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Nepal’s flood payout tests climate fund

By Sohail Khan 6 September 2026, 3:06 pm

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Business News›News›International›World News›Nepal’s request for flood payout tests new climate-aid system

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Nepal’s request for flood payout tests new climate-aid system
Synopsis

Nepal seeks climate compensation for flood damages from a new UN fund. The nation faces immense costs for recovery and rebuilding after recent catastrophic flooding. This fund, established to aid developing nations, is currently underfunded and untested. Nepal's leaders are urging concrete action from the international community for immediate support. The fund's limited resources and scheduled meetings pose significant challenges for rapid assistance.

Nepal Floods — Nepal’s request for flood payout tests new climate-aid system

Even as rescuers search for the thousands still missing in Nepal after catastrophic flooding that killed 1,250 people, the nation’s leaders face a second immense challenge — how to pay for recovery and rebuilding.

The tab is expected to come to at least $5 billion, an enormous sum for one of Asia’s poorest countries, and the fund it’s hoping to tap is new, underfunded and untested.

Also read: At flood-destroyed China-Nepal border, no sign of a once-busy port

Nepal is seeking compensation for climate change-related damages from a United Nations fund set up to help developing nations deal with the worst impacts of global warming.

On Sept. 1, the country sent a letter to the fund’s co-chairs asking for immediate support and arguing that the international community’s promises “must move from commitments on paper to concrete action on the ground,” Foreign Minister Shisir Khanal told reporters last week. The letter did not quantify the losses or specify how much money the nation was requesting.

The United Nations Fund for responding to Loss and Damage emerged from annual global climate talks in Sharm El-Sheikh, Egypt, in 2022. It was intended to help address a central injustice of climate change: Developed countries, which became rich by taking advantage of fossil fuels, contributed the most to the problem, while poor countries that have emitted far less are the most likely to suffer the impacts of warming and are often the least prepared.

Bloomberg

Floods wash away bridges and damage power plants

The precise role climate change played in the Aug. 26 disaster isn’t yet fully established. But the Himalayas are highly vulnerable to warming, as permafrost and glaciers thaw, rendering rock, soil and ice unstable. Climate-linked disasters such as glacial-lake floods have become more frequent in recent decades.

Disasters like the one in Nepal are “precisely the kind of climate-related extreme weather events the fund was established to address,” members and alternate members of the fund’s board said in an open letter dated Sept. 2. The board members called for an extraordinary meeting of the fund to evaluate Nepal’s case.

Nepal’s environment ministry and the UN fund didn’t immediately respond to requests for comment.

The concern of climate advocacy groups is that the fund lacks the resources and capacity to act quickly and at sufficient scale.

The little-known body, which was fully established in 2024, closed its initial round for funding requests in June and isn’t scheduled to convene again until December.

Even if it does meet imminently, Nepal’s needs dwarf the resources it has on hand. The fund has received pledges of more than $822 million from 27 nations or other partners, but the total of paid contributions so far stands at around $485 million, according to data published by the fund and the World Bank Group. The World Bank currently hosts the fund.

Bloomberg

Funding for climate losses

Prior to the crisis in Nepal, countries put in 176 eligible aid requests for a total of $2.8 billion. No funds have been allocated to date.

Rapid response needed

The fund is charged with meeting a spectrum of needs on different timescales: supporting humanitarian assistance and reconstruction after climate emergencies; tackling chronic, slow-moving problems like sea-level rise; and closing gaps in climate data and policy.

After Hurricane Melissa in 2025, Jamaica requested $20 million to make its water infrastructure more resilient. In applications made before the recent disaster, Nepal sought a total of roughly $43 million for three projects focused on energy initiatives, health systems and food security.

Only governments or official agencies of developing countries can approach the fund, and its board members review submissions. With the next board meeting scheduled for mid-December, in Manila, a first batch of grants is still at least several months away.

That worries climate advocates and experts.

Offering “quick-release emergency” assistance is one of the roles that’s required, said Liane Schalatek, associate director at the Heinrich Böll Foundation, a Germany-based nonprofit. The devastation in Nepal “is clearly loss and damage,” she said.

Doreen Stabinsky, professor of global environmental politics at the College of the Atlantic, agreed: The fund “needs to develop a rapid response mechanism.”

Manjeet Dhakal, lead advisor to the chair of the UN’s Least Developed Countries Group on Climate Change, helped shape the fund and said it has an opportunity to establish a precedent with a swift response.

“If we go to December, it will be too late,” Dhakal said. “This is a real test for the loss and damage fund to establish its relevance when a vulnerable country faces catastrophic losses.”

A small and shrinking pot of money

Given the limited amount in the fund, only a small proportion of the applicants will receive assistance.

“There is a risk of the fund exhausting its capital by the end of 2027, which could result in a loss of operational momentum and expose [it] to reputational risk,” the fund said in April.

Nations are expected to top up their commitments every four years under a so-called replenishment funding process. A replenishment round is scheduled to begin next year, though could be subject to delays because of the lack of disbursements so far.

While the fund is woefully insufficient compared to the forecast scale of projected climate damage, the alternatives aren’t great. With the US retreating from leadership on global aid and climate action, the pool of available money has dwindled.

To help prevent climate damages, developing countries can also tap the Green Climate Fund, another entity that’s backed by the UN. However, it’s facing its own challenges and decided to ease rules for maintaining reserves in July, as countries including the UK significantly trimmed pledges.

A more common option for countries looking to rebuild is to take out additional loans, but many developing nations are already facing an unsustainable debt burden.

For Nepal, where debt is already 48% of gross domestic product, “it’s very likely that an event like [the recent floods] is not just one that happens every 100 years, but it’s coming more and more frequently,” said Schalatek. “It’s a death spiral. I mean, they have no way to basically borrow their way out of that.”

Read More: Nepal Seeks Foreign Help as Scale of Flood Disaster Grows

Even when countries do win commitments of aid or financing to respond to climate disasters, that’s not always a guarantee the funds will arrive. Three years after fatal floods in 2022, Pakistan had received less than half of the roughly $11 billion promised by other countries and agencies.

“The amount of climate finance is shrinking,” said Ulka Kelkar, executive director of climate, economics and finance at WRI India, a nonprofit. “What we need to do, first of all, is to make sure we operationalize the pledges that have been made.”

The role of rich countries

The 2015 Paris Agreement called for a “cooperative and facilitative basis” for addressing climate-related loss and damage. But the question of who covers the costs of worsening floods, storms, wildfires and other disasters has threatened to unravel negotiations at recent UN climate summits.

“Nepal’s call for compensation should be seen in the context of a much larger and increasingly urgent question: Who pays for the increasing costs of climate change?” said Hisham Mundol, chief India advisor to the nonprofit Environmental Defense Fund. “The urgency and the numbers are becoming difficult to ignore.”

Also read: Nepal PM Balendra Shah to address UN session to voice concern over climate change

Developing countries and climate advocates say the onus is on rich, high-emitting nations to help them bear the brunt of changes to the climate that they had little hand in causing. “Countries that have contributed disproportionately to greenhouse gases have a greater responsibility to help countries facing the consequences,” said Mundol. But developed countries have balked at providing the level of funding asked of them.

The US, the biggest historical emitter, has cut aid, while China, the world’s current top emitter, argues it is still a developing country and therefore not beholden to the same obligations as rich nations.

Bloomberg

Cumulative carbon emissions

There’s no legal mechanism to make countries pony up — so far. A landmark advisory opinion by the International Court of Justice last year stated that countries have a duty to protect the world from climate harms and that failure to do so could violate international law. In an analysis of the opinion, the Heinrich Böll Foundation said the court makes clear that loss and damage funding is “a legal requirement” rather than discretionary.

But the shakiness of multilateralism casts doubt on how enforceable that is. And rich countries have tried to ensure that their international climate commitments do not entail legal responsibility.

When the loss and damage fund formally launched, the UN documents were carefully crafted to shield developed countries from liability or admissions of guilt, while trying to help cut risks for the most vulnerable.

“It is very clear in the text of the Paris Agreement and other decisions that there is no liability involved,” said Jessica Green, a University of Toronto political science professor. “So from the beginning, this has been a sort of political compromise.”

Climate attribution science can pinpoint the role of global warming in specific extreme weather events, and those findings could be harnessed by Nepal and other countries to support their applications for loss and damage funding or potential legal claims. But the task of assigning financial responsibility for a disaster is extremely complex, noted David Victor, a professor of innovation and public policy at the University of California at San Diego.

“It doesn’t mean that there aren’t damages,” Victor said. “Quite the opposite. But it’s just operationally kind of a nightmare.”

More effective, he argued, would be a forward-looking system that invests in stronger infrastructure and institutions. Green said that changing investment treaties, amending tax law and offering debt forgiveness would work to free up capital for developing countries.

Improving access to climate finance for vulnerable nations is a key agenda item for COP31, the next round of annual climate talks, taking place in Turkey in November. Negotiators will have to respond to what happened in Nepal, and “the response cannot be sympathy,” said Dhakal. “It has to be in terms of a strong commitment on emission reductions, with a bigger role by major fossil-fuel contributors, and closing the gap on climate finance.”

Ultimately, the best protection is to do more to stifle the cause of global warming, the burning of fossil fuels, said Stabinsky, of the College of the Atlantic.

“Unless we stop warming now, Nepals will keep happening.”

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Read More News on
Nepal flood compensationclimate change fundingloss and damage fundUN climate aid systemHimalayas climate vulnerabilityNepal recovery fundingclimate finance challengesinternational climate agreementsdeveloping nations fundingglobal warming impact

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