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To Design the Loss and Damage Fund and Funding Arrangements, Look Back to the Green Climate Fund

28 min read

Climate impacts are heating up in 2023. Marked by heatwaves and wildfires across the globe, the month of July was the hottest on record for the planet. Recent events that have devastated climate vulnerable countries including the havoc created by Cyclone Freddy in Malawi, Mozambique and Madagascar, severe heatwaves in Asia, Cyclone Mocha and its aftermath in Myanmar and Bangladesh, to name just a few. These disasters bring home the reality of losses and damages due to climate change, and the urgent need to find ways to address it.

Last year’s UN Climate Change Conference (COP27) delivered a historic decision on a long and hard-fought battle by vulnerable developing countries demanding financing for loss and damage due to climate impacts. The decision to establish new funding arrangements included: a designated fund for loss and damage and broader funding arrangements to mobilize additional finance for addressing loss and damage (recognizing that existing funding, such as humanitarian assistance and financing through other bilateral and multilateral institutions and initiatives needs to be considered). The decision also established a transitional committee to develop recommendations ahead of COP28 in December 2023 for how to operationalize these structures, yet it remains to be seen whether such a mammoth task under a tight deadline will result in concrete, ambitious recommendations that truly meet the needs of climate-vulnerable communities.

This is not the first time that a transitional committee has been created to set up a fund in just one year under the United Nations Framework Convention on Climate Change (UNFCCC). The last time was in 2011 for the establishment of the Green Climate Fund, which was created as a dedicated multilateral fund to assist developing countries reduce greenhouse gas emissions and enhance their ability to deal with climate impacts.  

Comparative Assessment with the Green Climate Fund

The process for designing the Green Climate Fund was well managed and there was significant political will to bring it to fruition despite divergent opinions. The start-up phase of institutional establishment and subsequent resource mobilization, however, took some time for full operationalization of the fund. These are important lessons for the process currently underway to establish and operationalize the funding arrangements and the Loss and Damage Fund.  

The Process

Like the loss and damage transitional committee ahead of COP28, the road to COP for the Green Climate Fund transitional committee back in 2011 also included four meetings, an intense schedule and many opinions and divergences. But the Green Climate Fund transitional committee had a more conducive geopolitical environment, fiscal space and political will and leadership to make its work possible — necessary elements to successfully set up a fund.

Its successful outcome was possible because the three co-chairs of the transitional committee — Mexico, Norway and South Africa — were able to delegate the work among a 40-member transitional committee, including subcommittees, and a technical support unit that was created during the establishment of the Green Climate Fund at COP16. Moreover, the decision at COP16 to establish the Green Climate Fund under the umbrella of the UNFCCC and designation of the World Bank as an interim trustee helped settle some key issues as a political compromise, easing the burden on the transitional committee.

It is not a coincidence that the third meeting of the transitional committee for the Loss and Damage Fund and Funding Arrangements is happening around the same time as that of the Green Climate Fund at the time — namely around September of the year. It is also not uncanny that the agenda for the third meeting of both transitional committees calls for the consideration of a draft of the recommendations to be presented at the upcoming COP, given the tight time frame within which the work has to be accomplished. But that is where the comparison diverges.

With this in mind, let us reflect on how the two committees are positioned at the midway point, and how the Green Climate Fund experience can make the Loss and Damage Fund’s transitional committee more effective.

The Delineation of Roles and Responsibilities

By the mid-point in 2011, an immense amount of work had been accomplished for the design of the Green Climate Fund. Its transitional committee established four workstreams at its first meeting in late April 2011 and tasked its technical support unit with preparing background papers right after the initial meeting. There was a clear delineation of work on (1) scope, guiding principles, cross-cutting issues, (2) governance and institutional arrangements including legal status, (3) operational modalities, financing, access and instruments and (4) monitoring and evaluation and fiduciary standards.

Each workstream was assigned co-facilitators who took charge of the subject matter and ensured that the larger body was consulted and kept informed. There were calls for submissions by the co-facilitators of workstreams around specific questions to help move the process along. These calls were directed at the transitional committee members as well as international organizations, think-tanks, civil society organizations, all of whom actively participated. This mode of functioning allowed for efficient use of time and resources, broader ownership of the working papers and a clear timeline for the delivery of the mandate. By the mid-point and soon after there was ample fodder for the co-Chairs and vice Chair to provide, at its third meeting in August 2011, a draft outline of the report that the transitional committee would present to the COP, while the co-facilitators of different work streams continued to hone their outputs.

For Loss and Damage, the deliberations in the transitional committee for the fund and funding arrangements have just reached the halfway point of its process, but it has a long way to go. At its first meeting in March 2023 a determination was made to conduct the entire scope of the transitional committee’s work together at all meetings, rather than organizing into working groups in a relatively streamlined manner. There was a call for submissions too, but the  submissions from transitional committee members have come forth only from the developing countries constituency as a group — unlike in the Green Climate Fund case where individual transitional committee members made written submissions to various work streams. The engagement of transitional committee members through written submissions could have provided the co-facilitators of the Loss and Damage Fund and funding arrangements with a solid foundation for launching into an early discussion on prioritization of issues, identifying convergent ideas and issues requiring further work.

 At the second meeting in May, transitional committee members engaged in a productive exchange of views, but the mandate is so large and complex that the process is not moving quick enough. And the substantive discussion to clearly outline possible convergences did not commence. While the 24 committee members are communicating very cordially together, there are still clear divides including what the transitional committee should focus on — mostly the fund, mostly the funding arrangements, or both simultaneously. They are also debating what is meant by setting up funding arrangements — are these independent funding arrangements referred to in the COP27 decision? Some delegates are using that phrase to also refer to the modalities, structure and governance of the standalone fund, making for an easily confusing conversation.

Other contentious issues were reiterated, including on the primacy of a new fund vis-a-vis existing funding arrangements, the eligibility of countries to receive funding particularly within the context of the phrasing from the COP27 decision around “particularly vulnerable,” and questions on innovative sources of funding and broadening the donor base.

Some of these issues are also surfacing in other discussions underway at the UNFCCC related to the new climate finance goal, the Global Stocktake of progress made under the Paris Agreement, and the framework for the Global Goal on adaptation — ingredients for an untenable situation where nothing is agreed until everything is agreed.

Balancing Urgency and Delivery

The second transitional committee meeting in May seemed to convey that the process was still in an exploratory phase and while some committee members tried to infuse a sense of urgency and engagement, there was an unwillingness by others to even recognize the summary of emerging issues prepared by the co-chairs based on the discussions at the meeting. Euphemistic language was used to capture the progress made at the meeting, and some marching orders to its technical support unit to engage in further work. Given this state of affairs, the co-chairs do not have a mandate to prepare even a strawman of the recommendations that the transitional committee has to draft.

Some transitional committee members (including those from Ireland, Germany and France) have floated “non-papers” (unofficial documents) after the second transitional committee meeting to nudge the process along. These relate to the architecture of the fund and the funding arrangements to address gaps, role of funding arrangements and also of pre-arranged finance. However, it is not clear how and when deliberations on these non-papers will commence. Some of these views were also articulated at the second meeting, and while the non-papers are helpful, they could be perceived as cherry-picking based on the interests of the members that produced them.

A workshop in mid-July expanded on the meeting by discussing how to operationalize and better coordinate the fund and funding arrangements, but the views on crucial issues were still quite divergent and entrenched. Institutions within and outside the UNFCCC highlighted the opportunities and challenges for hosting the Loss and Damage Fund, leading to speculations that perhaps in the interest of expediency, the stand-alone option for the Loss and Damage Fund under the UNFCCC may be compromised.

At a similar juncture for the Green Climate Fund in 2011, the work was organized into sizeable bits and was taking place in parallel, with greater involvement of the transitional committee members as co-facilitators and members of workstreams, leading to a clear understanding of areas of convergence and further work needed. The co-chairs and vice chairs of the Green Climate Fund’s transitional committee were mandated to prepare a draft outline of the recommendations for discussion at the third meeting, while work on the outstanding issues continued.

By the end of the third meeting of Green Climate Fund’s transitional committee, it was clear that there was further work required on the divergences on issues, but the co-chairs and team were mandated to prepare the draft report and while doing so consult the transitional committee members. The roadmap between the third and fourth meetings was clearly laid out for delivery of the mandate by COP17. It is obvious that the process was managed well and there was clear ownership and leadership, despite some contentious issues at play.

Three Ways to Jumpstart Progress on Loss and Damage Financing:

Despite the missteps and challenges in the process so far, there are still opportunities for the loss and damage transitional committee to achieve success before COP28. Here are three ways to do that:

1. Set a new pace for the finish line at COP28

The workplan agreed by the transitional committee includes a wide range of activities. It remains to be seen what additional intersessional work will take place before the third meeting takes place from Aug. 29 to Sept. 1, apart from the additional work by the technical support unit on legal issues, defining the architecture, transitional/interim arrangements to operationalize the architecture, triggers and access modalities for funding, sources of funding and more.

Given the urgent need to get the fund and funding arrangements up and running, as well as the tight timeline ahead of COP28 at the end of November, what is the bare minimum that the transitional committee needs to deliver? What can be deferred, for example, to the board of the Loss and Damage Fund? Would the co-chairs be bold to present an outline of the recommendations at the third transitional committee meeting based on discussions thus far and weather the ire of the transitional committee for the greater good? Would they be able to use the wide-ranging views at the second workshop held in mid-July to call special intersessional working meetings to force the issue on what is the bare minimum that is required to operationalize the new funding arrangements and the fund to address loss and damage?

2. Establish the Bare Bone Structure of a COP28 Decision

The recommendations on the Loss and Damage Fund must include some options based on critical decisions on whether it is a standalone fund or housed in an existing institution and whether the fund is also conferred the function of coordinating with other funding arrangements. Keeping in the spirit of the decision made at COP27, the recommendations from the transitional committee should include at a bare minimum the following elements, which will enable partial but phased implementation of its mandate.

  • Clear identification of the components of the new funding arrangements, including the Loss and Damage Fund, with a provision for expansion of the components.
  • Establish the Loss and Damage Fund under the UNFCCC, its Paris Agreement and related documentation to effect the relationship.
  • Mandate the Loss and Damage Fund or if agreement on another coordinating body, to negotiate memorandum of understandings or partnership agreements with the components of the new funding arrangements.
  • Establish a secretariat for the Loss and Damage Fund —either an independent one with some interim arrangements to begin with supported by the UNFCCC secretariat or, if the fund is located at an existing institution, with a memorandum of understanding to be negotiated with the institution by the UNFCCC secretariat on behalf of the relevant bodies.
  • Task the secretariat to roll out initial steps to operationalize the Loss and Damage Fund and funding arrangements.
  • Designate a Trustee.
  • Agree on a broad organization of the Loss and Damage Fund, its governance, with contours of the structural elements including windows, financing inputs and instruments with details to be determined by its governing body.
  • Mandate the governing body of the Loss and Damage Fund to take further decisions on its operationalization.

This bare-bones approach will allow one year to roll out operationalization and legal requirements that can be endorsed at COP29 in 2024. It is incumbent on the transitional committee to ensure that the COP27 decision comes to fruition with at least a structure in place. Any failure to do so will reflect low aspirations and the political masters’ inability to deliver on a promise to vulnerable countries and further erode trust in the UNFCCC processes.

3. Demonstrate Leadership and Political Will

Leadership by the co-chairs and the transitional committee members at large will be the key ingredient of the third meeting, as will allowing the fourth meeting in October to finalize the recommendations. There is still scope to course-correct and designate some members of the transitional committee to lead and deliver specific asks from the foregoing list, while ensuring a consultative process with the entire committee. There is also scope for infusing the technical support unit with relevant expertise and advice.

The call to leadership, however, is wider. The COP27 decision already envisages high level political engagement coordinated by Egypt and the United Arab Emirates, as well as a role for the UN Secretary General to engage international financial institutions and other relevant entities to play a role in addressing loss and damage. Ultimately, it will be about leadership in making pledges to capitalize the Loss and Damage Fund. The question is whether with a bare-bones structure in place some key countries will also step forward to help make good the promise that was made at COP27, or whether this will be an agenda item that will unravel COP28.

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