Implementing innovative finance instruments for loss and damage

The document highlights a critical gap between the estimated loss and damage (L&D) finance needs of developing countries (USD 400 billion to 1.6 trillion per year by 2030) and current pledges to the Fund for responding to Loss and Damage (USD 745 million as of December 2024). It proposes a variety of innovative instruments to generate revenue, categorized by their funding potential and alignment with the 'polluters pay' and historical responsibility principles. High-potential instruments include wealth taxes (up to USD 2 trillion per year) and windfall taxes (up to USD 1 trillion per year). The brief recommends that high-income countries implement these instruments nationally or advocate for global frameworks through forums like the G20, IMF, and the UN Framework Convention on International Tax Cooperation to ensure equitable climate finance.

• There is a massive disparity between the projected annual loss and damage (L&D) finance needs for lower-income countries by 2030, estimated at USD 400 billion to 1.6 trillion, and the actual pledges to the Fund for responding to Loss and Damage (FRLD), which totaled USD 745 million as of December 2024.
• Wealth taxes and windfall taxes are identified as having the highest funding potential. Wealth taxes could potentially raise USD 2 trillion per year through progressive rates on the richest individuals, while windfall taxes on mega-corporations could generate USD 1 trillion per year.
• Several instruments are assessed as strongly adhering to the 'polluters pay' principle by targeting high-polluting companies or individuals. These include fossil fuel extraction levies, windfall taxes, and progressive wealth taxes, as the richest 1% generate more emissions than the bottom 50%.
• Instruments implemented at the national level by high-income countries, such as air passenger levies or financial transaction taxes, can quickly generate public revenue to increase contributions to the FRLD. However, global-level instruments, like a maritime levy, are more efficient for channeling payments directly into the fund.
• Debt reform measures, including debt-for-climate swaps and the reallocation of Special Drawing Rights (SDRs), can increase the fiscal space for indebted countries to invest in climate action, but they do not generate additional new climate finance from polluters.
• Catastrophe bonds are deemed unsuitable for generating additional L&D finance because they do not target those responsible and instead place the financial burden on the most affected nations.

APA

Shawoo, Z., Ghosh, E., & Nazareth, A. (2025). Implementing innovative finance instruments for loss and damage. Stockholm Environment Institute. https://www.sei.org/wp-content/uploads/2025/04/implementing-innovative-finance-instruments-for-loss-and-damage-1.pdf

Chicago

Shawoo, Zoha, Emily Ghosh, and Anisha Nazareth. Implementing innovative finance instruments for loss and damage. Stockholm Environment Institute, 2025. https://www.sei.org/wp-content/uploads/2025/04/implementing-innovative-finance-instruments-for-loss-and-damage-1.pdf.

Wikipedia

{{cite report |last1=Shawoo |first1=Zoha |last2=Ghosh |first2=Emily |last3=Nazareth |first3=Anisha |title=Implementing innovative finance instruments for loss and damage |publisher=Stockholm Environment Institute |date=March 2025 |url=https://www.sei.org/wp-content/uploads/2025/04/implementing-innovative-finance-instruments-for-loss-and-damage-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{shawoo2025implementing, author = {Shawoo, Zoha and Ghosh, Emily and Nazareth, Anisha}, title = {{Implementing innovative finance instruments for loss and damage}}, institution = {Stockholm Environment Institute}, year = {2025}, month = mar, url = {https://www.sei.org/wp-content/uploads/2025/04/implementing-innovative-finance-instruments-for-loss-and-damage-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }