Commentary: Despite devastating floods, Nepal has limited options for climate compensation

Climate compensation refers to money intended to address losses and damage after climate-related disasters. It is linked to the idea that countries most responsible for historical greenhouse-gas emissions should help vulnerable countries recover. Adaptation finance serves a different purpose. It funds measures that reduce exposure and vulnerability before disasters strike, such as resilient infrastructure and early-warning systems.

Nepal’s flood illustrates the difference. Its August glacial flood caused an estimated US$2.6 billion in damage, while rebuilding may cost US$4.8 billion. Nepal requested just US$20 million from the Loss and Damage Fund. Adaptation support would instead help protect roads, bridges, homes and communities from future hazards.

The article says compensation is unlikely to arrive soon. The International Court of Justice issued an advisory finding, but it did not require payments. Developed countries also reject links between funding and legal liability. Vulnerable countries may therefore gain more by pressing for adaptation and resilience finance.

Nepal’s August glacial flood created a huge gap between national needs and available climate finance. Authorities estimated US$2.6 billion in property and infrastructure damage. They estimated reconstruction would require US$4.8 billion. These figures include the costs of restoring essential systems after a catastrophic event.

Against that scale, Nepal requested only US$20 million from the United Nations’ Loss and Damage Fund. The article describes this request as about 0.4 cent of projected reconstruction costs. The comparison shows how little international funding is currently available compared with the needs of a climate-vulnerable country.

The small request does not mean the damage was small. The Fund has received only US$585 million against pledges of US$822 million, and it had approved and disbursed no projects as of 2025. Nepal therefore faces a major financing shortfall while rebuilding homes and infrastructure.

When floods destroy roads, bridges and other infrastructure, Nepal loses more than buildings. Transport links are essential for moving goods, people and supplies. Their damage can isolate communities, interrupt trade and make reconstruction harder. Homes and livelihoods are also lost, increasing pressure on households and government.

Nepal is landlocked, so it already faces structural disadvantages. United Nations data says landlocked developing countries pay double the freight rates of coastal states. After a disaster damages transport routes, those costs can rise further. This makes sustained economic recovery more difficult and slows the return of normal activity.

The wider financial burden is severe. The United Nations estimates that disasters cost least developed countries about 1 per cent of gross domestic product, compared with 0.3 per cent globally. Nepal’s estimated US$4.8 billion reconstruction need therefore competes with already low development levels and limited climate finance.

Developing countries often begin with fewer financial resources, weaker infrastructure and lower levels of human development. A major disaster therefore consumes a larger share of their economies. Recovery can divert money from health, education and development toward emergency repairs, housing and reconstruction.

Nepal faces an additional disadvantage because it is landlocked. United Nations data says landlocked developing countries pay double the freight rates of coastal states. When floods destroy roads and bridges, transport becomes even more expensive. That raises the cost of bringing in supplies and moving goods, making recovery slower and less affordable.

The figures show the imbalance. Disaster losses amount to about 1 per cent of GDP in least developed countries, versus 0.3 per cent globally. The Vulnerable Twenty estimated US$525 billion in cumulative climate-related losses among its members from 2000 to 2019. Some disasters can overwhelm entire economies, as Hurricane Maria did in Dominica.

Nepal and other vulnerable countries face a political and legal barrier. They want major historical greenhouse-gas emitters to help pay for climate-related losses. Developed countries, however, have strongly opposed linking such payments to legal liability for their past emissions. That makes compensation claims difficult to turn into actual funding.

In July 2025, the International Court of Justice found unanimously that states had binding obligations under international law, the UNFCCC and the Paris Agreement to prevent significant harm to the climate system. Yet the ruling was advisory. It did not obligate developed countries or major emitters to provide additional resources.

The main international fund is also underfunded and slow. By 2025, the Loss and Damage Fund had received US$585 million against US$822 million in pledges, with no project approvals or disbursements. Vulnerable countries therefore face large losses without a clear, enforceable route to compensation.

The Fund for Responding to Loss and Damage is an international financing mechanism for countries suffering climate-related losses. It was announced at COP27 in 2022 and operationalised the following year. Its purpose is to help vulnerable countries respond when climate impacts damage lives, infrastructure and livelihoods.

Its early record has been weak. As of 2025, countries had pledged US$822 million, but only US$585 million had been contributed. The Fund had approved no projects and disbursed no money. Least developed countries and small island states also reported disproportionate bureaucratic obstacles when trying to access funding.

The Fund’s political structure adds complexity. China and India are classified as developing countries, so they have no obligation to contribute, although they may give voluntarily. They are also eligible to receive funding. The gap between need and delivery has kept the mechanism far below vulnerable countries’ expectations.

Legal compensation claims face political resistance, uncertain enforcement and slow fund delivery. Adaptation takes a more practical route. It focuses on reducing harm before disasters occur, rather than waiting for a payment after homes, roads and livelihoods are destroyed. For Nepal, early warnings can help communities and authorities prepare for multiple hazards.

The article identifies multi-hazard early-warning systems as a pragmatic option. Such systems depend on timely information, reliable communication and cooperation across climate-fragile regions such as the Himalayas. Better data cooperation can support warnings and improve decisions about preparedness, evacuation and protection of infrastructure.

Adaptation finance is still imperfect, but vulnerable countries may have greater leverage in demanding it than compensation. Insurance schemes do not cover all needs, and debt clauses only postpone payments. Resilient infrastructure, risk reduction and early warnings therefore offer more immediate protection while international negotiations over loss and damage continue.