This is a section-by-section, briefer summary of "Compromise Transitional Committee Outcome Falls Short of Expectations and Climate Justice."
In a last-minute effort to avoid failure, the Transitional Committee (TC) in Abu Dhabi adopted a critical but contentious package for the new Loss and Damage Fund (LDF) and broader funding arrangements to address loss and damage, with formal approval pending at COP28. The compromise, which concluded the TC's mandate, left both developed and developing countries dissatisfied for different reasons. Key issues included the controversial decision to temporarily place the LDF under the World Bank, raising doubts about its effectiveness in delivering climate justice and the lack of a firm commitment from developed countries for funding, potentially impacting future climate finance negotiations. The package, which may still face renegotiation in Dubai, particularly due to initial U.S. resistance, does not address all unresolved issues, such as on allocation of resources, but defers them to a new LDF Board, which is supposed to start the work of operationalizing the new Fund in early 2024.
"Take-it-or-Leave-it" TC Package
In a contentious climate negotiation in Abu Dhabi, developing and developed countries clashed on many issues, chief among them the location of a new Loss and Damage Fund (LDF) as either a standalone institution or housed under the World Bank and who should pay primarily into the LDF. The final text, presented as a ‘take-it-or-leave-it’ non-negotiable package, revealed deep divisions: developing countries pushed for recognition of developed countries' historic financial responsibility, while the latter, especially the United States, insisted on voluntary contributions only. Despite concerns from developing nations about the lack of commitment for a significant scale of the Fund and developed countries’ financial inputss, the text was adopted in the spirit of compromise, leaving unresolved issues for the future LDF Board to tackle and highlighting the ongoing struggle for consensus and commitments in global climate finance negotiations.
Civil Society Disappointment
Civil society observers expressed disappointment with the TC’s outcome for the LDF, criticizing its failure to deliver climate justice and human rights commitments. Despite active engagement and calls for a standalone fund with grant financing and strong governance participation from impacted communities, the final package lacks explicit human rights mandates and offers limited engagement for stakeholders in the Fund's governance. Additionally, the decision to place the LDF under the World Bank means it will not develop its own environmental and social safeguards, potentially compromising the fund's ability to address unique loss and damage challenges and adequately handle grievances of impacted communities.
Location of the Fund and its Dedicated, Independent Secretariat
At the TC5 meeting, developing countries, in a significant concession, agreed to allow the World Bank to host the new Fund’s Secretariat temporarily, under stringent conditions and with a potential exit strategy (see Figure 1). This decision, however, is viewed with skepticism by civil society observers who doubt the World Bank's suitability for hosting a new fund with new approaches aimed at operationalizing climate justice in addressing loss and damage, given the World Bank’s track record and policy history, including in continuing fossil fuel funding support. Other concerns include the potential for high administrative costs, a lack of willingness and ability to think beyond business-as-usual funding practices to focus on community-led , human rights centered and gender-transformative devolved financing to address climate loss and damage, and the risk of the LDF's identity as a fund under the climate framework convention and Paris Agreement and its operational independence being undermined by the World Bank hosting arrangement.
Designation as Operating Entity and Relationship to COP and CMA
In negotiations in Abu Dhabi, developing countries successfully advocated for the LDF to be recognized as an operating entity of the UNFCCC Financial Mechanism, a significant win that aligns the fund with principles of the Convention, including Common But Differentiated Responsibilities and Respective Capabilities (CBDR-RC) and equity. This designation, affirmed in the decision text and governing instrument, places the LDF alongside the Green Climate Fund (GCF) and the Global Environment Facility (GEF), ensuring its accountability to and guidance from the COP and CMA. The fund will submit annual reports and receive individual guidance on policies and priorities, with the first guidance facilitated through the Standing Committee on Finance (SCF) expected in 2024.
Sources of Funding and Financial Inputs
The contentious issue of funding sources for the new Fund dominated discussions at the TC5 meeting, reflecting broader debates on developed countries' financial obligations under climate agreements. Despite initial language options acknowledging historical responsibility and differentiation in contributions, the final 'take-it-or-leave-it' text adopted a neutral stance, urging support on a voluntary basis and significantly weakening the differentiation between developed and developing countries' contributions. This outcome, seen as a retreat from previous financial commitments, raises concerns about the adequacy of funding for the LDF and its operationalization, with the potential risk of the fund remaining under-resourced despite its establishment under the World Bank, which was used as a justification by developed countries for maximizing potential financial contributions to the LDF.
Scale of the Fund
In the final text approved at the TC5 meeting, developing countries were unable to secure a commitment to a minimum funding scale for the LDF. Initial proposals suggesting a $100 billion annual programming target by 2030 were omitted, reflecting developed countries' stance that the Fund's scale was outside the TC's mandate. Instead, the LDF's objectives are modestly stated, with an emphasis on developing a long-term fundraising strategy, marking a significant departure from more ambitious language used in the GCF's governing instrument.
Board of the Fund, its Composition, and Functions
The composition and status of the LDF Board was a key issue in the TC4 discussions. Developed countries proposed expanding the Board to include non-party stakeholders with voting rights, including to reflect major contributors with a shareholder approach, while developing countries favored a party-driven approach with regional balance and no voting rights for non-party stakeholders. The final agreement establishes a Board of 26 members with equitable representation of 12 developed country and 14 developing country representations (including with two seats each for small island states and least developed countries). There is a promise for enhancing stakeholder engagement, including through ‘active observers’ representing women and youth, Indigenous Peoples and environmental groups in LDF Board procedures, though specifics on 'active' participation remain to be defined. The Board, which is tasked to select the Executive Director of the Secretariat speedily to whom it might delegate some funding decisions, has the option to use a four-fifths majority voting mechanism in cases where consensus cannot be reached. This is applying lessons learned from other funds, including the GCF, and aimed at ensuring efficient decision-making.
Fund and Board Legal Status
As a Financial Intermediary Fund (FIF) hosted by the World Bank, the new Secretariat of the Loss and Damage Fund (LDF) will receive necessary privileges and immunities (Ps&Is) through the World Bank's legal personality. However, the LDF Board itself will not be covered by these Ps&Is and lacks legal personality as an independent international entity, a concern for developing countries during negotiations. The TC outcome package addresses this by mandating that the LDF Board will be conferred legal personality and capacity through a host country, selected via an open process. This arrangement, which needs to be established within a tight ten-month timeframe, is crucial for the Board to negotiate and conclude a hosting agreement with the World Bank, and it represents a significant step beyond previous practices, such as those ensuring the legal capacity of the Adaptation Fund Board.
Interim Secretariat and New, Dedicated Secretariat
The proposed Governing Instrument for the LDF reflects lessons learned from other climate funds, aiming for a Secretariat that is more responsive to developing countries' needs. Key features include a commitment to geographical and gender balance, cultural and linguistic diversity in staff selection, and the establishment of dedicated regional desks for better multilingual engagement. This approach is designed to address operational needs and priorities of recipient countries effectively, contrasting with issues faced by the Green Climate Fund. Until the new LDF Secretariat is operational, an interim Secretariat formed by staff from the UNFCCC, GCF, and UNDP will support the Fund Board.
In the negotiations for the LDF, a key dispute was over the eligibility of developing countries for accessing the fund. Developed countries sought to limit eligibility mainly to Small Island Developing States (SIDS) and Least Developed Countries (LDCs), arguing they are more vulnerable to climate impacts. However, developing countries argued that all developing countries that are parties to the UNFCCC and Paris Agreement should be eligible, as vulnerable populations exist in all developing countries. The final text reflects a compromise, stating that developing countries "particularly vulnerable to the adverse effects of climate change" are eligible for LDF resources, thus replicating the exact language from the COP27 decision in Sharm El-Sheikh establishing the Fund, though it does not specify these countries as parties to the Convention or Paris Agreement, in contrast to the Green Climate Fund's Governing Instrument.
Scope and Structure of the Fund
In the TC negotiations for the new LDF, differences between developed and developing countries on the Fund's scope and structure were contentious. The final TC outcome package leaves significant decisions to the LDF Board, including the potential establishment of thematic substructures. Developed countries advocated for a narrowed priority focus on specific actions and a limited set of countries deemed vulnerable to deal with perceived gaps in the provision of relevant finance by existing institutions to respond to loss and damage. They wanted sub-funds with differentiated eligibility and allocation criteria, which would have allowed for earmarking of contributions. In contrast, developing countries called for comprehensive coverage, from rapid response to long-term recovery and dealing with slow onset events such as sea-level rise and advocated for all funding received to be put into on pot, with allocation to be decided by the Board. The compromise language in the LDF Governing Instrument provides a non-exclusive list of challenges the fund might address, emphasizing the need to ensure complementarity with existing efforts. However, the instrument remains vague on substructures, leaving the Board with the flexibility to establish targeted windows or programs with a balanced allocation among various funding themes and areas.
Developing countries emphasized direct access to funding as a priority in the LDF negotiations, advocating for two modalities: direct budget support to national governments and using accredited direct access entities like those in other climate funds such as the GCF or Adaptation Fund. The proposed Governing Instrument of the LDF reflects these modalities, but also allows for international access through multilateral development banks (MDBs), UN agencies and other entities. A significant achievement is the commitment to develop access modalities for small grants to support communities, Indigenous Peoples, and vulnerable groups. The language on community’s ability to access such funding is open to interpretation, potentially allowing for either direct or facilitated funding through national channels. Depending on the scale of funding set-aside for such community-focused and community-led implementation of efforts to address loss and damage, this could be a game-changer in the way climate finance is currently provided. Additionally, the LDF will focus on developing rapid disbursement modalities, a key demand of LDCs, ensuring timely support in response to climate-related extreme weather events.
The allocation of resources in the Loss and Damage Fund (LDF) was a highly contentious issue in the Transitional Committee (TC) negotiations, with the potential to disrupt unity among developing countries. Developed countries suggested prioritizing LDCs and SIDS, leading to concerns among other developing nations about equitable access. The approved language in the LDF's Governing Instrument seeks a balance, mandating a resource allocation system that considers the needs and priorities of all developing countries, especially climate-vulnerable communities. It includes a commitment to a minimum allocation for LDCs and SIDS, while safeguarding against overconcentration in any particular country or region. The allocation system is expected to evolve and incorporate data and knowledge, including insights from Indigenous Peoples and vulnerable communities, addressing data availability challenges noted in the GCF's experience.
Complementarity, Coordination, and Coherence
In the TC negotiations for the LDF, developing and developed countries had differing views on the fund's role in coordinating a global response to addressing loss and damage. Developing countries proposed the LDF as a key coordinator across various funding channels and institutions, while developed countries suggested a High-Level Coordination Council outside of the UNFCCC for this purpose. The final Governing Instrument assigns the LDF a significant role in coordinating a coherent global response, including enhancing complementarity with other actors and addressing funding gaps. However, concerns remain about potential bureaucratic challenges that could be required for assessing LDF funding for proving the additionality of f LDF resources because other financing options are unavailable, including on the national level. The LDF Board's approach to operationalizing these responsibilities will be crucial in determining the fund's effectiveness and accessibility.
Recommendations on the New Funding Arrangements
Developed countries criticized the TC process for prioritizing the LDF's development over new funding arrangements, for which developed and developing countries had starkly differing visions on the level of detail to be provided in recommendation to the COP28. Developing countries had argued that the TC lacked the standing to compel institutions outside of the UNFCCC to act on any suggestions provided. The approved text in Annex II of the TC outcome package outlines broad recommendations for funding arrangements, emphasizing the LDF's leading role in coordinating and enhancing complementarity across the loss and damage finance architecture. It is to convene an annual high-level dialogue together with the UN Secretary General to facilitate collaboration, knowledge exchange, and scaling up funding arrangements. However, the recommendations are general, lacking the detailed specificity developed countries had encouraged. They highlight the need to scale up pre-arranged finance and strengthen anticipatory approaches, emphasize the need for finance to target vulnerable communities, including women, children, Indigenous Peoples, and climate-induced migrants, but are largely silent on discussion in particular innovative sources, as there was no agreement on the call for the global taxies and levies to generate income for the LDF. The document acknowledges the importance of scaling up social and adaptive protection mechanisms and calls for multilateral climate funds to better address the needs of climate-induced migrants and refugees, reflecting a welcome spotlights on these often forgotten marginalized groups in the TC discussions.
Next Steps at COP28 and Beyond
The United States, initially reluctant to agree to the TC outcome package in Abu Dhabi, has since indicated a willingness to accept the compromise, reducing the likelihood of reopening discussions at COP28/CMA4. Other countries also expressed reservations, but the TC's package approval suggests a comprehensive revision is unlikely at COP28. The UAE, hosting COP28, likely seeks a smooth approval process to focus on other critical issues like the Global Stocktake, renewable energy goals, and the Global Goal on Adaptation. To improve the TC outcome, some parties may aim to incorporate relevant language into other COP28 decisions, addressing finance provision mandates and the scale of the LDF, both crucial for climate justice. Significant commitments by developed countries, like the EU's recent signal to contribute to the Fund's initial capitalization, could facilitate this process.
Liane Schalatek wrote this summary with the assistance of AI.