What is the importance of the UN Loss and Damage Fund’s payout to Nepal? | Explained

Story so far: The United Nations’ climate convention’s Loss and Damage Fund has approved a $21.6 million pay out (approx. ₹205 crore) to the Nepal government to help with rebuilding, following the devastating floods in August.

What is the UN Loss and Damage Fund?

Formally, the Fund for Responding to Loss and Damage (FRLD), was set up to help developing countries that are particularly vulnerable to climate change respond to economic and non-economic losses, including from extreme weather and slow-onset events. It operates under the financial mechanism of the UN Framework Convention on Climate Change (UNFCCC). Governments agreed to create it at COP27 in 2022, and its Governing Instrument was adopted at COP28 in 2023.

As of March 15, 2026, 27 countries had pledged $822.06 million (approx. ₹7,809.6 crore), with $629.70 million (₹5,982 crore) in grant contributions. Its start-up allocation is $342 million with at least half of it reserved for small island developing States and least developed countries. Its first call for funding requests drew 176 requests from 119 countries worth about $2.8 billion (₹26,600 crore). In July the Board deferred decisions on those requests to December.

What is the significance of this decision?

It is the first time the Fund has earmarked money for a specific country. The Board took the decision at its first “extraordinary meeting,” held virtually on October 22, 2026. It also agreed to pilot, during the start-up phase, an approach allowing Nepal to submit a request outside the closed submission window. Any further such submissions will need separate Board decisions, and the Secretariat will assess lessons for the Fund’s long-term model.

On August 26, 2026, an ice-and-rock avalanche, that experts say is linked to climate changed from human-accelerated global warming, set off flooding along the Bhotekoshi–Trishuli–Narayani river system. Nepal estimates economic losses of at least $2.69 billion and recovery needs of at least $4.71 billion. The decision comes weeks before COP31 opens in Turkiye.

How does the money pay out?

The $21.6 million approved by the Board includes $1.6 million in oversight fees, which are paid to the organisations that implement projects to cover the cost of supervising how money is used. Nepal has been invited to submit a funding request, which the Board will consider at its tenth meeting in Manila in December. Money would be released only after that approval.

The Fund has not publicly said how much cash it holds beyond signed contributions, and disbursement depends on donors honouring pledges.

Why has the Fund faced questions about its credibility?

Since its creation at COP27, the Fund has had to show that pledges translate into money for affected countries. The United States, the largest historical emitter, had pledged $17.5 million under President Joe Biden. In January 2025, the Trump administration withdrew the US representatives from the Fund’s board which was part of the US’ larger exit out of the Paris Agreement. At the time, pledges stood at about $741 million.

Jawad Khalid, a climate finance specialist writing for the Lowy Institute, an independent Australian think tank, argued that the Fund “still operates like a conventional development fund” rather than an emergency mechanism. “Its single funding cycle runs eleven steps, from origination through technical review to board approval. The Fund is hosted by the World Bank, which serves as its interim trustee,” he wrote in a piece.

What concerns have experts raised following the approval?

Ajay Mathur, a former Director General of the International Solar Alliance, called the step “landmark” in a media statement. He cautioned that the sum is less than 0.5 per cent of Nepal’s estimated $5 billion reconstruction cost. He noted that cash would flow only after further project proposals are cleared, risking delays to relief.

Harjeet Singh, global convenor of the Fill the Fund campaign, said in a media statement that while the Fund “took a historic first step” it it “cannot be a one-off.” He said no country should have to wait seven weeks, through “historic letters and relentless pressure,” to unlock an emergency meeting, and called for a permanent rapid-response system that moves support “in days, not months.” He said developed countries insisted the decision must not set a precedent or prejudge the long-term model, adding: “Nepal needs billions to rebuild, and this Fund is responding only in millions.”

Others read the decision more positively. Raju Pandit Chhetri, the Least Developed Countries’ lead climate finance negotiator, said it showed countries could reach “swift, effective consensus” and set “a strong precedent.”