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When the Waters Rise: Valencia’s Floods and the Urgent Call for Loss and Damage Finance at COP29

For many as for myself, the recent floods in Valencia are a devastating example of the climate changed world we now live in.


According to Euronews, more than 200 people have been reported killed following the flash flooding, and dozens are still missing (Guilbert, 2024). Spain’s National State Meteorological Agency (AEMET) reported that “a year’s worth of rain fell in just eight hours on Tuesday” in the Chica area of Valencia (Frost, 2024). People are left trapped in homes, cars block streets, certain bridges have collapsed, and local residents “have been queuing for vital supplies”. Aside from the monetarily immeasurable loss of human life, the economic and non-economic damages are staggering. According to a separate article by Le Monde, the Spanish Ministry of Transport already “released €24.8 million Euros on Friday” for immediate disaster relief and emergency repairs with millions prepared for additional support and humanitarian assistance (Morel, 2024). Yet the total damage cost is already expected to be in the billions (Science Media Centre, 2024). Scientists noted that the current global warming is already 1.3 degrees Celsius above pre-industrial levels. A recent UN report highlighted that we are on track for 3.1 degrees Celsius warming by the end of the century (NHK World).



This is only the tip of the iceberg of the devastating climatic catastrophes that we will witness within the coming years and decades.


This week is the COP29 international climate conference at Baku, Azerbaijan, and the topic of Loss and Damage finance has never been more pertinent now than ever before. But there’s an issue. What do we actually know about loss and damage finance? What does it even mean to finance loss and damage?


Since the birth of climate finance in the mid 90’s, starting with the operationalization of the Global Environment Facility, mitigation finance has been the priority area for financing. That is, investments into the mitigative capacities of our economies to reduce global Greenhouse Gas (GHG) emissions. This includes technologies and new practices that contribute to reducing GHG emissions such as switching from fossil fuels to low-carbon options, moving towards a circular economy, replenishing carbon sinks, etc. Adaptation finance is the second branch of climate finance. These are investments into the capacity of our economies to prepare, respond, and adapt to climate changes, strengthening resilience and adaptive capacity within communities such as early warning systems, seawalls, resilient crops, etc. Lastly, there is loss and damage finance. The United Nations defines loss and damage as the unavoidable costs for economic and non-economic losses incurred by climate change. Thus, loss and damage finance are investments into disaster recovery, humanitarian relief, and other post-climatic shocks.


While adaptation finance has been rapidly gaining pace since the 2010’s, mechanisms and institutions of loss and damage financing are fresh planted seeds that have yet to sprout. In fact, for the international community, loss and damage finance is the bottom of the deep ocean – pitch black and unknown. In a recent study by the Heinrich Boll Stiftung institute in Washington DC, loss and damage modeling until 2030 estimated that USD $400 billion annual funding is the minimum funding floor required for loss and damage globally due to the incurred effects of anthropogenic climate change. This number will need to change post-2030, which will certainly increase given the increasing GHG concentrations, temperature and destructive effects of climate change. Before the establishment of the Loss and Damage Fund at COP28, the funding for loss and damage was so minimal it is not comparable in a significant way to the global requirements – see figure 1. To add, adaptation action did not receive significantly more funding than loss and damage.



Although even with the establishment and operationalization of the Loss and Damage Fund at COP28, the total amount pledged to loss and damage is only around USD $702 million. Approximately 0.18% of the minimum annual funding floor calculated (Heinrich Boll Stiftung).

Developed, nor developing economies cannot bear this financial weight alone. We need to mobilize private finance, a key player for the fight against climate change.

 

There exist many financial products and sources to deliver private finance into loss and damage finance, with sufficient incentives and returns against physical climate risks.


Some of the most viable options for loss and damage include:


  1. Blended Finance Facilities

    • These are public or philanthropic funds combined with private capital to de-risk investments, attracting additional private investors for climate-related projects.


  2. Impact Bonds

    • Bonds where the investor returns are tied to the success of impact-focused projects, allowing risk transfer and funding scalability.


  3. Disaster Insurance

    • Provides financial support for recovery after disasters like earthquakes, floods, or hurricanes, especially for vulnerable populations.


  4. Debt Conversion (Debt Swaps)

    • Allows climate-vulnerable countries to convert external debt into funds for loss and damage or adaptation-related activities.


  5. Parametric Insurance

    • Insurance providing payouts based on parameters (i.e., wind speed or rainfall levels) rather than assessed damages, enabling quicker payouts.


These financial instruments collectively mobilize diverse capital sources and innovative structures to address immediate and long-term loss and damage needs, ensuring financial support for resilience and recovery.


This does not include many other instruments such as crowdfunding, guarantee facilities, index-based insurance, catastrophe bonds, loss and damage tokenization, payment for ecosystem services, philanthropic funding, and others.


How do these financial instruments function to support our communities? Let’s dive into a recent case study on Coral Reefs in Quintana Roo, Mexico:


The Quintana Roo Coral Reef Protection initiative, launched in 2018 by Swiss Re and The Nature Conservancy, was one of the recent successful use cases for loss and damage finance. It was developed as a novel parametric insurance model to protect the coral reefs along Mexico’s Quintana Roo coastline in the case of extreme climate events. The model uniquely provides immediate financial relief and resources for reef restoration following hurricanes, which are becoming more frequent and intense due to climate change. The funds are drawn from a trust supported by fees from coastal property owners in the tourism sector, municipal governments, and philanthropic contributions. These payments cover insurance premiums and finance conservation efforts, ensuring the ecosystem’s resilience. See figure 2 for a breakdown of the funding mechanism.


This type of insurance is parametric, meaning payouts are triggered by specific criteria – in this case, hurricane wind speeds reaching a pre-defined threshold – enabling faster access to funds without needing lengthy assessments. When Hurricane Delta hit in 2020, the policy was triggered, releasing a payout of USD 800,000. This rapid funding allowed a volunteer team, called the "Brigade," comprising local divers, biologists, and fishermen, to quickly stabilize the reef, replant damaged corals, and clear debris from beaches. This response helped protect the region's natural defences, essential for mitigating storm impacts and supporting the tourism-driven local economy.


This innovative insurance approach supports ecological restoration and safeguards the livelihoods tied to the reef, whether marine biodiversity, local community dependence, or the tourist-thriving economy. Its success in Quintana Roo has inspired similar models to protect other natural assets, including reefs in Hawaii and the Mesoamerican Barrier Reef, as well as wetlands in China. The initiative showcases how nature-based solutions can be financially supported to enhance both environmental and economic resilience in vulnerable coastal areas​.



The Mexican case illustrates the success of private capital used as a community pool for parametric insurance purposes, servicing Coral Reef restoration and supporting coastal livelihoods. But what’s necessary to drive and target investments into these solutions?

A key driver of success in private investment is the proper classification of costs and benefits from the investments that private parties provide. Governments and private entities are urgently developing so-called sustainable taxonomies to guide these investments. The European Union is one of the leading international parties for the provision of frameworks, guidelines, and taxonomies for sophisticated climate investment, such as with the EU Sustainable Finance Taxonomy.


Established in 2018, the EU Sustainable Finance Taxonomy is a classification framework developed to support the EU’s climate and sustainability objectives under the European Green Deal and its goal of reaching net-zero emissions by 2050. The Taxonomy identifies which economic activities are considered environmentally sustainable, providing investors, companies, and policymakers with a common language to guide investments toward a low-carbon, resource-efficient economy.


The Taxonomy sets rigorous performance thresholds, known as technical screening criteria, for activities across six environmental objectives, including climate change mitigation, adaptation, water protection, pollution prevention, circular economy, and biodiversity conservation. For an activity to qualify, it must make a “substantial contribution” to at least one of these objectives, avoid significant harm to others, and adhere to minimum social and governance safeguards. By defining what qualifies as sustainable, the Taxonomy reduces greenwashing, increases transparency, and allows investors to direct capital to genuinely sustainable projects.


This framework is especially significant as it mobilizes private and institutional capital to meet the vast funding needs for the development of and transition into a sustainable economy, estimated at EUR 6.35 trillion annually by the OECD. The framework provides clarity for investment in both low-carbon sectors and high-emission sectors transitioning to greener practices.


Thus, the EU Taxonomy plays a critical role in the EU’s transition to a sustainable economy while setting a global standard for sustainable finance. Nevertheless, many established investment frameworks are primarily concerned with mitigation finance or include minimum guidance for adaptation finance. This calls for the immediate need to expand the investment frameworks to include guidance for adaptation and loss and damage finance, to increase private capital mobilization, and secure communities from the impacts of a climate changed world. These efforts can ensure the establishment of instruments that are not dependent on public assistance for relief efforts, activating a private sector that can be swiftly mobilized for preparation, recovery, and resilience efforts in relation to climatic events.


In the case of Valencia, such institutions allow for swift relief and recuperation from natural disasters. But most importantly, they can establish resiliency and adaptive capacity to prepare best for these extreme weather events. Considering the layout of current events in Valencia, public reaction to the floods failed the local communities, thus serving as a primary example for private sector engagement. With the increasing frequency and severity of such disasters, mobilizing climate finance is essential not only to safeguard our future, but to secure our lives now and prevent major economic and non-economic losses.


Conclusion

As we look to COP29 in Baku, the world is watching, and the questions are pressing. Will this year’s climate conference finally provide a clear pathway for mobilizing private capital to finance loss and damage? Can national governments, bound by their own economic limitations, secure the partnerships and commitments needed from the private sector to address the catastrophic impact of climate events like the Valencia floods? These floods serve as a harsh reminder of the urgency to establish financial frameworks that protect communities now and in the uncertain future. The stakes at COP29 have never been higher, and the world will need bold, collaborative action to develop and implement the financial tools required to build resilience against a rapidly changing climate. References

Expert reaction to flash floods in south-eastern Spain | Science Media Centre. (2024, October 30). https://www.sciencemediacentre.org/expert-reaction-to-flash-floods-in-south-eastern-spain/

Frost, R. (2024, November 1). Why was Valencia flooding so deadly, did warning texts come too late and what’s the climate link? Euronews. https://www.euronews.com/green/2024/10/31/why-was-valencia-flooding-so-deadly-did-warning-texts-come-too-late-and-whats-the-climate-

Guilbert, K. (2024, November 1). Spain floods: Death toll rises to 205 as nation braces for more rain. Euronews. https://www.euronews.com/2024/10/31/several-missing-in-spain-after-heavy-rain-causes-flooding

Introduction to Climate Finance. (2022). UNFCCC. https://unfccc.int/topics/introduction-to-climate-finance

Morel, S. (2024, November 2). “Incalculable” economic losses in the wake of Spain’s floods. Le Monde.fr. https://www.lemonde.fr/en/economy/article/2024/11/02/incalculable-economic-losses-in-the-wake-of-spain-s-floods_6731369_19.html

NHK WORLD. (n.d.). UN: Average global temperature could rise as much as 3.1 degrees Celsius by 2100. NHK WORLD. https://www3.nhk.or.jp/nhkworld/en/news/20241025_02/

Richards, J.-A., Schalatek, L., Achampong, L., White, H., & Heinrich-Böll-Stiftung Washington, DC / Loss And Damage Collaboration. (2023). The Loss and Damage Finance Landscape. https://us.boell.org/. Heinrich Boll Stiftung. http://us.boell.org/sites/default/files/2023-05/the_loss_and_damage_finance_landscape_hbf_ldc_15052023.pdf

 
 
 

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