COP27 in Sharm el Sheikh made a momentous decision to establish a fund for responding to loss and damage (the Fund). The COP agreed broad parameters and established a Transitional Committee (TC) to spend 2023 sorting out the details of how to operationalise such a fund at COP28. The TC has just had its third of four meetings (TC3) ahead of COP, making progress, albeit incrementally, against its mandate. There were many interesting elements and proposals that emerged during this penultimate meeting, and the reiteration of some tried-and-tested strategies and ideas, as outlined below.

‍What is the scale of funds needed for Loss and Damage?

‍The first noteworthy item is that developing country Transitional Committee members stipulated $100 billion (USD) a year as the floor for the Fund to distribute, scaling up over time to meet the rising trajectory of losses and damages from climate change. This is a very clear marker for success. 

It’s worth noting that this amount is only a fraction of the estimate of current loss and damage in developing countries, so it really is the minimum viable amount for the Fund to be effective. When scoping loss and damage earlier this year my colleagues and I considered $400 billion (USD) a year as the minimum required for existing loss and damage needs.

‍What should the scope of the Fund be?

‍One of the key elements of discussion at TC3 was the scope of the Fund. With developing countries seeking to design a Fund that meets needs, and developed countries seeking to constrain the scope in order to constrain costs —and therefore their need to contribute.

The COP27 decision would seem to be clear: “decides… to establish a fund for responding for loss and damage whose mandates includes a focus on addressing loss and damage” in the context of “the urgent and immediate need for new, additional, predictable and adequate financial resources to assist developing countries that are particularly vulnerable to the adverse effects of climate change in responding to economic and non-economic loss and damage associated with the adverse effects of climate change, including extreme weather events and slow onset events, especially in the context of ongoing and ex post (including rehabilitation, recovery and reconstruction) action”. 

However, in the time honoured tradition of developed countries walking back from COP decisions on loss and damage, the US, Germany and others argued hard that the Fund should focus on the “gaps”. Heike Henn of Germany looked to minimise the scope of the Fund, and saw the funding arrangements, i.e.: existing programs including the Global Shield, playing a bigger role than the Fund itself.

Developed countries argued that humanitarian response to address extreme climate events and programs from the World Bank and other multilateral development banks (MDBs) —which are primarily loans— are already addressing elements of loss and damage. The United Kingdom (UK) TC member, Debbie Palmer, saw leveraging and redirecting existing humanitarian and multilateral resources onto loss and damage as a significant role that the Fund could play. Angela Rivera, Colombia, made the point that these resources are already insufficient and that the objective of the Fund is to create new funding for loss and damage.

‍Who should be eligible to access the Fund?

‍The US proposal used a different approach to limit scope, by seeking to prioritise countries with populations of less than five million people, and essentially push other countries to deal with existing MDBs, thus limiting the scope by limiting eligibility. Whereas Jean-Christophe Donnellier of France was clear that the target of the Fund should be the most vulnerable countries, defined as small island developing states (SIDS) and least developed countries (LDCs). 

David Higgins from Australia and Jaime de Bourbon de Parme, Netherlands, both made the point that “particularly vulnerable” should apply not to eligibility of the Fund but to priority focus. The idea is not to exclude but to prioritise the most vulnerable, whilst the aspiration is to leave no one behind, the obligation is to help those most in need.

However, Mohamad Nasr of Egypt, called out the elephant in the room: defining “particularly vulnerable countries” as LDCs and SIDs would mean that the people of Pakistan who are still suffering and displaced from epic floods of 2022 would be excluded from accessing the Loss and Damage Fund. 

Developing countries came with an excellent proposal to break the impasse: that targeting of support should be based, not by specifying groups of countries, but on an event-approach, using triggers.

Triggers should be based on the magnitude of the event and impact on: the economy (an impact greater than 5% of GDP was mentioned by Avinash Persaud of Barbados), non economic losses including ecosystem services, biodiversity and cultural losses, amongst others. 

The LDCs provided the example of the EU Solidarity Fund (EUSF) in their submission which supports EU member states hit by disasters where losses exceed 0.6% GNI. The EUSF disburses 25% of the anticipated financial contribution rapidly and then the remainder is informed by more detailed needs assessments. In 2021 five EU states, including Germany, affected by massive flooding received over €700m. I’m not sure whether it was my imagination, but I thought this concept might have gained support from developed country TC members.

‍To be an Operating Entity of the Financial Mechanism of the Convention, or not?

‍There is a hard and bright line between developing countries - who want the Fund to be designated an operating entity of the financial mechanism of the Convention - and developed countries* who want it set up as a financial intermediary fund (FIF) of the World Bank.

The argument against designating the Fund as an operating entity of the financial mechanism of the Convention (via Article 11) prosecuted by developed country TC members include:

○ Establishing a Fund outside of the Convention would deliver greater flexibility and speed.

‍○ All of the important elements contained in Article 11 in the Decision can be specified in the Decision without invoking Article 11 of the Convention.

The arguments put forward by developing country TC members for the Fund to be designated an operating entity were:

○ Article 11 of the Convention provides clear, tried and tested guidance on eligibility, program priorities and governance, including receiving guidance from and reporting to COP/CMA.

‍○ The Green Climate Fund (GCF) and Global Environment Facility (GEF) are designated operating entities, and they are working well. In the case of the GCF it is the world’s largest climate fund, with $20 billion in pledges, disbursing over $1 billion annually (~50% to adaptation). In comparison the Adaptation Fund is not an operating entity; its Board reports to the Paris Agreement only, not the UNFCCC. By contrast with the GCF the AF has received pledges of a little over $1 billion in total. The argument that keeping the Fund outside of the Convention in order to receive greater contributions clearly does not stand up to evidence.○ It makes no sense to say (as developed countries have) that you can recreate all of the elements of Article 11 in a Decision document, yet not have Article 11 apply. 

‍○ There is symbolic value to making the Fund an operating entity of the Convention - it would place it at the same level of importance as, for example the GCF. And place addressing loss and damage at a core level of importance.

To identify the real crux of the matter, or to say the quiet part out loud, developed countries are arguing for the system that gives them more power. Firstly, the UNFCCC is founded on the principle of common but differentiated responsibility and respective capability (CBDRRC), which means that responsibility for funding loss and damage would fall to developed countries. The Convention also has equity enshrined in how decisions are made, which means that developing countries would have a strong say in how the funds are spent. In addition, designating the Fund as an operating entity of the financial mechanism means that its policies and programs are designed with the eligibility criteria of the Convention.

Whereas, the World Bank operates within a completely different paradigm, one of aid, or “charity”, which is at the discretion of the “donor”. Establishing the Loss and Damage Fund as a World Bank FIF would give developed countries greater control over how it operates directly —votes in the World Bank Board are based on how much you contribute— and indirectly— the World Bank is evangelical in its enthusiasm for markets, loans, debt and the private sector, all elements which minimise and divert the responsibility of rich countries and have exacerbated loss and damage. The World Bank separates countries into income groupings, which would likely mean that middle income countries like Pakistan and the Philippines would be expected to take loans to fund recovery from loss and damage, which is exactly what happened following the extreme Pakistan floods in 2022, and only low income countries would receive grants.

‍Privileges and immunities (P&I)

‍One of the issues often used to complicate the choice between an operating entity of the financial mechanism or a World Bank FIF is that of privileges and immunities (P&I). Raj Bavishi, Senior Counsel for the Green Climate Fund and a member of the group of experts advising the Transitional Committee gave a presentation on this matter. 

The fundamental purpose of P&I is to enable the institution to operate so that it is not affected by different laws in each country it operates in. This adds bureaucracy and slows down operations. For instance, customs may delay program implementation; taxation may be charged (which international contributors are typically not keen on). P&I also safeguard the board and staff when they are carrying out their work.

Raj outlined four options for P&I:

i.   Seek an institutional linkage with the UN, similar to UNFCCC Secretariat.

ii.  State that LDF will have P&I but leave it up to the Board to achieve. The GCF has followed this path and found developing bilateral arrangements with countries to be slow and cumbersome. In 9 years the GCF has signed just 30 P&I agreements.

iii. Undertake a multilateral process to confirm P&I in one of two ways:

 ○ Develop a treaty and use this as the basis for bilateral agreements, for example the Global Fund;

‍○ Use the provisions of an existing treaty to carry into a new treaty. For example the WTO and UN Specialized Agencies Convention, invited countries to lodge an instrument of ratification, or similar, to the treaty, effectively agreeing and establishing P&I by doing so.

Raj presented a paper which compares the Institutional Arrangements, including P&I, of the Fund if it was set up as: a standalone fund, hosted by the GCF, by the GEF, by the Adaptation Fund (AF), by the World Bank as a FIF, as a UN Multi Party Trust Fund (MPTF).
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