and appropriate response,” the FRLD offered a provisional approval. The country was offered an extension on the BIM application and still required to submit its proposal through the same channels. While this was a critical signal from the fund, it opened new questions: How can a standard application window be useful for countries experiencing devastating crises outside the approval periods?  

So, as the world prepares for COP31, the question of parameters will likely be sidelined as the more urgent question of timely disbursements comes into play.  

The long term: The future of the loss and damage fund 

The questions over loss and damage will persist after this year’s COP31. In the coming years, the concerns over responsiveness and the amount of the fund’s financial commitments will likely take precedence. The latter is becoming a special concern as reports emerge that the funds are woefully short. Under its first disbursement, the applications for the BIM averaged $15.9 million, and experts predict these losses will increase over time. 

Through all of this, however, the need for clarity on what constitutes a loss and damage will remain. If the fund is able to weather these challenges, the questions about more effective and equitable will once again come to the forefront. In the coming years, it remains to be seen if this need for more clarity will force an official process to add plainer parameters for direct and noneconomic losses or if it will simply be revealed over time as submissions are reviewed.