Loss and damage fund gets a “compromised” draft deal going into COP28

A man looks at a destroyed house at Ramayapatnam in Ganjam district of Odisha. Several houses here have witnessed massive damages during cyclones and sea erosion. Photo by-Manish Kumar/Mongabay

  • A framework to provide funds to particularly vulnerable countries faced with losses and damages due to climate change, has been drafted.
  • The World Bank will be an “interim” host for the loss and damage fund for four years, and will have to comply with a number of conditions as the host.
  • The draft proposal makes no mention of how much funding is needed, who the contributors should be, or the eligibility criteria for recipients, instead leaving some of these matters for the Fund’s Board to decide.

On November 4, a framework to provide funds to “particularly vulnerable” countries faced with losses and damages due to climate change was drafted, slowly giving shape to a demand that developing countries have made for decades.

Discussions leading to the proposed framework for the loss and damage fund – as it has come to be known – were fraught, especially over language on who should contribute to the fund and on what terms. ‘Loss and damage’ or ‘L&D’ refers to the irreversible and unavoidable destruction caused by global warming, the brunt of which is borne by poorer countries. The meetings were led by a Transitional Committee appointed at the 27th Conference of Parties (COP27) under the United Nations Framework Convention on Climate Change (UNFCCC), with a mandate to determine — with consensus — what the fund could look like.

Civil society organisations have said the proposal falls short of delivering climate justice to countries facing the worst impacts of climate change and are the least responsible for causing the problem. But the draft deal – arrived at after nearly a year of talks that ended with an emergency meeting – is the only one on the table that could crystallise the long-standing demand for a loss and damage fund. “This is a very delicately negotiated text. There’s a real concern that if it’s challenged at this stage, the whole thing could unravel,” Joe Thwaites, senior advocate for international climate finance at the Natural Resources Defence Council, told Mongabay-India.

A man walks across a bridge over a flooded Lakshman Tirtha river in Hunsur town, Karnataka. Photo by Abhishek N. Chinnappa/ Mongabay.

The draft deal will be sent for adoption to leaders at COP28 to be held in Dubai between November 30 and December 12, where it could be reopened for negotiation. The United States – who made last minute objections to the draft proposal just as it was being finalised – has now indicated it will fully come on board with the recommendations at the COP28. The European Union is expected to announce its contribution to the fund during the meeting in Dubai.

Read more: [Explainer] What is Loss and Damage?

Where will the fund be located?

The 24-member Transitional Committee, led by co-chairs from Finland and South Africa, recommended the Fund be temporarily hosted by the World Bank for four years, after which it can be reviewed and located elsewhere.

The World Bank is a multilateral development bank which is not governed by the United Nations Framework Convention on Climate Change or its principles of equitable climate action. Developing country parties said a standalone, independent fund directly under the UNFCCC, which recognises these principles explicitly, would have been more appropriate, but ultimately agreed to have the World Bank host the Fund subject to certain conditions.

“There’s a huge desire to have the new fund going really quickly, because responses to losses and damages would need to happen rapidly,” explained Thwaites. Independent funds under the UNFCCC, like the Green Climate Fund, have taken years to set up and operationalise. Developing countries have also complained of bureaucratic hurdles in accessing UNFCCC funds. “Locating it in the World Bank with conditions was a compromise between a desire for speed by using an existing institution, and the desire for an independent fund that can set all its own policies,” Thwaites added.

Civil society organisations made strong objections to the World Bank hosting the fund. “The so-called interim arrangement under the World Bank risks ending up as a permanent hosting situation and will undermine the Fund’s ability to meet the needs and priorities of communities,” said Lien Vandamme, Senior Campaigner, Center for International Environmental Law, in a statement.

The Fund will have its own Secretariat and a Board comprising 26 members, 12 from developed countries and 14 from developing ones. “One of the issues with the draft recommendation is that there is no seat allotted to civil society or frontline communities on the Board. Access to the fund without giving communities on the frontlines of climate change a voting board position will be harder to achieve,” said Julie-Anne Richards, strategy lead at the Loss and Damage Collaborative, a group of climate policy and cultural practitioners who provide support to countries and communities on loss and damage.

A house destroyed during floods, at Chennamkari in Kerala’s backwater region Kuttanad. Photo by Syed Shiyaz Mirza/Mongabay.

Other concerns with locating the Fund in the World Bank include the high hosting fee – reportedly around 17 percent – and that its business model is driven by providing loans. “For a lot of countries this question of fiscal space is really major. If you spend a lot of your resources servicing debt payments with high interest rates, you’re not investing in your economy. The fact that the World Bank is mostly driven by loans is considered an issue,” said Lola Vajello, climate programme director at the Institute for Sustainable Development and International Relations (IDDRI).

What conditions must the World Bank meet?

The World Bank must meet a number of conditions in order to host the Loss and Damage Fund, the draft proposal says. These include granting the Board autonomy to choose its own Executive Director, allowing the Fund’s own policies to supersede those of the World Bank’s in case of a conflict, and significantly, allow “all developing countries to directly access resources from the Fund, including through subnational, national and regional entities.”

The conditions also state that Parties to the Convention who are not members of the World Bank should be able to access the Fund “without requiring decisions or waivers from the World Bank Board of Directors on individual funding decisions.”

“They’re good conditions, and important. But there is a high level of skepticism from quite a range of stakeholders about whether the World Bank will be able to meet those conditions, because this is not how the World Bank typically functions,” said Richards. The World Bank is shareholder and contributor driven, where a majority shareholding is by developed countries. “It will be really important for developing countries and civil society to make sure that the World Bank says they can meet these conditions, and be clear on how they’re going to meet them.”

The World Bank has six months following the end of COP28 to let the Board know whether it will be able to meet these conditions or not. If not, the Board will “launch the selection process for the host country of the Fund,” as a standalone entity.

Some estimates say losses and damages due to climate change will reach $400 billion per year. Photo by Narayana Swamy Subbaraman/Mongabay.

Who will contribute to the fund and how much?

The draft proposal also makes no mention of how much funding is needed, who the contributors should be, or the eligibility criteria for recipients, instead leaving some of these matters for the Board to decide. Reports suggest funding required for losses and damages could reach $400 billion a year by 2030. Older versions of the draft agreement proposed $100 billion as the initial scale of finance for the Fund, but this was removed after developed countries objected to quantifying the scale of the fund.

As it stands, the draft proposal merely “urges” developed country Parties to “take the lead” and “continue to provide support” for loss and damage, while “encouraging” other Parties to contribute on a voluntary basis. This was on the insistence of developed party groups like the U.S. who said they were not obligated to contribute.

Developing country parties saw this as a major compromise during the Transitional Committee meetings. Under the equity principle of UNFCCC, rich countries falling under the Annex 2 of the Convention are obligated to provide climate finance. But the draft text submitted by the Committee opens this up and will accept contributions from a “wide variety of sources of funding, including grants and concessional loans from public, private and innovative sources.”

According to Richards, concessional loans should be “a very small part” of loss and damage funding, if at all. “It’s an unfortunate outcome. Developing countries and communities who are facing damage from climate change and have very little responsibility for it shouldn’t have to pay to rebuild. The funding should be grant-based,” she said.

Demonstrators demanding climate justice inside the COP26 conference venue in Glasgow. Photo by Soumya Sarkar/Mongabay.
Demonstrators at the COP26 in 2021. Photo by Soumya Sarkar/Mongabay.

Developed or industrialised countries have lobbied to expand the donor base for climate finance to include developing countries that are also “major economies,” indicating China. Developing country parties have argued that this undermines the rules of the Convention.

Read more: [Interview] Joyeeta Gupta: The Indian voice for environmental justice at global platforms

Climate justice and the Loss and Damage Fund

The agreement to create a fund specifically for losses and damages at the COP27 was considered a step towards climate justice for countries disproportionately suffering the impacts of climate change. “The issue of delivering actual finance for loss and damage is very important in terms of climate justice. It’s a recognition of a collective failure to deliver on climate finance in the past, and also a reflection of the fact that we have not met our mitigation goals,” said Vajello.

But the draft text doesn’t strongly call on developed countries – who have failed to deliver timely climate finance in the past  – to contribute to the Loss and Damage Fund. Developing countries said they agreed to the present formulation “in the spirit of compromise”.

“Developed countries need to come forward and make pledges to the loss and damage fund and set it up. They also need to indicate the scale at which they will contribute,” said Richards, adding, “The most important thing is that the money be new and additional, and not adaptation finance that is being repackaged as loss and damage funding.”

Read more: Food systems to feature in climate negotiations at COP28


Banner image: A man looks at a house destroyed by cyclones at Ramayapatnam in Ganjam district of Odisha. Photo by Manish Kumar/Mongabay.

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