This article is part of a Synergies series on Next generation trade arrangements for environment and sustainable development. Any views and opinions expressed are those of the author(s).

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A defining paradox of our time is the widening gap between the worsening climate crisis and the response of governments to it. This growing ambition gap reveals not only the mounting difficulty of addressing climate change and its catastrophic impacts, but also the broader dysfunction in global governance. Nowhere is this more apparent than in the persistent failure of states to address the damages wrought by extreme climate events, a failure viewed through the lens of climate justice as a significant moral shortcoming, and as a failure of global governance.

Climate negotiations under the UN have produced a loss and damage mechanism intended to help countries bear the costs of extreme climate impacts. But those negotiations have been mired in gridlock, with the question of liability bitterly contested by states whose notions of responsibility and justice diverge sharply. While the principle of compensating climate-vulnerable nations has gained acceptance, its operationalization has remained elusive. Where states have acknowledged some form of accountability, they have gravitated towards less obligatory approaches such as the use of market mechanisms, insurance instruments, and the like, rather than accept any strict form of legal liability. The result has been a diplomatic stalemate in the face of accelerating harm to some of the world's most exposed and least responsible countries, but also backsliding by states that had previously exercised leadership by indicating their responsibility for compensation. 

This article explores the roots of this gridlock and argues that proactive diplomacy offers a credible path forward. Specifically, claims settlement mechanisms—long-standing tools of economic statecraft—can enable the compensation of climate damages through depoliticized, technically grounded intergovernmental approaches that make cooperation not merely desirable but feasible. The argument is not that claims settlement is a panacea. It is that the current impasse demands creative thinking about the full range of instruments available to states, and that proactive diplomacy has more to offer than is commonly recognized.

After three decades of negotiations, countries adopted the landmark Paris Agreement in 2015 as the overarching multilateral framework for climate action. Hailed as a watershed moment, it enabled universal participation through the now-familiar architecture of nationally determined contributions. A decade on, however, greenhouse gas emissions continue to rise rapidly and climate damages continue to worsen. This ambition gap has proven a vexing challenge for scholars, policymakers, and practitioners alike.

The loss and damage mechanism emerged through the shrewd diplomacy of small island developing states, which successfully argued that climate-related damages not captured under adaptation needed their own dedicated forum. Loss and damage was significant because it brought urgent attention to the immediate and ongoing impacts of climate change, impacts falling disproportionately on countries that have contributed least to the crisis. Over time, however, the question of liability moved to the centre of the loss and damage debate, crystallizing a tension between states seeking reparations and compensation, and industrialized countries determined to avoid legal accountability. Despite agreeing on the mechanism's broad architecture, states have been unable to resolve the liability question. The gridlock now appears almost intractable.

Beyond the formal negotiations, climate litigation has emerged as an alternative route to redress. Most notably, Vanuatu led a coalition of states in seeking an advisory opinion from the International Court of Justice (ICJ) on states' obligations in respect of climate change, including on liability and the redress of climate damages. In July 2025, the ICJ issued its ruling unanimously, confirming that states do indeed bear binding legal obligations to address climate change, and that climate inaction may constitute an internationally wrongful act. In fact, the ICJ advisory opinion (AO) finds that a state bears responsibility for any internationally wrongful act it commits, and this responsibility may trigger the “entire panoply of legal consequences” under the law of state responsibility, including reparations. (see ICJ, AO paras. 444-445). Moreover, the recent General Assembly Resolution on the ICJ AO (A/80/L.65) restated these ICJ findings, and called on states to respect their international law obligations with regards to climate change, including relating to the responsibilities of a state in case it fails to honour its obligations (para. 9).

Yet, despite this landmark finding, states remain divided along geopolitical lines on which rules should apply and which principles should govern accountability. The advisory opinion, authoritative as it is, has not resolved the liability question as understood by states. More broadly, what is being termed strategic climate litigation, a proliferation of legal actions targeting both governments and corporations, has placed states on the defensive, but has yet to generate intergovernmental mechanisms that are both feasible and effective in an increasingly contested global order.

It is against this backdrop that I turn to claims settlement. The advisory opinion has not settled the liability question, but it need not be read as an end point. The court found that states failing to meet their climate obligations may be held legally responsible and, where harm can be clearly linked to that failure, may owe reparation. It did not, however, say how such claims should be pursued. That task now falls to states, as well as other actors, and claims settlement offers one possible route.

The unravelling of the Western-led liberal international order, and of the multilateral institutions that gave it legal expression, has prompted serious scrutiny of international courts and tribunals. The declining fortunes of the WTO Appellate Body, hobbled by American obstructionism driven by geoeconomic competition, exemplify a broader trend. As the emerging geoeconomic order reshapes international cooperation, there is renewed interest in claims settlement, understood as the binding resolution of disputes between states, investors, and commercial parties through authorized tribunals, as a mechanism capable of restoring legal certainty where multilateral institutions have proven inadequate or faced backlash. What is novel is the growing salience of mass claims settlement, in which large volumes of related claims arising from a common event are processed collectively, delivering redress at a scale and speed that conventional adjudication cannot match.

Claims settlement has attracted renewed scholarly attention as one such alternative, precisely because of its depoliticized character. As Lauge Poulsen has shown through meticulous archival research and a compilation of almost 400 lump sum agreements, states have relied on claims settlement mechanisms to resolve longstanding disputes, including those involving compensation for substantial damages, since the seventeenth century. Far from being a novelty, these instruments were, in Poulsen's assessment, the most important tool of international claims resolution throughout the twentieth century. Such arrangements have been used to address claims arising from the American Revolution, maritime seizures, bond defaults, and, most relevantly for our purposes, environmental damage in the aftermath of armed conflict.

In essence, claims settlement mechanisms seek to redress harms on behalf of individual claimants collectively, rather than through individual legal proceedings. Governments may pursue such claims through a process known as claims espousal, whereby, as the established doctrine holds, “a nation’s government can take over and settle the claims of its citizens against a foreign government when those claims arise out of a violation of international law obligations by the foreign government.” This allows for mass resolution of claims that would otherwise require years of costly individual litigation, and it places the weight of a state’s diplomatic capital behind the effort.

The most prominent example of environmental claims settlement remains the United Nations Compensation Commission (UNCC), established by the UN Security Council in 1991 to process claims arising from Iraq's unlawful invasion and occupation of Kuwait. The Commission ultimately processed approximately 2.7 million claims and awarded a total of $52.4 billion in compensation. Of particular relevance here, the UNCC awarded approximately $4.3 billion specifically for environmental remediation and restoration to the governments of Iran, Jordan, Kuwait, and Saudi Arabia, covering damage to natural resources, water supplies, crops, and fragile desert ecosystems devastated by the burning of oil wells and military operations. This was the first time an international institution had held a state financially accountable for environmental destruction on such a scale, with the awards financed through a levy on Iraqi oil revenues. That the UNCC managed to incorporate environmental claims into what was fundamentally a security and reparations framework is itself testament to the flexibility of the claims settlement model.

Claims settlement mechanisms offer three distinct advantages that make them well-suited to overcoming the gridlock on climate damages. First, they are depoliticized. By establishing quasi-judicial mechanisms under diplomatic cover, claims processes can focus on the technical merits of each claim, largely insulated from the political pressures that would attend, and likely paralyse, proceedings before an international court. Second, they are flexible. They allow states to bundle and address a range of claims within a single framework, creating scope for issue linkage, as illustrated by the UNCC's successful incorporation of environmental claims into what was primarily a security and reparations settlement. Third, it is precisely this combination of depoliticization and flexibility that makes claims settlement effective. Judicial and technical experts can carry out their work without undue interference, guided by legal standards rather than geopolitical calculation.

None of this resolves the challenging question, namely when a state's climate action falls short of its legal obligations. The court held that each state must do its utmost to limit warming to 1.5°C, guided by science and the principle of common but differentiated responsibilities. Yet it did not say how that principle translates into individual obligations. Law alone may struggle to close this gap. Past settlement experience suggests that questions of who pays, and how much, can sometimes be resolved through negotiation rather than legal determination, at times without any admission of wrongdoing. This suggests a promising role for proactive diplomacy in giving the court's reasoning practical effect.

There is already evidence that claims settlement mechanisms can be adapted to address climate damages. Proposals for a dedicated climate claims commission have been floated, and an extensive body of precedent exists to draw on. Poulsen himself notes that the potential of lump sum agreements and claims settlement for resolving contemporary disputes remains underexplored.

I propose three elements that could together form the foundation of what might be called a climate claims settlement regime, meaning a set of rules, principles, and norms capable of facilitating the resolution of climate-related claims.

A high-level expert group under UN auspices. To give the initiative political salience and legitimacy, the UN Secretary-General could convene a high-level expert group tasked with exploring how climate claims might be settled. Such a group would define the scope of the diplomatic challenge, identify relevant legal principles and precedents, and publish an agenda-setting report. Comparable expert groups have been established to address frontier governance challenges, from net-zero to frontier artificial intelligence, with considerable effect in shaping political salience and establishing the contours for governance. A climate claims equivalent could perform a similar function. Membership could include distinguished scholars, policymakers, and representatives of global economic institutions, including the World Trade Organization WTO. 

Embedding climate claims in existing settlement mechanisms. Climate claims need not wait for a bespoke institution. They can be incorporated into existing and future claims settlement frameworks as a matter of issue linkage. Just as environmental claims were woven into the UNCC's mandate, a mechanism whose primary purpose was security-related, climate claims could be attached to ongoing or future settlement processes involving natural resource conflicts, territorial disputes, or commercial disputes. Climate commitments might also be offered as concessions within broader negotiated packages. The key is to identify feasible points of entry within existing diplomatic arrangements and legal instruments such as commissions and treaties, rather than insisting on purpose-built mechanisms that may prove politically unachievable.

A model convention developed by the International Law Commission. The International Law Commission (ILC), the UN body mandated to codify and progressively develop international law, could draft a model convention on climate claims settlement. A coalition of states might secure a General Assembly resolution referring the topic, as Vanuatu and its partners did for the ICJ advisory opinion, or the commission could take it up itself, perhaps first through a study group, as it has done on sea level rise. Drawing on international environmental and other relevant branches of law, the framework would set out core principles, available remedies, and procedures for settlement. As a flexible template open to bilateral, plurilateral, or multilateral adoption, it would aim not to impose a single solution but to generate creative options and avenues to enhance cooperation.

This article has argued that proactive diplomacy, through the use of claims settlement, can play a meaningful role in addressing climate damages. The centrality of proactive diplomacy to international affairs makes it, in principle, a tractable vehicle for this purpose. Yet its potential has thus far been construed too narrowly, either as a tool for coercive enforcement, as in the contentious debates over unilateral carbon border measures, or through the more technical lens of clean technology diffusion and trade.

The history of claims settlement, spanning lump sum agreements, claims commissions, and hybrid mechanisms, suggests a richer repertoire. These instruments have shown themselves capable of resolving disputes that seemed, at the time, equally intractable. Their combination of legal rigour, diplomatic flexibility, and technical insulation from politics is precisely what the climate damages question requires, given that the liability debate has locked itself into a geopolitical stalemate. Crucially, this approach does not require states to formally concede liability before a public court. It offers a quieter, more pragmatic route to the same destination, with compensation actually delivered to those who need it.

This article should be read as a provocation rather than a blueprint. The existential stakes of climate change, the worsening toll of climate impacts on the world's most vulnerable populations, and the fracturing of the global order all demand novel modes of cooperation. Proactive diplomacy, for all its association with economic self-interest and geoeconomic rivalry, possesses the tools, precedents, and the institutional dynamism to help address climate damages, especially in the context of the decline of the liberal international order and the emerging geoeconomic one. 

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Kennedy Mbeva is Research Associate, Centre for the Study of Existential Risk, University of Cambridge.

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