As efforts to mitigate and adapt to the impacts of climate change fall short, discussions around loss and damage (L&D) resulting from climate change have gained urgency. These discussions pivot on questions around financing, which remains very limited. Going into the twenty-seventh UN Climate Change Conference (COP27), the call for a new L&D financial mechanism has been raised by developing countries.

This paper provides a brief overview of the state of play of global negotiations on L&D and explores options for funding arrangements for addressing L&D in the context of the positions of the G77 and Alliance of Small Island States (AOSIS). The paper considers options related to four key questions concerning a new mechanism for financing L&D:

1. Where will it be located? A new L&D financial mechanism could be located within the climate regime. However, there could also be complementary mechanisms outside the climate regime.
2. Who will pay for it? There are two broad options for funding: ask for public contributions from donors or impose new taxes. An L&D financial mechanism could adopt both approaches, though some taxes could negatively impact some of the very countries advocating for L&D.
3. Who will control it? Any mechanism should be guided by the principle of Common But Differentiated Responsibility and should be new and additional; needs-based, adequate, and predictable; public and grant-based; guided by vulnerability criteria; and locally driven.
4. What will it do? The fund should make clear how L&D is both distinct from and linked to mitigation and adaptation and should take special care to address critical gaps in financing for slow-onset and noneconomic losses.