Analysis
The new Board of the Loss and Damage Fund (LDF) faces a daunting task in 2024 to further operationalize the Fund. Key priorities include setting access modalities, allocation parameters, and a resource mobilization strategy to deliver funds to vulnerable countries and marginalized communities.
Table of Contents
- Context: The financial cost of loss and damage from climate change
- What was agreed at COP28?
- Priorities for 2024
- Indicative decision making roadmap for the Board
- Rest of the picture
1. Context: The financial cost of loss and damage from climate change
2023 came dangerously close to exceeding the Paris Agreement goal of 1.5°C warming. Every day of 2023 was at least 1°C warmer than average and close to 50% of days were more than 1.5°C warmer than pre-industrial temperatures. Two days in November were more than 2°C warmer, the first time this has occurred.
The World Meteorological Organisation noted that extreme weather is leading to severe socio-economic impacts. The extreme heat of 2023 affected many parts of the world; wildfires in Hawaii, Canada and Europe led to loss of life, the destruction of homes and large-scale air pollution; flooding associated with Mediterranean Cyclone Daniel affected Greece, Bulgaria, Türkiye, and Libya with particularly heavy loss of life in Libya. Food security, population displacements and impacts on vulnerable populations continued across 2023, with weather and climate hazards exacerbating the situation. Extreme weather and climate conditions triggered new, prolonged, and secondary displacement in 2023.
The extremes of 2023 led UN Secretary General Antonio Guterres to warn that “Climate breakdown has begun” as the “climate is imploding faster than we can cope, with extreme weather events hitting every corner of the planet.”
The authors have previously updated the widely used Markanda and Gonzalez modeling of loss and damage[i] in developing countries to 2023 US dollars, which results in midpoint estimates of economic loss and damage of USD 425 billion in 2020 and USD 671 billion in 2030, and therefore recommend USD 400 billion be used as a floor for financing needs for loss and damage funding in developing countries, revised upwards over time. The majority of this funding should be channeled via the Loss and Damage Fund (LDF).
The recent Christian Aid publication, Counting the Cost 2023: A year of climate breakdown, investigated the economic cost of the most extreme climate change related events in 2023. Just nine of the most devastating events in developing countries were associated with loss and damage of over USD 37 billion, with many other significant events occurring in addition to these nine, many of which costs were not calculated. The table below provides some specific examples of loss and damage in both developed and developing countries in 2023.
Table 1: Selection of climate disasters in 2023
| Country | Event | Month | Total economic cost, in USD | Per capita economic cost in USD | Coast a percentage of GDP total or per capita | Other impacts |
| Hawaii | Wildfire | August | $6 billion | $4,161 | 10% of average income | Forecast economic growth reduced from 2% to 1.5%, unemployment increased |
| Guam | Storm | May | $250 million | $1,455 | Two deaths, 100,000 people affected (60% of population) | |
| Vanuatu | Tropical cyclones Judy and Kevin | March | $433 million | $947 | 30% of GDP per capita | Two thirds (66%) of Vanuatu’s population affected, half of Vanuatu had reduced health services, 40,000 livelihoods affected, 6,000 homes destroyed; forecast GDP growth reduced from 3.6% to 3% |
| Aotearoa (New Zealand) | Tropical cyclone Gabrielle | February | $2.4 billion | $468 | 1% of GDP | Eleven deaths |
| Libya | Flash floods from Storm Daniel | September | No estimate of total economic costs, although UN appeal called for $71.4 million | $105 | Derna dam burst, river flooding in five provinces, 880,000 people affected (10% of population) | |
| Peru | Flood | April | $66 | Twenty five deaths, half a million people affected by floods with 800,000 people affected by climate-related weather events across the year; dengue epidemic driven by rains and heat wave, killed 287 people with 161,471 cases | ||
| Myanmar | Cycle Mocha | May | $2.24 billion | $41 | 3.4% of GDP and 3.5% of per capita income | 145 deaths, 1.2 million people directly affected, damage exacerbated by conflict in the area |
| Chile | Flood | June | $76 million | $39 | Four people died and more than 22,000 people directly affected, 1,623 houses destroyed | |
| Haiti | Flood | June | $420 million | $36 | 1.5% of GDP | 51 deaths, a quarter of a million people were affected with over 30,000 homes flooded |
| Mexico | Hurricane Otis | October | $2.5 - 4.5 billion | $35 | ||
| China | Floods from Typhoon Doksuri | August | $30 billion for seasonal flooding from May to September | $23 per capita for seasonal flooding | Series of floods affected almost 9 million people. Doksuri led to 51 deaths and affected 600,000 people directly | |
| Malawi | Cyclone Freddy | March | $500 - $600 million | $17 - $33 | 5% of GDP | One year's worth of rain fell in the 34 days of the longest-lasting tropical cyclone ever recorded, causing floods and landslides and widespread damage. 679 deaths and 2 million Malawians affected (10% of the population). 650,000 people were displaced |
Source: Selection of information from Pearce, O and Sharma, S. (December 2023). Counting the Cost 2023: A year of climate breakdown - Christian Aid
Climate loss and damage is not the preserve of developing countries alone - devastating wildfires in Hawaii in August 2023 caused USD 6 billion in damage, 10% of the average income of Hawaiians, increased unemployment and reduced forecast economic growth. In Aotearoa (New Zealand) tropical cyclone Gabrielle caused USD 2.4 billion in damage and eleven deaths.
However, in low income countries, such as the least developed countries (LDCs) and small island developing states (SIDS), these costs are more significant in the context of limited resources, high level of indebtedness with no fiscal space, and smaller economies. For instance, SIDS experience five times more climate change-attributable deaths (per million of population) than non-SIDS in low- and lower middle-income countries. In small island states from 2000 to 2022, annual economic losses of USD 1.7 billion can be attributed to climate change, representing 0.8% of the collective GDP of SIDS every year. Collectively, floods and storms are projected to produce climate change-attributable loss and damage of $56 billion in SIDS under a 2°C warming scenario by 2050, a significant underestimate as slow-onset events are not included.
In the Transitional Committee process, developing countries called for a Loss and Damage Fund (LDF) that was capable of programming a minimum of USD 100 billion each year. Given the cost of loss and damage already experienced and expected, as identified above, USD 100 billion annually is a bare minimum that could be expected in its first year, with needs very quickly reaching and exceeding USD 400 billion each year.
2. What was agreed at COP28?
2.A. A year long process results in an operationalized Loss and Damage Fund
In a welcome breakthrough, at the end of 2022 COP27 and CMA4 agreed to establish a Loss and Damage Fund (LDF) as part of wider funding arrangements to respond to loss and damage. The decision called for a Transitional Committee (TC) to elaborate recommendations for establishing institutional arrangements, modalities, structure, governance and terms of reference for the fund, as well as define elements of new funding arrangements, identify and expand sources of funding, and ensure coordination and complementarity with existing funding. After a year-long TC process, with five meetings, two workshops, a dialogue and two high-level or ministerial meetings, COP28 and CMA5 considered and adopted the TC recommendations agreeing to operationalize the LDF with a decision and two annexes, one with a Governing Instrument for the new Fund (Annex I), highlighting key elements of its governance and operating modalities, and a second annex on funding arrangements (Annex II).
2.B. Initial pledges to enable the Fund to commence operationalization
The unprecedented early decision at COP28 and CMA5 in Dubai – on the climate summit’s first day – confirmed without further debate core operational priorities related to mission, scope and funding approach agreed by the TC and, importantly, prompted initial contributions to get the Fund off the ground. As of March 2024, USD 661 million was pledged to the Fund from: France, Italy, Germany, and the United Arab Emirates, who each committed USD 100 million or more; the United Kingdom who committed USD 50 million; and other countries who made much smaller contributions, including the United States of America whose pledge was USD 17.5 million and Japan with just USD 10 million. Some rich countries made no contributions to the LDF, including Australia and New Zealand.
Whilst heralded as significant, this COP28 total of USD 661 million pales when compared to the true needs of developing countries to address loss and damage - which some research has put in the order of USD 400 billion each year. In fact, as the adopted decision operationalizing the fund indicates, the initial pledges are just that: “financial resources for commencing the operationalization of the Fund” – and by no means enough for an initial resource mobilization effort. The new LDF Board will have to make this a strong focus. Additionally, the contributions fall short and the agreement itself is lacking as it only talks about contributions on a voluntary basis, even for developed countries (Decision, para.12). This is despite their continued financial obligation under paragraph 9(1) of the Paris Agreement to provide finance to developing countries.
2.C. Key modalities and elements of Fund agreed
The LDF is a milestone and a critical step in the pathway to address the climate injustice of the loss and damage being suffered by communities and countries on the frontline of climate impacts, who have contributed little to climate change.
The LDF is designated as an operating entity of the financial mechanism of both the UNFCCC and the Paris Agreement. This ensures that it is accountable to Parties via the COP/CMA and receives guidance from both the UNFCCC - with strong equity principles – and the Paris Agreement. Anchoring the LDF as an operating entity of the financial mechanism provides visibility for financial support for addressing loss and damage, enshrining loss and damage as the third financing pillar next to funding for mitigation and adaptation actions. This provides crucial context for the ongoing negotiations for a New Collective Quantified Goal on Climate Finance (NCQG) to be finalized at COP29.
The LDF will be directed by an independent Board, composed of 26 members with a slight majority for developing countries making it a more equitable representation, and will make decisions for the Fund, including appointing an Executive Director for its new, dedicated and independent Secretariat, setting policies and processes for distributing funds, and establishing access modalities that will allow recipient countries to access the LDF directly through budget support and regional, national and subnational entities (decision, paras.2-4), paras.2-4).
The primary modalities and elements agreed for the Fund, are elaborated in the COP/CMA adopted Governing Instrument (Annex I of the decision, Governing Instrument [GI]). They cover the governance and institutional arrangements, detailing the legal status of the Fund, the composition and functions of its Board and its initial rules of procedure, the Secretariat and its role and functions, and the trustee (GI, section III). The GI mandates streamlined operational modalities (GI, section IV), and broad guidance on eligibility, country ownership and access (GI, section V), financial inputs and instruments (GI, sections VII and VIII), allocation of funding (GI, section IX), monitoring and evaluation (GI, sections X and XI), fiduciary standards and environmental and social safeguards (GI, sections XII and XIII) and on accountability mechanisms (GI, section XIV) as well as on complementarity and coherence (GI, section VI). For most of these, the Board will have to develop, consider and adopt more detailed operational modalities and policies. These are detailed in chapter 3 dealing with Board priorities for 2024 in greater detail further below.
The Governing Instrument also identifies the scope and objectives of the Fund in some detail. The core elements include that the LDF has a broad remit to provide a new channel for multilateral finance “(g)iven 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” (GI, paras.2 and 3).
The Fund will provide finance for responding to economic and non-economic loss and damage, from extreme weather events and slow onset events, including “for addressing a variety of challenges associated with the adverse effects of climate change, such as climate-related emergencies, sea level rise, displacement, relocation, migration, insufficient climate information and data, and the need for climate-resilient reconstruction and recovery” (GI, para.6). Support from the Fund “may include developing national response plans; addressing insufficient climate information and data; and promoting equitable, safe and dignified human mobility in the form of displacement, relocation and migration in cases of temporary and permanent loss and damage” (GI, para.9)
However, the agreed LDF is far from perfect. Shortfalls include a lack of guidance to ensure the Fund will operate in compliance with human rights in its Governing Instrument, a lack of indicative scale of finance to be provided, a failure to agree to a process for capitalization beyond initial contributions, and no acknowledgement of the cost of loss and damage developing countries are already experiencing. In discussing contributions to the Fund, the decision has stepped away from obligatory language on rich, historically high polluting developed countries having a responsibility to provide adequate, new and additional finance, as well as proposing a complicated set-up that could end with the World Bank hosting the Fund’s Secretariat permanently.
2.D. World Bank as interim host (with conditions)
The COP and CMA agreed that the LDF would be set up as a Financial Intermediary Fund (FIF) for which the World Bank would provide trustee services to the Fund and host the LDF’s Secretariat (decision, para.15) - provided the World Bank shows it can meet a set of 11 conditions, as detailed in the decision text in paragraphs 20-25. After the initial period, an independent review must assess the World Bank as having met the conditions in order for it to be appointed a permanent host.
The independent Board has been given a mandate to make decisions for the Fund, including appointing an Executive Director for its new, dedicated and independent Secretariat, setting policies and processes for distributing funds, and establishing access modalities that will allow recipient countries to access the LDF directly through budget support and regional, national and subnational entities (decision, paras.2-4). The latter is contrary to and demands an exemption from existing FIF requirements, which only foresee multilateral development banks (MDBs), the International Monetary Fund (IMF) and United Nations agencies as allowable intermediaries under a FIF-hosting agreement.
The World Bank-hosting arrangements are likely to set up a complex interplay of actions, policy development and decisions to be taken both in parallel and consecutively for negotiating and finalizing the FIF hosting agreement and the LDF Board setting the Fund’s own operational policies. This will involve a significant push and pull between the World Bank and the LDF Board. The World Bank has a number of internal processes to undertake and has yet to formally respond to the COP/CMA invitation, and confirm it can meet the conditions. Senior management and the Bank’s Board are notable internal hurdles, with policy exceptions needing to be granted for several conditions. An internal World Bank Board meeting in early April is expected to resolve these internal matters and trigger the beginning of the process where the Fund’s Board will begin to provide guidance to and negotiate with the World Bank on establishing the FIF (decision, para.25) and, prior to COP29/CMA6, conclude the FIF hosting agreement with the World Bank as interim trustee and host of the Fund’s Secretariat (decision, para.15). This will undoubtedly take up significant time and effort in LDF’s Board workplan in 2024, with an impact also on the number and timing of required LDF Board meetings in the Fund’s first year of operation (see chapter 4 for an indicative LDF Board workplan for 2024). However, the LDF Board will have to make sure that negotiating and concluding the hosting agreement will not detract its members from working constructively and as ‘one Board’ to resolve a plethora of other outstanding policy issues to get funding flowing as quickly as possible.
2.E. A big job ahead of the new Board
With the decision and the LDF’s Governing Instrument only providing the core structure, the skeleton, of the Fund, the full body of operational policies, frameworks and procedures necessary for its functioning are yet to be set by the Board. Given the urgency of addressing loss and damage experienced around the world, and to ensure that the LDF establishes itself quickly as a competent institution, the new Board must aim to set an ambitious agenda and workplan at its first meeting. While the first meeting was supposed to be convened by the end of January (decision, para.10), given delay in the nomination of Board members[ii] from developed countries (only announced on 1 March), it will now take place most likely in late April. The more than three months lost in what already has been a very tight schedule for the LDF Board will impact the ability of the new body to comply with the decision mandates and deadlines. This contrasts with the stated urgency from developed countries, who claimed speed as a reason to appoint the World Bank as host, and whose actions have now further held up progress.
The following sections outline some of the core actions and decisions that the LDF Board must take in 2024 - now under an already compressed schedule.
3. Priorities for 2024
3.A. Urgency: when will the Fund start delivering finance?
The COP/CMA Decision operationalizing the LDF, while relatively detailed, still left significant elements for the new Board to develop and approve. The Board will have to act with urgency to establish the core operational frameworks for programming approval, access modalities, resource allocation, environmental and social safeguards, financing terms and instruments and results management in 2024, which are only laid out in a rudimentary way in the Governing Instrument, in order to ensure that the Fund starts to deliver for the communities and countries on the front line of climate impacts as soon as possible. Therefore the Board must agree on a comprehensive work plan at its first meeting with the aim of having those core modalities adopted before the end of the year. This is the prerequisite for funding to be delivered through the new LDF (the full operationalization) and, alongside World Bank rules, precludes any interim arrangement of funds being distributed ahead of the Fund being fully operational.
While the first LDF grants should be provided as early as possible, and ideally still in 2024 – since the speed of setting up the LDF as a FIF with a World Bank-hosted secretariat was used as a main argument for this arrangement by developed countries in the TC process – the delay in setting the first Board meeting means that in all likelihood the first LDF grants can be provided at the earliest in 2025.
Sequencing is important as each framework will need two to three consecutive Board meetings to be drafted, discussed and finalized. At minimum three, if not four, Board meetings this year will be required, with significant policy drafting work done in between meetings. In light of the delays in setting the first Board meeting, it will be challenging for the Board to do what is necessary this year, although they must still strive for it. The LDF Board will be supported in these early tasks by the interim Secretariat, which has been set up following the COP/CMA decision jointly by the UNFCCC Secretariat with staff support from UNDP and the GCF for core administrative tasks, while it is likely that the World Bank staff, through the negotiation on the FIF documentation, may also support policy development.
The interim Secretariat will be replaced with the new dedicated and independent Secretariat, once the hosting agreement has been adopted by the LDF Board (and the Board confirmed to the COP29/CMA6 that the World Bank can meet the conditions agreed), at the earliest towards the end of 2024. Should the Board confirm to the COP29/CMA6 that the World Bank cannot meet the conditions, and then the COP29/CMA6 would indicate further steps needed for the LDF to become an independent standalone institution with its own independent Secretariat.
3.B. Foundational elements
3.B.I. Additional rules of procedure for the Board
Some core Board rules of procedure have been outlined in the Governing Instrument (GI, paras.23 - 31), however there are a number of additional rules of procedure which the Board must agree, or instances where further clarification or development of basic procedural rules is required. While the issue of additional rules of procedure will be on the agenda of the first Board meeting to discuss draft options that the interim Secretariat will prepare, it is likely that a comprehensive set will be only adopted at the second Board meeting, with some elements requiring further deliberations or the development of separate policies, such as for travel, or on confidentiality and conflict of interest requirements for Board meetings and related proceedings.
One issue that is crucial for the Board to elaborate further under its additional rules of procedure is a pro-active information disclosure approach to Board proceedings. Currently, it is not foreseen that the LDF develops its own, proactive information disclosure policy, although having a Fund-wide information disclosure policy based on core principles that apply across the spectrum of implementers, as well as ensure that the Board and Secretariat’s own access to information and disclosure procedures are best practice, is crucial for the Fund’s legitimacy, functioning and effectiveness.
At its first meeting, the Board should agree provisions related to the information disclosure of its proceedings, including a commitment to webcasting all of its meetings and allowing stakeholders the opportunity for remote participation as well as the timely and complete release of Board documents on the LDF webpage prior to the meetings and making all Board decisions and outputs publicly available and accessible.
3.B.I.a. Decision-making and organization of the Board’s work
The Board will have to prioritize approving additional rules on decision-making, as well as for the organization of the Board’s work through further elaboration on the duties of the Co-Chairs, the role of advisors to Board members, and the functioning and roles of Board sub-structures such as committees to facilitate work intersessionally. Given the Board’s workload for 2024, intersessional work will have to start between the first and the second Board meeting.
Consensus is the default decision-making procedure, however, the Board has been tasked with “determining when all efforts at reaching consensus have been exhausted” and therefore a decision is put to a vote with a four-fifths majority of Board members present and voting (GI, para.26). In the GCF, which has established a similar voting procedure, it is the Board Co-Chairs who determine after repeated consultations with the Board members that a vote is the only option to come to a decision. The LDF procedure, like the GCF’s, might include the scope of the procedure (if there are for example decisions for which voting should not apply) and how the vote will be conducted and recorded, as well as how dissenting Board members might be able to put their disagreement on the record.
Having those procedures in place sooner rather than later will prevent the stalling of Board decision-making on policies and frameworks where tensions from the TC might carry into the Board and prevent decision-making by consensus, for example on an allocation framework.
The Board is asked to adopt procedures for taking decisions between meetings (GI, para.26), which for example might become relevant for funding approvals between meetings, given the unique mandate of the LDF to expeditiously disburse funding (GI, paras.22(i) and 22(r) and 49(e)). This so far has not been possible in the GCF, despite having procedures for taking decisions between meetings. Nonetheless, the GCF experience might provide some guidance, including for ways to improve the transparency and inclusion of the process to ensure that at least the active observers representing core stakeholder groups including, youth, women, Indigenous Peoples and environmental NGOs can fully engage in intersessional decision making, as required in the Governing Instrument (GI, para.20). At a minimum, this would require active observers receiving the proposed decision at the same time as Board members and being allowed to share comments through the Secretariat with the full Board, as well as being informed of the outcome at the same time as Board members. The Board will have to figure out, in which cases – and whether routinely or exceptionally - and by whom a decision between meetings can be requested.
The LDF Board is a “non-sitting Board”, convening likely not more than 3-4 times per year. Therefore to manage its workload it will have to work intersessionally including through Board committees, such as for example one to work on the selection of the independent Secretariat’s Executive Director. The Co-Chairs could also ask a small group of Board members as an informal working group to consult in-between Board meetings on draft policies, allowing for the inclusion and input by observers. Additional rules of procedure could elaborate on composition and working procedures of such ad-hoc groups and formally established Board committees.
Lastly, while the Governing Instruments determines the rules of the election of two Board Co-Chairs and their term (GI, para.23), it does not elaborate the duties of the Co-Chairs and the procedures guiding their conduct of the Board’s business, such as: their role in preparing the agenda for and running Board meetings; or their role in representing the LDF Board formally in external meeting and high-level convenings; and, in particular, for their engagement with the World Bank on negotiating the FIF-hosting agreement. The election of the Co-Chairs of the LDF will be the first order of business at the first LDF Board meeting. The Co-Chairs will be elected from within their respective developed and developing country constituency and serve for one year, renewable once (GI, para.23).
3.B.I.b. Inclusion and transparency: ensuring observers and rightsholders, especially impacted communities, have a say
The Transitional Committee process - and its observed shortcomings with respect to participation and inclusion in its meetings - inspired much discussion of the need to better integrate observers and rightsholders, and in particular impacted communities, their needs and priorities in the policy design and decision making processes of the LDF once operationalized. While several TC members supported representation of those most impacted by climate change with voting positions on the Board, ultimately the adopted Governing Instrument only promises that “The Board will enhance the engagement of stakeholders by inviting active observers, including youth, women, Indigenous Peoples and environmental non-governmental organizations, to participate in its meetings and related proceedings” (GI, para.20). In addition the initial, but rudimentary rules of procedure of the Board suggest that further arrangements will be made “to allow for the effective participation of observers in its meetings” (GI, para.27).
As there will be no fully defined procedures for the participation of observers and rightsholders, including their representation as active observers, for the LDF Board’s first meeting, it is crucially important that temporary arrangements set a positive precedent and go significantly further than the approach in the TC, which initially limited the participation of civil society observers to two registered representatives per UNFCCC constituency – with further restrictions due to late information sharing about meetings and registration, mainly impacting the participation of observers of the Global South who more often face challenges in acquiring visas, and restrictions on the ground such as being relegated to overflow rooms – and made no special provisions for the engagement from affected communities in TC meetings (such as offering travel support). These institutional and logistical restrictions should not be replicated for the first LDF Board convening for which observer interest is expected to be high (to be considered in the selection of the meeting venue), and given the Board’s initial discussions to further operationalize the Fund in such a way that it meets the needs of those most affected.
At minimum representatives from youth, women and gender groups, Indigenous Peoples and environmental groups, self-selected by UNFCCC constituency, must be seated in the Boardroom from day 1 and have the opportunity to intervene for all agenda items as “interim active observers” throughout the proceedings of the first meeting and have access to all relevant documents in the lead-up and during the meeting.
Permanent arrangements for both active observer (with suggested two representatives per constituency) and broader participation of observers and rightsholders should be adopted as soon as possible, ideally at Board meeting 2, including by dedicating financial support for the participation of developing country observers and respecting the right of constituencies and groups to determine their own representation. This should follow a participatory consultation and submission process between Board meetings 1 and 2 to hear from stakeholders and to ensure, as was promised during the TC process, that approved final arrangements for observer participation in Board proceedings establish new best practice and improve substantially over the existing active observer participation practice in the GCF.
To ensure rightsholders’ input, suggestions and priorities are considered from the beginning, the LDF Board at its first meeting should commit to instructing the interim Secretariat to conduct outreach consultations with stakeholders and consider input provided through submissions in between LDF Board meetings in the development of draft modalities and frameworks for the Board to consider and approve when it convenes its second meeting. This is particularly important due to the likely sequencing of policy development. The establishment of consultative forums to engage and communicate with a wide range of stakeholders, including civil society, environmental and development NGOs, trade unions, Indigenous Peoples, youth, women, climate-induced migrants, and community organizations, as well as the development of “mechanisms to promote the input and participation of stakeholders […] in the design, development and implementation of the activities financed by the Fund,” as promised in the Governing Instrument (GI, paras.28-29), might potentially happen only after a number of core programming and access modalities and frameworks have been discussed and adopted. This would deprive rightsholders, most especially affected communities, of the opportunity to influence the setting of fundamental operational policies during the first few meetings of the LDF Board.
3.B.II. Initial capitalization and resource mobilization strategy
The LDF Governing Instrument notes the “urgent and immediate need for new, additional, predictable and adequate financial resources” for economic and non-economic loss and damage from extreme weather events and slow onset events, and goes on to identify that the purpose of the Fund includes mobilizing external finance and providing a new channel for multilateral finance (GI, para.3).
The COP/CMA Decision welcomes the USD 661 million commitments to the Fund made in Dubai. While these pledges need to be speedily paid in, they were made in the spirit of “kicking off” the operationalization of the Fund (including the USD 200 million in grants necessary as the minimum contribution for establishing a World Bank-hosted FIF). Additional funds are urgently needed to enable programming at the scale required. As some research has suggested, loss and damage needs of developing countries are already in the order of USD 400 billion a year. During the TC process developing countries identified USD 100 billion as the level of funding that the LDF should be able to provide each year. Therefore the Board must prioritize already in 2024 the preparation of a fundraising and resource mobilization strategy and plan for the Fund, as tasked in the Governing Instrument, to mobilize “new, additional, predictable and adequate financial resources from all sources of funding” including public, private and innovative sources (GI, paras. 22(p), 54 and 56). The Governing Instrument notes that the Fund will have periodic replenishment every four years but will also have the flexibility to receive financial inputs on an ongoing basis (GI, para.55).
This needs to be undertaken alongside initiating efforts for the immediate capitalization of the Fund in 2024 to ensure that funds are able to start flowing, at the scale required, in early 2025. Similarly to the experience at the GCF, the LDF Board should start as soon as the core policy frameworks are set, no later than Board meeting 3, a formal initial resource mobilization effort (that should include a pledging conference) to help secure additional funds from developed country governments - including calling out those who have either not yet made a contribution, such as Australia, or those whose contribution is wholly inadequate, such as the United States of America. It should also welcome voluntary contributions from developing countries, especially those that are large fossil fuel exporters such as Saudi Arabia; in this context, the USD 100 million commitment by the UAE at COP28 set an important signal.
Several countries have pointed out their contributions to other mechanisms under the broader funding arrangements, for which the LDF is to have a coordinating role (Annex II, Funding arrangements [FA], para.8), such as support provided for example by Australia, the United States and Saudi-Arabia for the Pacific Resilience Facility (FA, para.25) or Germany’s support for the Global Shield. However, such support provided to mechanisms outside of the accountability to the COP and CMA should not be seen as a substitute for contributions to the LDF.
Commitments to the LDF should be guided by the principles of the Convention - including the principle of equity and polluter pays and with it the obligation of developed countries under the Convention and broader international law to provide finance to address the impacts of the climate pollution they are responsible for. However, during the TC process developed countries sought to reject their funding obligation for addressing loss and damage. This went on to be reflected in the COP/CMA Decision which urges developed countries to provide support and invites them to take the lead in providing financial resources, and also encourages other countries to do so, however clarifying that contributions are understood as ‘voluntary’(GI, paras. 12 and 13). While this is an approach that flies in the face of climate justice, the Board will have to work within the constraints of the COP/CMA Decision and balance the Convention principles with the caveats included. The decision text does not take away from existing international legal obligations, under which wealthy countries with high cumulative emissions have a duty to provide financial resources and other forms of remedy fir the harm these emissions have caused.
In addition, both in its longer-term resource mobilization strategy as well as initial capitalization efforts, the Board should put in place contribution policies that allow for inputs from innovative sources of finance that meet the principles of the Convention, are based on a polluter pays approach and whose burden falls on those who can afford to pay. The Governing Instruments explicitly points out in paragraph 54 that the LDF should be able to receive contributions from a wide variety of sources, including innovative ones.
The COP/CMA Decision and Governing Instrument note that the determination of the World Bank as interim trustee as part of the FIF-hosting agreement is premised on ensuring “that the Fund can receive contributions from a wide variety of sources, in line with due diligence considerations” (decision, para.20(i)), such as from philanthropic foundations and other non-public and alternative sources (GI, para.39), which then the World Bank is permitted to invest “on the capital markets to preserve capital and general investment income, in line with due diligence considerations” (decision, para.20(h)). These stipulations are part of the 11 conditions laid out for the World Bank to meet under a FIF-hosting agreement.
Among innovative finance sources to be considered for contribution to the LDF should be for instance an equitably implemented polluter pays tax, such as a Climate Damages Tax paid by large fossil fuel producers, a wealth tax, or aviation and maritime levies. Philanthropic contributions, while welcome, cannot provide the scale of need required to address loss and damage.
3.B.III. Institutional set-up
3.B.III.a. Host country for the LDF Board
The LDF Secretariat will be hosted by the World Bank under a FIF-hosting agreement (which implies application of World Bank policies and procedures, including human resources policies and assumes Bank professional and administrative staff will perform the administrative functions of the Fund’s dedicated Secretariat) and thus will not have a separate legal entity. According to the COP28/CMA5 decision, this arrangement would be triggered for an interim period of four years from COP29 onward, once the COP29/CMA6 confirms that the World Bank through the FIF-hosting agreement will be able to meet all conditions. In contrast, the Fund’s decision-making Board as a fully independent body will need legal personality and legal capacity for example to approve and sign legally binding agreements on behalf of the LDF. One of the most important of those agreements during the first year of the Board’s work will be negotiating, concluding and entering into a hosting agreement with the World Bank for delivery of trustee services (likewise on an interim basis) and the interim hosting of the Fund Secretariat as a FIF. This will need to happen before the next COP29/CMA6 meeting in early November.
The COP/CMA decided that the Board of the Fund will be conferred with legal personality and the legal capacity as necessary for discharging its roles and functions, and that this would be conferred by a host country of the Board (GI, para.16). This arrangement has previously been used in the UNFCCC with Germany, for example, serving as host country for the Adaptation Fund Board and conferring legal capacity through an act of its parliament. In suggesting a similar approach, the COP/CMA decision requests the Board to select the host country of the Board through an “open, transparent and competitive process” (GI, para.16). Accordingly, a host country for the LDF Board will have to be selected and approved with urgency, no later than at Board meeting 2 and thus before the Board can conclude and enter into the agreement with the World Bank. This will require careful sequencing and timing, and does not allow for delays.
The selection of the host-country must therefore be on the agenda of the LDF’s first Board meeting with discussion and agreement on the terms of references, including criteria and time-frame, as well as setting up the selection process to ensure an open, transparent and competitive process. In the interest of time, the list of selection criteria might be short, with the Board making the speed with which the potential host country is willing and able to conclude the host country agreement and confer legal personality (which in some instances might require a separate act of parliament) the most important selection criteria. If the Co-Chairs are not given the mandate to engage with potential host countries from the outset, a selection committee of a few Board members designated by the Board Co-Chairs could be set up, which would have to work in between Board meetings 1 and 2 to present options and recommendations to the full Board for decision at Board meeting 2. Board meeting 2 could then approve the chosen host county, with the Board mandating its Co-Chairs to conduct the talks with the host country to enter into a host country agreement as quickly as possible.
In the closing plenary of COP28 both Barbados and the Philippines offered to host the LDF. The Bahamas purportedly has also expressed interest. Given the importance of resolving the host country issue quickly, and in light of delays for the first Board meeting, the interim Secretariat could formally receive expressions of interest even before then. The Board should, at its first meeting, then decide on selection criteria (which should include a liberal visa policy so as to not create obstacles to the participation of observers and rightsholders in LDF Board meetings) and agree on the process to conclude the decision of the host country at its second meeting.
3.B.III.b. World Bank as interim trustee and as interim host for the LDF Secretariat
One of the most contested issues in the TC process was whether the LDF would be operationalized as an independent, standalone institution (such as the GCF) or whether its Secretariat would be hosted by an existing organization, drawing on its institutional capacity for example for secretariat services. Despite grave reservations from many developing countries, it was agreed in a last minute compromise that the World Bank may operate as the host for the new dedicated and independent of the LDF and serve as its trustee (Decision, para.15) for an interim period of four years, and potentially as a permanent solution (Decision, para.17), provided it meets certain conditions. In order to address the concerns of developing countries a set of 11 conditions was agreed in the COP/CMA decision that the World Bank must meet in order to be appointed the interim host. They are designed to ensure that the LDF remains in compliance with the principles and requirements under the UNFCCC and Paris Agreement, is accountable to the COP and CMA and will receive annual guidance from Parties.
These conditions are different from, and in some cases directly in contrast to the FIF policy directive and FIF framework, and thus the usual engagement practise of the World Bank in agreeing to host a FIF, such as the requirement to allow for direct access of recipient country entities to the Fund. They are listed below (Decision, para.20):
- The World Bank FIF must be fully consistent with the Governing Instrument of the Fund (see Appendix for the Governing Instrument);
- The Board of the Fund will have full autonomy to select the Executive Director of the Fund, in line with relevant World Bank human resources policies;
- The Fund will be able to establish and apply its own eligibility criteria, including on the basis of guidance from the COP and CMA;
- The Governing Instrument of the Fund supersedes the policies of the World Bank in instances where they differ;
- All developing countries are able to directly access resources from the Fund, including through subnational, national and regional entities and through small grant funding for communities, consistent with the policies and procedures to be established by the Board of the Fund and applicable safeguards and fiduciary standards;
- Allows for the use of implementing entities other than multilateral development banks (MDBs), the International Monetary Fund (IMF) and United Nations agencies, consistent with the policies and procedures to be established by the Board of the Fund and applicable safeguards and fiduciary standards;
- Ensures that countries that are Parties to the Convention and the Paris Agreement that are not member countries of the World Bank are able to access the Fund without requiring decisions or waivers from the World Bank Board of Directors on individual funding requests;
- Permits the World Bank, in its role as trustee, to invest contributions to the Fund on the capital markets to preserve capital and general investment income, in line with due diligence considerations;
- Ensures that the Fund can receive contributions from a wide variety of sources, in line with due diligence considerations;
- Confirms that the Fund’s assets and its Secretariat have the necessary privileges and immunities;
- Ensures a cost recovery methodology that is reasonable and appropriate.
The 11 conditions, and the question of whether the World Bank is willing and able to fulfill them according to the deadlines set by the COP/CMA decision will require significant back and forth, push-and-pull between and also within the World Bank, the LDF Board and the climate regime, some of which could be conflictual. However, the COP/CMA decision is clear that if the World Bank is not able to meet the conditions, the process for a host country for an independent, standalone Fund with its own independent Secretariat will be kicked off, following confirmation by COP29/CMA6.
The timeline and required “if-then” actions for a World Bank-hosted LDF are mapped out in Figure 1. This timeline has clear implications for the scheduling and sequencing of LDF Board actions during its first few meetings in 2024. The following sections elaborate how this could play out, as there might be a difference between required action and time-lines, and how the World Bank and the LDF Board decide to approach or are able to conduct the process, also given the delayed first Board meeting.
Figure 1: Mapping the time-line and required actions for a Word Bank hosted LDF Secretariat
Source: Heidi White and Liane Schalatek. Available at: https://us.boell.org/en/media/image/mapping-timeline-and-required-action-world-bank-hosted-ldf
The World Bank must confirm that it is willing and able to meet these conditions by 12 June 2024, and thus within six months after COP28 (Decision, para.21). The Board is to provide guidance to the World Bank as it takes the steps needed to establish a FIF (Decision, para.25). If the World Bank is unwilling to meet the conditions, then the LDF Board will begin the process of selecting a host country for the Fund as a requirement for an independent, standalone fund. If the World Bank does accept the conditions, it has to submit the relevant documentation for the FIF-hosting agreement to the LDF Board by 12 August 2024, and thus within eight months after COP28 (Decision, para.19). If the LDF Board determines that the World Bank with its documentation submitted will not meet the conditions laid out, it will report this to COP29/CMA6, which then will undertake steps to operationalize the Fund as an independent, standalone institution, such as approving amendments to the LDF’s Governing Instrument (Decision, paras. 21 and 22). If the LDF Board confirms to COP29/CMA6 that its FIF hosting agreement with the World Bank can meet all conditions, then the four-year interim hosting period begins post COP29.
At its first meeting the LDF Board must agree on how it will undertake the task of providing the World Bank with guidance, and how it will assess the documentation from the World Bank against all conditions in the COP/CMA decision throughout the negotiation process and once the documentation is submitted. This involves besides the hosting agreement also the terms for the provision of trustee services by the World Bank, including the ability to receive contributions from a wide variety of sources and investing them in the capital markets.
Engagement and negotiations with the World Bank on the FIF hosting agreement would be most likely delegated to the Co-chairs rather than a sub-committee of Board members. The Board must put in place a negotiation and assessment process that allows for meaningful participation of observers, and ensures that any work done intersessionally is reported on a regular basis to the full Board and the public. All documentation provided by the World Bank must be made publicly available. This will be an early test of the willingness of the LDF Board to conduct its work transparently and with accountability in line with the mandate of the Governing Instrument for the Fund’s operations (GI, para.5).
The second Board meeting would then likely see a progress report on the status of the negotiations of the hosting agreement with the Board providing guidance for the way forward, presumably with the Board taking note of the World Bank’s formal response on its ability to meet the 11 conditions received by then (if not already in time for and taken note of at the first Board meeting) and providing further guidance to the World Bank.
The earliest the LDF Board could approve the FIF hosting agreement would be at a third meeting, provided the Board can confirm that the conditions can be met through the terms and modalities of the agreement and provided the host country has conferred legal personality and legal capacity. Ideally, this would be timed with the selection of the Fund’s Executive Director and also trigger the transition to the set-up of the new, independent, dedicated Fund Secretariat, and thus preparing to end the services provided by the interim Secretariat. Given the delay with the first Board meeting likely only happening in late April, it will be difficult to fit three Board meetings before COP29 in early November.
The COP/CMA decision indicates an expectation that as FIF of the World Bank, the Fund will operate through the legal personality and legal capacity of the World Bank, and “the privileges and immunities of the World Bank will apply to the officials, property, assets, archives, income, operations and transactions of the Fund” (Decision, para.18). Including this stipulation in the FIF-hosting agreement will be very important to ensure that there is clarity regarding who assumes the liability for the Fund’s actions, assets and operations. During the TC process, the assurance that this liability is taken on by the World Bank through the FIF-hosting arrangements was relevant to persuading reluctant TC members to agree to this set-up.
3.B.III.c. Executive Director
The LDF Secretariat will be headed by an Executive Director, who will manage and select Secretariat staff and run the day-to-day operation of the LDF. The Board is tasked to promptly select and appoint an Executive Director of the Fund through a merit-based, open and transparent process (Decision, para.11; GI, para.33). The COP28/CMA5 decision includes a condition to be fulfilled by the World Bank for hosting the FIF and the LDF Secretariat that is meant to ensure that the Board has full autonomy to select the Executive Director, including at a level of seniority to ensure that a high-level candidate with professional standing and stature can be found, and accordingly compensated, who is able to represent the LDF as an independent organization, and without interference by the World Bank, despite the fact that the Executive Director, like all Fund Secretariat staff, are technically under World Bank human resources policies (Decision, para.20(b)).
At its first meeting the Board will have to establish and launch this selection process, which must be as transparent as possible, with a tight deadline, including approving the job description and required qualifications (GI, para.33), as the Executive Director probably would have to be confirmed at Board meeting 3. It is likely that a Board sub-committee, set up at the first meeting, will be tasked to manage the months-long process, aided by the Interim Secretariat and potentially by an executive search firm, with terms of reference agreed by the Board for their targeted support, in order to do outreach, and vet and shortlist candidates over a short few months. The Board sub-committee intersessionally would then interview shortlisted candidates to whittle the pool down further. Presumably, the full Board during Board meeting 3 could then decide among the last candidates, ideally by consensus but likely in a closed Board session, which might rely on the voting procedures agreed at the first Board meeting (similar to the process used to select the GCF’s head of Secretariat).
The appointment of the LDF’s first Executive Director is important for several reasons. Firstly, she/he/they can shape the LDF’ institutional development path through the open and transparent selection of the Secretariat’s staff based on merit and taking into account geographical and gender balance, cultural and linguistic diversity and a variety of backgrounds and expertise (GI, para.32). If for example experts from multilateral development banks were to predominate as initial staff members, they might bring operational biases and expectations that might not allow for the LDF to conduct its operations differently from existing institutions - a widely recognized imperative. Secondly, the selection of the Executive Director will also have a large signaling function as to the priorities, expertise and professional and cultural background the new LDF Board prizes most for the head of the Fund’s Secretariat in guiding the crucial first three years of the LDF full operationalization.
Lastly, the Executive Director must have the trust of the full Board to allow for the necessary delegation of some Board decision-making to the head of the new, dedicated and independent Secretariat. For this, the Board will need to establish a delegation matrix over time - outlining what decisions the Executive Director can make, including what level of funding authority the Executive Director might have. The Governing Instrument foresees this by tasking the Board to develop “an accountability framework for funding approvals, which may be delegated by the Board to the Executive of the Fund” (GI, para.22(i)). Given the Board will likely meet only 3-4 times a year, the Executive Director should be able to disburse funding in times of climate emergencies or for direct small grant support for communities, within parameters defined by the Board. In the GCF, for example, funding decisions on readiness grants within a policy framework and financial limits set by the Board are made by its Executive Director, who then reports regularly to the Board.
Importantly, such delegated funding decision-making to the head of the Secretariat hosted by the World Bank is currently not allowed under the World Bank’s FIF directive. While this issue could be considered as falling under the condition that the World Bank’s hosting of the FIF “Is fully consistent with the Governing Instrument of the Fund”, and specifically its mandate to the Board under paragraph 22(i), there is no specific condition relating to this under the COP/CMA decision in paragraph 20. Therefore the LDF Board through its Co-Chairs will have to be diligent to ensure that this provision is included in the FIF-hosting agreement.
3.B.III.d. New, dedicated and independent Secretariat
The functions of the Secretariat in running the day-to-day operations of the LDF, including the planning and execution of all relevant operational and administrative duties following Board decisions, including operationalizing the programming cycle, are laid out in the Governing Instrument (GI, para.35).
The COP28 decision specified that the LDF would be set up as a FIF under the World Bank, which will host a new, dedicated and independent Secretariat (as long as the conditions elaborated in section 3.B.III.b, are fulfilled) (Decision, para.17). Therefore the timeline for the establishment of the independent Secretariat is tightly interwoven with the conclusion of the negotiations and approval of the FIF hosting agreement with the World Bank (which in turn can only be adopted by the Board once it has its own legal personality conferred by a host country for the Board), and the transition from the interim to the new Secretariat could begin at the earliest at Board meeting 3, ideally at the same time as the selection of the Executive Director, who will oversee it.
An administrative budget and workplan for the Secretariat would also have to be approved at the same time to fund the independent Secretariat’s operations. This will involve some prior work as part of the negotiations of the Board with the World Bank for the FIF hosting agreement, including on the “reasonable and appropriate” fees on the basis of a full cost recovery methodology that the World Bank can charge the LDF Secretariat for providing it with administrative and technical support (Decision, para.20(k)). During the TC process, concerns about the World Bank’s hosting costs were raised, as in addition to staff costs (as all independent Secretariat staff would be technically World Bank employees), the World Bank typically charges 17 percent of the operational costs, and potentially more (the GEF, which likewise has a World Bank-hosted Secretariat under its FIF agreement with the World Bank is currently struggling with unexpected cost increases by the World Bank for its services). The World Bank is advised to “read the room” and come to the table with assurances against unreasonable charges or increases related to hosting the Secretariat.
The staff selection for the new independent Secretariat will be made by the Executive Director based on a “merit-based, open and transparent process, taking into account geographical and gender balance and cultural and linguistic diversity” (GI, para.32) and setting up regional desks for all UN regions, as well as allowing multilingual engagement (GI. para.34). This is supposed to provide the independent Secretariat with the ability to take “a regionally informed approach in responding to context-specific operational needs, capabilities and priorities of recipient countries” (GI, para.35(o)). This guidance applies lessons learned from other funds, including the GCF, in overcoming time-zone differences and cultural and language barriers in engaging with recipient country partners, but will likely take time to implement. It will be important that an initial administrative budget for the independent Secretariat also include a work and staffing plan, making clear the intended initial staff size (and its growth trajectory) and which positions need to be filled right away. Ultimately, the geographical location of the independent Secretariat (although likely not in the first year of the Board) will have to be decided.
Until then, for the transitional period that could last a year, an interim Secretariat with staff from the UNFCCC, the GCF and UNDP will provide administrative support to the Board, including for the preparation and running of its first Board meetings, and to some extent, although the interplay with World Bank staff under efforts to finalize the FIF documentation is not quite clear, also the development of draft operational policies (Decision, para.26). It is crucial that this interim Secretariat is not under-staffed and under-funded, as the first meetings in 2024 will see the bulk of initial operational policy and framework development and thus before the independent Secretariat will ramp up its operations late in 2024 at the earliest. The ability of the LDF Board will be heavily contingent on the capacity and resources of the interim Secretariat.
At its first Board meeting, the LDF will therefore have to approve an adequate administrative budget for the interim Secretariat that allows for the administrative and specialized support needed (including to pay for consultancies), as well as a work plan to define its role and engagements in the interim period. This should also budget and plan for the transition from the interim to the independent Secretariat. Clarity is needed on whether funding support for the interim Secretariat can be drawn from the pledges received for the LDF (as this is clearly part of “commencing the operationalization of the Fund” as provided in the Decision in paragraph 13) or whether a separate call for contributions for the interim Secretariat is needed. And indeed, this should also provide clarity and transparency on the required speedy conversion of pledges for the LDF into signed contributions.
3.B.III.e. Legal status and privileges and immunities for Fund, Board and Secretariat
As the LDF will operate and provide funding to potentially a hundred or more countries, it is not possible for the Fund to understand and act in accordance with the domestic laws of all of these countries (such as on taxation or local procurement rules) or be subject to seizure or expropriations of its assets in the countries where funding is implemented, which would inhibit its ability to smoothly, quickly and efficiently operate. This means that the Fund and the Fund’s activities, its Board members and Secretariat staff need legal protection in the form of accorded privileges and immunities.
The Governing Instrument confers that the Fund will have international legal personality and appropriate legal capacity “as is necessary for the exercise of its functions, the fulfillment of its objectives and the protection of its interests, in particular the capacity to enter into contract, to acquire and dispose of movable and immovable property, and to institute legal proceedings in defense of its interests.” The Fund itself, and its officials in the Fund Secretariat “will enjoy such privileges and immunities as are necessary” for the fulfillment of the Fund’s purpose as well as for the independent exercise of the official duties of the Secretariat staff (GI, para.10). In order to operationalize this requirement, two separate but interwoven arrangements are necessary, namely the set-up of a World Bank-hosted FIF (Decision, paras.18 and 20(j)) and a host country for the Board (Decision, paras.15-16).
Having a separate legal personality for the Board is not only a technical necessity (as the World Bank’s privileges and immunities will extend only to assets, operations and staff of the new Fund’s Secretariat, but not extend to Board members), but also required to assure the LDF Board’s ability to operate independently under the guidance by the COP and CMA in accordance with the Fund as an operating entity of the financial mechanism of the UNFCCC and Paris Agreement. Thus, the Board is pursuing its own legal personality and legal capacity through a separate host country agreement (see section 3.B.III.a), which presumably would also provide the host country’s privileges and immunities to members of the LDF Board, although it is not clear if there might be a delay between signing a host country agreement and conferring legal personality and privileges and immunities. Ideally, the host country for the Board should be selected as early Board meeting 2, although the conclusion and execution of host country agreement would take longer to conclude.
In the interim, and for the purpose of the first LDF Board meetings in 2024, the Board, similar to the TC members during that process, would have the protection that comes from privileges and immunities only through the respective countries where these Board meetings might be convened, as the interim Secretariat (with the UNFCCC behind it) would secure limited legal agreements with the country host for the duration of each meeting.
The COP/CMA decision indicates an expectation that as a FIF of the World Bank, the Fund will operate through the legal personality and legal capacity of the World Bank, and “the privileges and immunities of the World Bank will apply to the officials, property, assets, archives, income, operations and transactions of the Fund” (Decision, para.18).
Thus, with the approval of the agreed hosting arrangement and FIF governance documentation following the confirmation by the Board that the World Bank has met all conditions, ideally at Board meeting 3, the privileges and immunities must be speedily conferred to the independent Secretariat staff and to the Fund’s operations and assets (with clarity needed if there is a delay between the signing of the agreement and the concerning of legal personality and the privileges and immunities).
However, should the World Bank fail to confirm its willingness and ability to met the conditions for hosting the LDF by 12 June 2024 as required (Decision, para.21), then the Board no later than its third meeting would have to launch the selection process for a host country for the Fund to ensure that the Fund has international legal personality and appropriate legal capacity to fulfill its functions and objectives (GI, para.10). The Technical Support Unit of the TC has highlighted various options, if the LDF had to go this route to establish privileges and immunities including via a multilateral process of developing a treaty and encouraging countries to ratify it. Although some of the options could be potentially complicated.
3.C. Operational framework
One primary objective of the LDF must be to provide all developing countries that are particularly vulnerable to the adverse effects of climate change, and thus considered eligible to receive its resources (GI, para.42), with rapid and simplified access to funding to address loss and damage that meet the needs of communities and countries on the frontline of climate impacts and avoids disproportionate bureaucratic obstacles. The Board is tasked to develop and approve operational policies, access modalities, policies and programs (GI, para.22(b)). The adequacy of the operational modalities that the Board is tasked to develop and approve can be measured by a yardstick provided in paragraph 41 of the Governing Instrument. It stipulated that the LDF will “have a streamlined and rapid approval process with simplified criteria and procedures, while also maintaining high fiduciary standards, environmental and social safeguards, financial transparency standards and accountability mechanisms” and that the Fund will “avoid disproportionate bureaucratic obstacles to the access of resources (GI, para.41).
The distinct elements of the LDF’s operational framework listed in the following sections – which must be elaborated at minimum in an interim or initial form before the Fund can disburse funds - must keep that objective in mind as the Board tackles them as priorities in 2024 (even if not all of them can be concluded this year).
3.C.I. Project & program funding approval cycle
The Governing Instrument adopted by COP28/CMA5 gives the Board the mandate to develop the operational policies and guidelines for the program and project cycle. These mandates, while encompassing and speaking to the heart of the Fund’s work, are also quite vague – reflecting that there was little agreement to flesh this out further in the TC process. This gives the new Board a lot of flexibility, and the pressure and responsibility, to get it right from the start to deliver for communities and people.
The Board must fill in the blanks from how an initial funding request would become a formal funding proposal, and determine the granularity and supporting documents required. Additionally the Board must decide the speed with which to release funding, including delegation of funding approval to facilitate fast access (GI, para.22(e)) and it must decide on accountability for approved funding and the appropriate reporting and monitoring regime (GI, para.22(l)). The Board is tasked to develop relevant indicators and triggers to clarify access to different sources of support provided through the LDF (GI, para.22(l)), likely provided through funding windows, programs or other Fund sub-structures, to comprehensively cover the range of funding support for “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” (GI, para.2).
The Board will have to tackle the project and program approval cycle as a key priority for 2024, beginning its work on an initial programming cycle at Board meeting 2 (through discussion and consideration of draft options and priorities that would apply lessons learned from existing climate funds) with the goal to set at least an initial framework at Board meeting 3 and thus before COP29. In particular, it will have to clarify how to best rationalize and condense the approval cycle to allow for quick approval and disbursement for fast onset loss and damage, such as that caused by extreme weather events. This will require differentiated programming approaches (and requirements) for fast and slow onset events, as well as for preparatory and planning support and institutional strengthening in recipient countries.
Instead of spelling out a funding cycle, the GI provides a set of guiding principles to direct policies and guidelines for framing it (GI, section V.B.). The GI roots the start of the programming cycle firmly in country ownership, here defined as being responsive to country priorities and circumstances (GI, para.44) through country-led approaches defined through effective stakeholder engagement - it explicitly names women, vulnerable communities and Indigenous Peoples as groups to be involved (GI, para.43) – and prioritizes direct engagement at the national and including subnational and local levels (GI, para.45). LDF funding is supposed to utilize to the extent possible existing national and regional systems and financial mechanisms (GI, para.44).
The GI mandates that recipient countries are involved in all stages of the Fund’s program and project cycle with respect to their projects (GI, para.46). In all likelihood, recipient countries will liaise with the Fund through a national authority or national focal point (GI, para.48) similar to the current practice at the GEF, AF or GCF. Using the existing networks of representation with other climate funds could enhance complementarity and coordination among climate funds under the UNFCCC and the Paris Agreement. The national authority or focal point will have to be consulted on any funding request from or for a recipient country, no matter the access modality to be pursued. The GI currently lists five access options (see next section for further details), differentiating in particular between direct budget support through national governments, access via direct access entities that have been accredited with other funds or international access entities such as MDBs, UN agencies of bilateral development cooperation agencies. The Board will have to decide what form that consultation will take, and at what stage(s) in the cycle it might be required (concept or full proposal or both), whether it is information sharing only, or a no-objection procedure such as the GCF has and which can be active (meaning a formal no-objection letter needs to express agreement with and support for a funding proposal for it to go forward) or passive (meaning, if no objection is received within a set time period, the country’s support is assumed). National and sub-national stakeholders and rightsholders, especially affected communities and marginalized populations groups should be heard on proposed projects and the free, prior, and informed consent of Indigenous Peoples where relevant obtained, before a formal no-objection by the country’s liaison to the LDF is given.
For fast onset events in particular, quick consideration, approval and disbursement is crucial in saving lives and livelihoods. The Board in setting the policies for the programming cycle for fast response might decide to skip a funding proposal stage for release of funding either entirely or at least for an initial funding tranche provided as grant budget support. It could instead develop a system of triggers, which could take into account, for example, the number of people affected, the expected economic scale of impact (as percentage of GDP) or other indicators relaying the urgency and scale of the loss and damage impact, and therefore the LDF funding sought. Subsequent funding tranches could be elaborated as funding proposals with simplified approval procedures (for activities up to a certain scale, low risks for negative environmental and social impacts and straightforward financing). The work on triggers will be an important part of the policies and guidelines for the funding approval cycle.
For medium-term efforts and slow onset events, programmatic proposals should be prioritized that build on recipient countries’ own plans. This should allow for country-led concepts and full proposals to be submitted (either directly through a national authority or focal points or with the countries’ support through an implementing partner) and perhaps involve some technical feedback and engagement with the Secretariat and/or expert bodies before consideration by the Board. The Board might decide to set certain indicators or criteria to ensure submitted funding requests are in line with the goals and purpose of the Fund. While this should not necessarily require a full-fledged investment framework such as in the GCF (with criteria and sub-criteria against which a funding proposal would be measured and on the basis of which proposal might not move forward), indicators could be used to more fully align funding proposals with implementation partners, financial instruments or potential programming sub-structures (GI, para.22(k)), such as specialized funding approaches, for example a funding window for small-grants support directed at local communities and marginalized groups (for more detail see section 3.C.II below).
The GI also highlights the possible funding support the LDF might provide at the start of the programming cycle, such as preparing and strengthening national processes and institutions, including establishing national loss and damage finance systems, or planning activities, such as through national loss and damage plans or investment programs (GI, para.48). In funds like the AF or GCF readiness support is provided for similar activities such as concept development, including in the GCF with dedicated amounts for the development of National Adaptation Plans (NAPs). Both also provide project preparation funding to help bring programming from the concept to the funding proposal stage. The Board will have to decide how to establish a programming approach for similar activities, to support both fast and slow onset activities, and how this will coordinate and relate to the Santiago Network tasked with providing technical assistance to developing countries responding to loss and damage.
Lastly, the Board is not a sitting board (unlike in the World Bank) and thus convenes only a few times a year. Hence it will have to decide how much decision-making throughout the funding cycle it will be willing and comfortable to delegate to the Executive Director, including for approvals of funding requests (GI, para.22(i)), and in particular in response to extreme weather events, which will require extremely fast turnaround in a matter of days. Such delegation might set specific funding parameters such as a limit to the scale of funding to be approved and released by the Executive Director, or for the scope/purpose of such approvals. It might specify reporting requirements to or periodic reauthorization requests to be granted by the Board, for example by establishing certain funding envelopes. This could apply lessons learned from the GCF experience on funding to support readiness and project preparation, where its Executive Director makes individual funding and disbursement decisions against a program framework with a funding envelope and individual country funding limits.
3.C.II. Access modalities
The possibility of a diverse set of modalities to facilitate access to the LDF’s resources for all eligible recipient countries is outlined in the GI (GI, paras.49 and 50) and at the heart of the operationalization of the Fund. Thus, the elaboration and quick operationalization of distinct and multiple avenues for countries to request funding will be the key to the fund’s ability to fulfill its purpose with effectiveness and equity and the urgency required. The Board will have to tackle access modalities at the same time as discussions about its programming cycles, allocation parameters and financing terms with initial deliberations starting at Board meeting 2 and efforts to conclude and set the respective policies and modalities already at Board meeting 3 and thus before COP29.
The challenge and goal here is to act speedily with setting the modalities to ensure that developing countries and affected communities are able to access the Fund quickly and without excessive bureaucracy but with robust environmental and social safeguards and fiduciary standards (GI, para.41). A particular focus will be on setting rapid disbursement modalities (GI, para.49(e)), with the Board to decide whether these will be entirely new approaches or how other access modalities can be streamlined and fast-tracked.
The time-table, deliberations and decision-making on access modalities is intrinsically tied to those around the World Bank FIF-hosting agreement for the LDF Secretariat. Indeed, throughout the TC process, developing countries had highlighted direct access to LDF resources as a priority and the major reason for their push for a stand-alone fund, as the World Bank’s FIF framework and directive usually limit access to WB-hosted FIFs to international implementing entities, UN agencies and MDBs and the IMF. Thus, the decision operationalizing the LDF adopted by COP28/CMA5 specifically set a number of conditions for a hosting agreement between the World Bank and the LDF to ensure that all developing countries can directly access resources from the Fund, including through subnational, national and regional entities and through small grant funding for communities in line with access modalities to be established by the Board (Decision, para.20(e)); implementing entities beyond MDBs, the IMF and UN agencies can be used (Decision, para.20(f)); and countries that are parties to the Convention and Paris Agreement, but not member countries to the World Bank, such as Cuba, are able to access the Fund without requiring decisions or waivers from the World Bank Board of Directors on individual funding requests (Decision, para.20 (g)).
The term ‘direct access’ in the GI is applied to two distinctly different access modalities. Firstly, as direct budget support through national governments or entities, whose safeguards and standards are deemed ‘functionally equivalent’ to those of MDBs in providing assurances and securing outcomes (GI, para.49(a)). Secondly, using developing countries’ national, sub-national and regional entities (such as government agencies on the national, provincial or municipal level, as well as non-governmental actors) or direct access entities that are already accredited with funds such as the AF, GEF or GCF (GI, para.49(b)). In acting on the latter mandate, the Board should decide that all direct access entities in good standing with funds under the Convention and Paris Agreement could automatically serve as LDF implementation partners for recipient countries. Grandfathering these entities in would make sense as they are already undergoing rigorous accreditation and re-accreditation procedures via those funds; this would also help with strengthening complementarity and coherence in funding climate actions.
The Board has to decide whether it would need a de facto accreditation procedure (even if the term does not appear in the GI) for other direct access partners not already vetted by other funds, including to ensure their capacity and ability to implement funding while observing required safeguards and standards, and what it might look like. The GI tasks the Fund to develop simplified procedures and criteria for fast-tracked screening to determine functional equivalency of national, sub-national and regional direct access entities’ own safeguards and standards to manage funded programs and projects in the recipient country with internationally recognized standards (GI, para.50). The requested simplification could rely on procedures of other funders (including bilateral assistance providers or South-South cooperation platforms), differentiate a determination of functional equivalency according to risk, scale, financial instrument and proposed activities of new partner (for example, fiduciary standards are less complex for grants received than for loans or blending finance[iii]), and allow for one-off consideration in the context of a specific funding proposal vs. an organizational vetting for repeated financial access over a longer time period by the same entity. For example, the GCF is experimenting similarly with a project-specific assessment approach (PSAA) for a one-time partnership versus its differentiated fit-for-purpose accreditation framework.
It is likely that the Board will pursue work on a policy for determining functional equivalency only after an overall framework on access modalities is set before COP29, and thus potentially only in 2025. This would then mean that funding could be accessed initially only through ‘vetted’ entities, including international access entities such as multilateral institutions or developed countries’ bilateral assistance agencies, all of which are already playing an outsized role in the international climate finance architecture and dominating finance access to existing funds (such as the GCF, where international access entities, despite being fewer in numbers than direct access entities, account persistently for around 80% of approved funding for programming).
The LDF Board needs to set new best practice approaches for simplifying and enhancing direct access so that it becomes the dominant access modality to fund resources and to avoid repeating these other experiences, such as in the GCF. Additionally the LDF should consider providing funding in order to strengthen recipient countries’ institutions and frameworks. Thus ensuring that benefits of funded actions are as directly as possible shared with affected communities and often marginalized populations groups. . For example, it should ensure that a substantial and progressively growing part of LDF resources is provided through access to “small grants that support communities, Indigenous Peoples and vulnerable groups and their livelihoods, including with respect to recovery after climate related events” (GI, para.49 (d)). The Governing Instrument language leaves it open if such community access to small grant support should be provided through international access (such as building on the experience of the GEF/UNDP Small Grant Programme), or facilitated through direct access either via budget support or through direct access entities, or through allowing community access directly via a small grant funding window or program at Fund level (such as the Dedicated Grant Mechanism for Indigenous Peoples and local communities established under the Forest Investment Program under the Climate Investment Funds). In all cases, a Board policy on access modalities must make it clear that small grants provision to affected communities must be a substantial share of LDF funding allocation and can be pursued simultaneously via a number of parallel access modalities.
3.C.III. Resource allocation
One of the most contentious discussions during the TC process, and with the continued power to undermine the solidarity and unity among developing countries as funding recipients, including in the LDF Board, is the question of resource allocation. The GI mandates the Board to develop and operate a resource allocation system (GI, paras.22(j) and 60), recognizing that it will have to be dynamic with periodic reviews by the Board (GI, para.61).
Developing an allocation framework should be a high priority for the LDF Board in 2024 to be started as early as Board meeting 2 and concluded at the same time as other core modalities ideally already at Board meeting 3. An allocation system will influence the programming cycle and approaches, financial instruments to be used, and access modalities, including approaches to simplify and accelerate access. It will also be a high-wire balancing act to manage the tension between the eligibility of all developing countries to LDF resources, recognizing that all have special vulnerabilities and needs and irrespective of size, development status or location their own vulnerable communities and population groups, and ensuring that countries often with additional challenges, such as SIDS or LDCs, receive a guaranteed “minimum percentage allocation floor” as stipulated in the GI (GI, para.60(f)).
In elaborating the framework, the LDF Board must be mindful of the limitations and pitfalls of some allocation approaches in existing climate funds, including the experience in the GCF with minimum allocation targets for funding themes or for specific country groups (which currently requires a balance between mitigation and adaptation in grant equivalent terms and that 50% of all adaptation funding support LDCs, SIDS and African states), or the GEF’s approach in ensuring that each eligible country gets a minimum allocation or the AF’s effort to deal with always limited funds by setting a country cap for support.
The GI highlights a number of considerations that will have to be taken into account when drafting and approving the LDF allocation system, such as avoiding overconcentration of support for any country, group of countries or region (GI, para.60(c)) or looking at the needs and scale of impacts on countries and vulnerable communities in relation to their national circumstances and their capacities to respond (GI, para.60(a) and (b)), which are also influenced to a high degree by a recipient countries’ fiscal space and level of indebtedness.
Thus, an allocation framework might not only take the distribution of funding according to recipient countries into account, but also by thematic priority and financial instrument of provision. The Board should for example set a target for how much of its funding (and for which priorities) must be delivered exclusively or primarily in the form of grants. It could also appropriate certain funding amounts for certain themes. They might be targeted under specific windows or programs to address fast response, slow onset events or planning respectively, which the Board might decide to set (GI, para.22(k)) to ensure that available resources are balanced between multiple thematic priorities. In the TC, there was no agreement on sub-structures, but there was strong developing country opposition to sub-funds with different eligibility criteria that could allow for earmarking of financial inputs. Instead, the LDF allocation framework will work from the basis of a single LDF trust fund, in which all financial inputs are collected without allowing for earmarking.
A big question is the role of data, information and knowledge in determining allocation parameters, recognizing that pertinent information and knowledge might be provided by communities and Indigenous Peoples directly based on lived experiences and not primarily via data that is scientifically vetted or reviewed (GI, para.60(d)). At the same time, there might be significant data and information gaps, including for example on estimates for recovery and reconstruction costs for specific countries and regions (GI, para.60(e)). The LDF allocation framework will have to make sure that the absence of such data cannot be used to deny access to the Fund’s resources, although LDF programming can and should help with closing relevant data, information and knowledge gaps. Such a carefully calibrated approach would apply lessons learned from the GCF experience, where a demand for countries to prove the ‘climate rationale’ was especially challenging in the case of proposed adaptation measures due to lack of available data, especially for local adaptation contexts. At the same time, the role of the Santiago Network to support the undertaking of country-level participatory loss and damage needs assessments as an element of readiness support should be explored.
3.C.IV. Environmental and social safeguards, gender considerations and human rights
The COP28/CMA5 decision to operationalize the new Fund recalls existing Paris Agreement preambular language on reminding parties, when taking climate actions, to respect, promote and consider their respective obligations on human rights in its own preambular language, while adding a reference to the recently universally recognized “right to a clean, healthy and sustainable development” to the relevant listing, in line with language adopted in the Sharm-el-Sheikh Implementation Plan (Decision, preambular language). However, there is no explicit reference to human rights in the Governing Instrument beyond a reference to gender-responsiveness in its section on objectives and purpose (GI, para.4). The framing of the Fund’s purpose and goal of providing funding to developing countries and affected local communities, including vulnerable population groups, thus lacks a clear human rights-based approach. It is therefore important, including through targeted advocacy efforts and sustained and meaningful engagement of rightsholder groups such as women, children and youth, Indigenous Peoples, persons living with disabilities, migrants, other marginalized groups and local communities in LDF Board proceedings in 2024 and beyond to anchor human rights obligations for all LDF operations and funded actions through incorporation of explicit references into modalities, frameworks and policies as they are developed (see also section 3.B.I.b on observer and rightsholder participation).
The Governing Instrument includes several explicit references on gender, including taking into account gender balance in the LDF Board (GI, para.19) and among the staff of its dedicated and independent Secretariat (GI, para.32). However, the nominations received for the new Board also reveal a gender imbalance with a third of nominated Board members women (only 7 of 25 nominated members, and 10 of 25 nominated alternate members), and thus already a disregard for a crucial mandate that acknowledges that addressing the gender-differentiation of climate change-induced losses and damages will require gender-responsive policies and programming approved by a Board that is not only equitably representing developed and developing countries, but also gender diversity. It is disappointing that the LDF is starting out already lagging behind the practice in other climate funds, including the GEF and GCF, the other operating entities of the financial mechanism, which fare better. Women, youth, and Indigenous Peoples are also referred to explicitly as core stakeholder groups to be involved in Board proceedings, including as active observers (GI, para.20), in Fund-wide stakeholder participation mechanisms (GI, paras.28 and 29), and as relevant for determining country-led programming approaches (GI, para.43).
Figure 2: Percentage of female Board or Governing Council members in dedicated climate funds
A table of the Loss and Damage Fund board members is available here.
Currently, the Governing Instrument does not foresee the development of an LDF specific gender policy or Indigenous Peoples policy, such as for example the AF or GCF have and which apply to all fund activities, not just its funding operations, but also shape participation, outreach, communication and engagement in broader fund operations. Instead in what is an inadequate approach, the concerns of distinct population groups such as women and diverse gender groups, Indigenous Peoples, children and youth, migrants or people living with disabilities are primarily considered through a ‘do not harm’ lens, which is not equivalent to a rights-based approach, via environmental and social safeguards (ESS) in the implementation of funded activities. Instead a rights-based approach requires an objective to respect, protect and promote human rights and advance substantive equality through the application of an intersectional lens.
The GI only mandates the Board to develop “a mechanism that will help ensure the activities financed by the Fund are implemented based on high-integrity environmental and social safeguards (ESS) and fiduciary principles and standards” (GI, para.22(f)). This is to be achieved not by the Fund setting its own high-integrity standards, as for example the AF and the GCF do with their respective own human-rights based environmental and social policy, but by relying exclusively on the environmental and social safeguard policies of its implementing entities. Those safeguards are supposed to be “functionally equivalent” with the World Bank’s own environmental and social safeguards as determined through modalities to be developed by the Board (GI, para.68). The Secretariat is tasked to support strengthening the capacities of direct access implementing entities to reach that functional equivalency. The modalities should be in place before the first funding occurs, but are likely not among the first set of operational policies prioritized, and might come only late in 2024, or even only in 2025 to the Board.
Relying exclusively on equivalency with World Bank ESS is a missed opportunity for the new Fund to set its own ESS standards targeted at addressing unavoidable short and long term climate impacts on people and environment that not only focus on harm prevention (‘do not harm’) but pro-actively highlight the need to ‘do good’. This just has not been the focus of the ESS standards of existing institutions, including in MDBs and UN agencies. In the World Bank ESS, integration of climate change considerations is largely focused on reducing or managing climate pollutants, while references to human rights are only articulated with respect to Indigenous Peoples’ right to free, prior and informed consent (FPIC) in one specific safeguard and limited to certain circumstances, but not as a cross-cutting reference frame throughout. They fail to meet international standards such a core labor standards and labor rights, and gender considerations. They can therefore not be called ‘best practice’ as required by the GI (GI, para.68). Relying on World Bank ESS is inadequate to ensure that LDF funded actions take a people-centered approach that promotes human rights obligations relevant and appropriate specifically for addressing loss and damage. Additionally, given the World Bank’s lack of working with direct access for communities, it is unlikely that its safeguarding policies – which are not geared toward needs of communities or community access – will be easily adapted or that local organizations would easily if at all be able to pass the equivalency test. The Board should consider the World Bank’s ESS as interim ESS only, tied to the interim hosting phase of the independent Secretariat, during which time it should work to develop its own independent ESS framework. It would be in line with the call for the LDF to “practice continuous learning” guided by monitoring and evaluation (GI, para.5) to strive for its own more ‘fit-for-purpose’ ESS in the future.
3.C.V. Fiduciary principles and standards
The LDF Governing Instrument details that in addition to the World Bank’s ESS, its fiduciary principles and standards will also serve as the basis of the “high-integrity fiduciary principles and standards” to be “applied to its activities, and, to this end, the Secretariat will work towards ensuring that each implementing entity applies such fiduciary principles and standards when implementing activities financed by the Fund “ (GI, para.67). Reaching these standards will be much easier for MDBs and UN agencies than for many national and especially sub-national entities hoping to get direct access to the LDF. The Board must be careful in developing modalities to determine the ‘functional equivalency’ with the World Bank’s fiduciary standards that they not become de facto barriers to access for direct access partners, while ensuring that activities financed by the Fund are implemented based on high-integrity standards (GI, para.22(f)). The Secretariat is called on to provide support for “the strengthening of the capacities of direct access implementing entities, where needed, to enable them to attain functional equivalency with the World Bank’s fiduciary principles and standards” (GI, para.67; see also GI, para.35(j)).
In addition, the Board should also take into account that fiduciary standards and principles must be differentiated according to the financing instrument used, or the scale and risk of the funded actions. For example, it would be counterproductive, if not against the spirit of the LDF’s objective and purpose, if for the access to small-grant funding in support of communities, Indigenous Peoples and vulnerable groups and their livelihoods (GI, para.40(d)), the same set of fiduciary standards would apply as for funding support (such as through blended finance, loans or guarantees) for large-scale infrastructure rebuilding efforts.
The ‘chilling effect’ on direct access entities of fiduciary standards and principles biased in favor of international access entities can be a lesson learned from the GCF, where few accredited direct access entities have felt empowered, for example, to utilize an enhancing direct access (EDA) pilot, devolving decision-making for the on-granting of resources to communities and targeted population groups on the ground. The Adaptation Fund (AF), whose fiduciary standards take into account that only grant financing up to a specific amount will be provided, likewise operates an EDA pilot for direct access entities to request up to USD 5 million on top of its normal funding cap, thus providing a financial incentive for such an approach. Those experiences should instruct the LDF Board.
Modalities for both ESS and fiduciary standards ‘functional equivalency’ determination and framework will have to be developed in parallel by the LDF Board. Such a framework must be informed by the deliberations for the Fund’s access modalities (GI, para.50). Both are necessary to determine, and potentially accredit, implementation partners. As this is likely done in sequence following Board discourses on access modalities, the equivalency framework will probably only be tackled by the Board in late 2024, with approval in 2025.
3.C.VI. Financing terms and instruments
The LDF was established in reaction to the severe costs that climate change-related loss and damage is imposing upon developing countries and communities and people who are on the frontline of these climate impacts. The LDF is an acknowledgement as well as a structured attempt to at least partially address the climate injustice of these communities bearing the brunt of climate impacts, while historically high polluting developed countries have reaped economic and wealth creation. Therefore the LDF needs to operate within this paradigm, and in the spirit of the Convention - that polluters should pay, and that the historical polluters have a responsibility to provide full cost financing. In addition, the climate impacts faced by developing countries have so far largely resulted in self financing required measures. This has exacerbated the debt crisis many climate-vulnerable countries are facing, and which is expected to significantly increase given the high costs of implementing and scaling climate ambitions. It is essential that the LDF provides appropriate finance by providing the vast majority of its funding in the form of grants as the only suitable financial instrument in the context of addressing loss and damage, including as full cost grants, so without differentiating between the cost of a development baseline and added, ‘incremental’ costs brought on by climate change impacts. Incremental cost calculations might be difficult and are inadequate, given that for example rehabilitation and recovery tries to redress ‘lost development’ for which recipient countries have already paid at least once.
The GI lists as one core Board function its mandate to approve “a policy for the provision of grants, concessional resources and other financial instruments, modalities and facilities, taking into account access to other financial resources and debt sustainability” (GI, para.22(d)). The Board within its first year will have to develop and approve a policy on financing terms and instruments, ideally to be started at Board meeting 2 and concluded at Board meeting 3.
Such a policy should clarify among other things that the Board assigns priority use to grants as the main financial instrument through which to program. It should avoid any indication that it intends to operate instrument-agnostic in describing equal relevance and value for a possibly wide range of financial tools. The GI in paragraph 58 explicitly allows for the potential deployment of “financial instruments that take into consideration debt sustainability (grants, highly concessional loans, guarantees, direct budget support and policy-based finance, equity, insurance mechanisms, risk-sharing mechanisms, pre-arranged finance, performance-based programs and other financial products, as appropriate) to augment and complement national resources for addressing loss and damage.” The Board might decide to utilize all or just some of those financial instruments, decide that same are not appropriate for addressing loss and damage, and opt for a sequenced approach to their application. For example, it should start off with an initial policy on financing looking just at the criteria and terms for grants, highly concessional loans in exceptional cases and budget support as the most straightforward financing approaches. This seems advisable for the initial operational period of the LDF to allow for a quick start of funding support. Over time, it could then deliberate and decide on the adequacy of more complex financial tools. The Board will have to develop relevant triggers, indicators and criteria, taking into account climate impacts, debt sustainability and other factors, to guide the use of different financing approaches and the terms by which funding is provided (GI, para.57).
Importantly, having a wide range of possible instruments would require substantial specialized financial expertise in the Secretariat, including for financial risk-management and the Board’s ability to make funding decisions (its commitment authority, based on funding availability, including financial reflows from loans or equity investments). Sophistication in utilizing different financial instruments will also be required by the Fund to fulfill the GI’s mandate “to facilitate the blending of finance from different financial tools to optimize the use of public funding, especially in order to ensure effective results for vulnerable populations and the ecosystems on which they depend” (GI, para.59). Therefore, delaying such tools and instruments beyond year one is advisable in order not to slow down the implementation of the LDF altogether. When the LDF Board does consider such approaches, it is essential for the Board to remember that technical feasibility must be subjugated to equity considerations for the Fund to fulfill its mandate well.
3.C.VII. Results management
The monitoring, results measurement, performance reporting on programmatic or project funding and other activities financed by the LDF and corrective management is crucial for the “continuous improvement of the Fund’s impact, effectiveness and operational performance” as demanded in the Governing Instrument (GI, para.63). The Board is tasked to develop and approve a results measurement framework and guidelines, and set appropriate performance indicators (GI, para.22(j)).
The development of such a results management framework is related to, but sequenced after the setting funding approval cycle, and thus unlikely to be started, let alone be finalized this year. However, Board decisions in 2024 about funding priorities, allocation parameters and access modalities, which will be core items on the Board work plan, will presumably set primary results areas or approaches and thus could pre-determine some of the core performance indicators for the new Fund’s results management framework to be set and decided in the future. For example, if the Board in approving LDF access modalities in 2024 determines that access to small grants in support of communities, Indigenous Peoples and marginalized groups should be prioritized and simplified as much as possible, and supported by a minimum allocation threshold of funding available, then an appropriate performance indicator should focus on how many people have received direct financial support for livelihood support, including for recovery after climate-related events, with such an performance indicator applying gender-disaggregation and looking also at intersectionalities such as age, disability, class, or ethnicity.
The setting of specific performance indicators will determine what the Board considers as its measure of impact and success for LDF funding support. It will be crucially important to ensure that the LDF’s success is defined by performing well against people-centered benefit-focused indicators and targets and success is not equated narrowly with performance indicators looking at the economic/replacement value of restored infrastructure or systems or the scale of leveraged financing received as proof of impact. This will be even more critical in the context of addressing non-economic loss and damage.
The LDF Secretariat is tasked to coordinate monitoring and evaluation of programs, projects and activities financed by the Fund in the future (GI, para.35 (j)) and prepare performance reports (GI, para.35(d)), such as the annual reports aggregating portfolio level outcomes existing funds like the AF, GCF, or GEF already routinely provide. The Governing Instrument points out a particular role for “participatory monitoring involving stakeholders” in ensuring the Fund’s impact, efficiency and effectiveness (GI, para.62). This is an important opening to ensure the meaningful and effective participation particularly of local stakeholders, to ensure accountability for impacts on the ground, if lessons from other funds can be learned.
For example, a similar stipulation on encouraging the use of participatory monitoring can be found in the GCF Governing Instrument as well. However, the Board in addressing this provision for the LDF should improve on the shortcomings of the efforts in operationalizing this mandate in the GCF. The GCF monitoring and accountability framework mainly suggests an annual participatory review with a designated national authority or focal through a stakeholder forum and that accredited entities should apply participatory monitoring, but does not monitor nor report against the fulfillment of either stipulation. This falls short of what is needed and what the LDF should apply, namely making participatory monitoring a required component to ensure good performance at the level of funded activities, for example by providing some funding support for local groups in monitoring implementation as part of the funded activity’s budget.
3.C.VIII. Accountability and evaluation
The evaluation of LDF performance and the accountability for the effectiveness and impact of its funding delivered to recipient countries, the integrity of its financial provision and the possibility to have grievances related to funded activities reviewed and redressed are central to ensure the legitimacy of the Fund and its continued support. Related mandates elaborated under the GI (GI, sections X, XI and XIV) will likely not see much deliberations by the Board in general, and almost none for the first crucial year of the Fund’s operation. The only exception must be the discourse about access to information, which the Board must tackle for its proceedings with urgency as part of its deliberations on additional rules of procedure (see section 3.B.I).
While periodic independent evaluations of the performance of the Fund are foreseen “to inform decision-making by the Board, identify and disseminate lessons learned, and support the accountability of the Fund” (GI, para.64), this will only apply a few years into its operations. Ultimately, the Board will have to decide, since the language of the GI is not specific on this issue, whether such periodic independent evaluations are to be commissioned on a case-by-case basis (through an independent provider outside of the Fund), or whether it prefers to institutionalize the function through an independent evaluation unit separate from the Secretariat (as for example the GCF has). The findings of Independent evaluations will also be part of the required annual reporting by the Board to the COP and the CMA (GI, para.65), as part of its accountability requirements as an operating entity of the financial mechanism of the UNFCCC and the Paris Agreement. COP and CMA will also conduct a periodic review of the LDF (GI, para.66), most likely in the context of the period review of the financial mechanism.
Other independent accountability functions, such as for integrity and for redress, will – according to provisions in the current GI – not be conducted by the Fund itself through separate independent units (as in the GCF as a standalone fund), but instead be ‘outsourced’ to its implementing partners as part of the Fund’s setup as FIF with a World Bank-hosted Secretariat. So instead of the Fund’s own oversight on integrity related issues, such as corruption and fraud with the power to investigate any such allegations, “the implementing entity’s independent integrity unit or functional equivalent” working with the Secretariat will investigate and report to the Board (GI, para.69). Similarly, for complaints related to activities financed by the Fund, for which harmed people or communities want to seek redress or compensation, they will have to use the implementing entity’s independent grievance redress mechanisms, which will issue recommendations and report to the Board (GI, para.71).
This is problematic for a number of reasons. First, there will be no uniformly applied minimum standard regarding integrity and/or grievance and redress and for the independence of the bodies that are to provide the investigation. In contrast to the application of ESS and fiduciary principles, no framework for the determination of functional equivalency among a potentially wide variety of implementers is foreseen for integrity and grievance functions and procedures. Second, the involvement by the Secretariat in conducting fraud or corruption investigations is a potential conflict of interest, as integrity failures could also involve Secretariat staff. Likewise, a conflict of interest could also exist to the extent that an integrity unit of an implementing entity is not sufficiently firewalled from the entity’s operations. Third, the functionality and focus of many independent grievance and/or redress mechanisms varies widely, with some only involving problem-solving and mediation, while others also perform full compliance reviews, have the power to self-initiate investigations or to recommend redress measures and follow up on their implementation. The ways to access redress mechanisms and bring forward grievances also varies widely among such bodies. This could mean that without secured minimum standards set at Fund level by the Board, affected communities and people might be disadvantaged in their ability to seek redress by the choice of implementing entity.
A centralized grievance redress mechanism, that is legitimate, accessible, predictable, equitable, transparent, rights-compatible, and a source of continuous learning, is essential to ensure effectiveness, consistency in the consideration and investigation of complaints, the implementation of redress measures and actual remedy, and the accountability of the mechanism as well as the Fund. The Independent Redress Mechanism (IRM) for the GCF provides good practice. The IRM’s procedures and guidelines reinforce the principles of legitimacy, accessibility, predictability, equitability, transparency, and rights-compatibility (connected to having rights-based social and environmental safeguards). The GCF IRM has complementary guidelines to facilitate the Board’s consideration of its recommendations to help ensure that remedy is realized, has procedures in place to prevent and address retaliation and a strategy for how it will take a gender-responsive approach.
Lastly, for all the Fund’s operations, including with respect to activities financed by it, the access to information and information disclosure provisions of the World Bank will apply (GI, para.70), although it is unclear what this will mean for the routine disclosure of LDF documents. The World Bank’s access to information policy specifies disclosures related to the documentation requirements and funding cycles of World Bank funded activities, but those will be different from the LDF’s own funding and documentation requirements and procedures. The activities financed by the Fund will also be subject to each implementing entity’s policy on access to information (GI, para.70), which are also likely to have differing disclosure standards. It will therefore be crucial that the LDF develops its own, proactive information disclosure policy based on core principles that need to apply across the spectrum of implementers,as well as ensure that the Board and Secretariat’s own access to information and disclosure procedures are best practice ones.
The LDF Board should address provisions related to the information disclosure of its proceedings, including a commitment to make all documents related to Board meetings and programming publicly available and webcasting of its meetings and allowing stakeholder the opportunity for remote participation, with urgency already at its Board meetings 1 and 2, as part of its consideration of additional Board rules of procedure.
3.D. Other important elements
3.D.I. Operating entity of the Financial Mechanism of the Convention
The GI agreed at COP28/CMA5 notes that the LDF will be designated as an operating entity of the financial mechanism of the Convention and the Paris Agreement, accountable to and under the guidance of the COP and the CMA (Decision, para.5; GI, para.11) and that the arrangements for ensuring that the Fund is accountable to and functions under the guidance of the COP and the CMA, will be concluded between the COP, the CMA and the Board of the Fund for consideration and approval at COP 29 and CMA 6 (GI, para.12). Additionally, paragraph 7 of the COP28 decision requests the Standing Committee on Finance (SCF) to develop such arrangements for approval by COP29 and CMA6 (Decision, para.7).
This requires an initial draft of the arrangements coming from the SCF to the LDF Board, so that it can be adopted by the Board no later than at its third Board meeting, before being presented to Parties at COP29. The Board might give the Co-Chairs a mandate already at the first LDF Board meeting to engage with the SCF (its co-chairs or designated co-facilitators) on substance. A draft of the recommended arrangements, which the SCF is likely to develop by and consider at its 35th meeting end of May, should come for Board discussion already for the second Board meeting to ensure that further adjustments for reconsideration and approval can be incorporated by the SCF before it sends then an updated version for Board approval at the third and last possible meeting.
A part of the relationship, and thus as a mandatory item to be delivered to COP29 and CMA6 already this year, will be the submission of the LDF’s first annual report for COP and CMA consideration, so that the LDF can receive guidance from both bodies. The submission deadline to the UNFCCC Secretariat is usually 12 weeks before the COP (with COP29 starting in early November), so the LDF Board will have to approve the report at the latest at its third meeting (or, depending on its timing, even already at the second, and then authorize the Co-Chairs supported by the Secretariat to finalize the report in time for the deadline). As is the case with the other operating entities, the guidance to the LDF will be drafted initially by the SCF, and then negotiated and adopted by COP29 and CMA6 in Baku. The LDF Board will have to respond to the first guidance received from Partiesin its 2025 workplan.
3.D.II. Complementary and coherence
The newly agreed Governing Instrument assigns the Fund “a key role in coordinating a coherent global response to loss and damage between the Fund and funding arrangements” (GI, para.51). It also identifies that one of the purposes of the LDF is to act as the platform for facilitating coordination and complementarity across other funding arrangements for responding to loss and damage including global, regional, and bilateral mechanisms, and national level programming (FA, para.8). In order to do so, the Board will need to develop new coordination and cooperation mechanisms and facilitate linkages between itself and other funding sources (GI, paras.4, 51-53).
The COP/CMA decision tasks the LDF with establishing an annual high-level dialogue on coordination and complementarity, co-convened with the UN Secretary-General (FA, paras.8,13). The dialogue is to be organized to share knowledge and information, strengthen capacity and synergies, promote the exchange of country and community experiences in undertaking action to respond to loss and damage, identify gaps and opportunities, and develop recommendations on scaling or creating new funding arrangements for responding to loss and damage (FA, paras.11 and 12).
The make-up of the dialogue is outlined in the decision: no more than 30 high-level representatives including representatives from the Fund, other funding arrangements such as the MDBs and IMF, UN agencies, and multilateral climate funds like the AF and the GCF, the International Organisation for Migration, the WIM Executive Committee and the Santiago Network, and civil society, Indigenous Peoples, the philanthropic sector as well as individual experts on loss and damage (FA, para.14).
While the timing and format of the dialogue is not specified, there might be an expectation by some Board members that the first high-level dialogue would be held already this year. Thus, the Board would not only have to set up, together with the UN Secretary General’s Office, the modalities for the convening, but also hold it ahead of COP29/CMA6. One possible time-frame could be during the UN General Assembly meeting from September 10-24 in New York. This would require the Board’s consideration and approval of the arrangements for the first high-level dialogue already no later than mid-year, which given the delays in convening the first Board meeting seems unrealistic. Since the Board is required to report on the dialogue through its annual report to the COP and the CMA (FA, para.12), and the likelihood that the event would take place only after the submission deadline for the annual report, the summary of the first high level dialogue would have to be send as an amendment later.
In addition to convening the annual high level dialogue on coordination and complementarity, the COP/CMA decision also requests that the Board of the Fund create an approach for developing partnerships with other entities that form part of the funding arrangements (FA, para.9), and to develop standard procedures, building on the work of the WIM and others, to “identify sources, funds, processes and initiatives under and outside the Convention and the Paris Agreement to assist developing countries to respond to loss and damage from sudden or slow onset events, including economic or non-economic loss and damage (i.e. funding arrangements), for the purpose of supporting strengthened coordination and complementarity” (FA, para.10).
This will require the development of a framework on complementarity and coherence for the LDF, which the Board would have to approve, although it is not quite clear – and given also the exceedingly high workload of the Board – that this can happen already in 2024. In comparison, the GCF, which likewise has a complementarity and coherence mandate across the climate finance landscape, did not develop its framework until other core operational policies and frameworks, including for programming and access modalities, had been set. Pressure might be high from the new Board’s developed country members to make this priority for the Board’s work plan already this year, for example by considering the modalities for the high level dialogue and the complementarity and coherence framework together, but this would be one area where action could be pushed into 2025 without missing mandated deadlines.
Such a framework could encourage collaboration and create the communication channels for fund-to-fund arrangements (such as upscaling initiatives or approaches of other funds and instruments under and outside of the UNFCCC), or look at criteria to ensure that activities supported by the fund don’t replicate or interfere with already occurring support at national programming level complement in line with countries’ needs and priorities. This is in line with the mandate to the Fund to “form partnerships with other funding arrangements to address priority gaps in their activities with the aim of [...] leveraging the resources of the funding arrangements and, as appropriate, to provide additional and complementary sources of finance” (GI, para.53). Integrating this mandate into the required framework would be problematic if it established an additionality test through a required mapping or determination that no other actor under the funding arrangements would be able or willing to provide such funding for programming at the national level.
Lastly, as part of its coordination function for broader loss and damage funding arrangements, the LDF could spearhead the establishment of criteria for which funding can be counted as responding to and addressing loss and damage, including as a way to minimize double counting between adaptation and development finance and ensure the additionality of loss and damage funding provided. During the TC process some first ideas for criteria that should be considered were introduced.
4. Indicative decision making roadmap for the Board
At its first meeting the new Board of the Loss and Damage Fund must lay out a plan for the year, kick off a number of urgent items and, in particular, agree on its ways of working. In particular the Board must demonstrate it intends to work with the urgency required and with inclusivity and transparency that ensures that the needs of impacted communities are met.
A combined table of the above is available for download here.
5. Rest of the picture
The LDF Board should be aware of the following processes and outcomes happening in parallel, which might inform or affect their work.
The outcome of the first Global Stocktake of the Paris Agreement (GST), which concluded at COP28, agreed that the Warsaw International Mechanism on Loss and Damage Executive Committee (WIM ExCom) would oversee the preparation of a Loss and Damage Synthesis report prepared by the UNFCCC Secretariat drawing from reports submitted by countries (GST decision, para.134). This report could usefully inform the work of the LDF Board, and the Board should engage with the WIM ahead of its preparation.
Additionally, the GST requested the WIM ExCom to prepare, building on the work of its expert groups, technical expert group and task force, guidelines for collecting and managing data and information on loss and damage to inform the preparation of biennial transparency reports (GST decision, para.133). Again, the LDF Board should engage with the WIM ExCom to understand the information that exists now, and how this information might be enhanced and can support the LDF Board’s decision making.
The WIM is also anticipating its third review with terms of reference to be negotiated at the intersessional meeting in Bonn and the review conducted at COP29. This review will impact the ExCom and the Santiago network, and is an important opportunity for Parties to consider how the landscape for Loss and Damage under the Convention and Paris Agreement has changed since the last review in 2019 and how to now enhance and align the work.
Further the Santiago Network on loss and damage was fully operationalized at COP28, with the host, Board and the Secretariat now being nominated and established. The Santiago Network should play a valuable role by providing technical support for developing countries, including in formulating their needs for the LDF Board. The LDF Board should create a relationship with the Santiago Network so that they can work in a complementary fashion.
Looking ahead, the negotiations on the New Collective Quantified Goal (NCQG) due to conclude at COP29, can usefully inform the scale of funding for the LDF by ensuring that funding to address loss and damage is anchored as the third financing pillar and ideally as a thematic sub-goal in addition to mitigation and adaptation and by stressing the need for additionality of funding for addressing loss and damage so as not to distract and divert funding from substantial unfulfilled funding needs to implement the Global Goal on Adaptation (GGA).
Outside of the UNFCCC there are multiple processes that the LDF Board should be aware of including the taskforce on international taxation to scale up development, climate and nature action launched by Antigua and Barbuda, Barbados, France, Kenya, and Spain and others at COP28. This taskforce might usefully provide input and guidance on the “innovative sources of finance” that the LDF has been enabled to draw from. Additionally, three international courts, including the International Court of Justice, are developing Advisory Opinions regarding States’ legal obligations in the context of climate change, which will inform States’ responsibilities to address loss and damage.
Other developments such as the development of a UN Tax Convention and work on debt forgiveness should also inform the LDF Board’s future work.
A table of board members is available here.
Annex 1
| Constituency | Member | Country | Gender | Alternate Member | Country | Gender |
|---|---|---|---|---|---|---|
| Asia-Pacific States | Abdulla Ahmed Belala Al Harthi | United Arab Emirates | m | Didar Temenov | Kazakhstan | m |
| Asia-Pacific States | Mohammad Ayoub | Saudi Arabia | m | Ali Tauqeer Sheikh | Pakistan | m |
| Asia-Pacific States | Mark Dennis Y.C. Joven | Philippines | m | Gholamhossein Darzi | Iran | m |
| African States | Richard Sherman | South Africa | m | Selam Kidane Ababe | Ethiopia | f |
| African States | Mohamed Nasr | Egypt | m | Tosi Mpanu Mpanu | Democratic Republic of the Congo | m |
| African States | David Kaluba | Zambia | m | Sumaya Zakiedeen Hamdan | Sudan | f |
| Latin American and Caribbean States | Liliam Beatris Chagas de Moura | Brazil | f | Corina Lehmann | Argentina | f |
| Latin American and Caribbean States | Elena Pereira | Honduras | f | Jaime Tramon | Chile | m |
| Latin America and Caribbean States | Avinash Persuad | Barbados | m | Anthony Ferguson | Bahamas | m |
| Small Island Developing States | Daniel Lund | Fiji | m | Ahmed Waheed | Maldives | m |
| Small Island Developing States | Peter Abraham Jr. | Antigua and Barbuda | m | Laura Elizabeth Agathine | Seychelles | f |
| The least developed countries | Adao Soares Barbosa | Timor Leste | m | Maheshwar Dhakal | Nepal | m |
| The least developed countries | Djibril Ibila | Benin | m | Madeleine Diouf Sarr | Senegal | f |
| Developing countries not included in the regional groups and constituencies | Vacant | Rajasree Ray | India | f | ||
| Developed countries | Antonella Baldino | Italy | f | Karima Oustadi | Italy | f |
| Developed countries | Sebastian Lesch | Germany | m | Simon Stumpf | Germany | m |
| Developed countries | Jean-Christophe Donnellier | France | m | Pierre Marc | France | m |
| Developed countries | Ana Paula Rodrigues | Portugal | f | Gaizka Malo | Spain | m |
| Developed countries | Marjeta Jager | European Union | f | Ronan Sweeney | Ireland | m |
| Developed countries | Jens Fugl | Denmark | m | Anna Merrifield | Finland | f |
| Developed countries | José Delgado | Austria | m | Georges Gehl | Luxembourg | m |
| Developed countries | Laurence Ahoussou | Canada | f | Ben Abraham | New Zealand | m |
| Developed countries | Atsushi Kato | Japan | m | Tsuyoshi Hyokai | Japan | m |
| Developed countries | Georg Børsting | Norway | m | Karoline Kjeldsen | Norway | f |
| Developed countries | Gerard Howe | United Kingdom | m | Claire Holzer Fleming | United Kingdom | f |
| Developed countries | Rebecca Lawlor | United States of America | f | Christina Chan | United States of America | f |
Source: UNFCCC. Members nominated to the Loss and Damage Fund Board. Accessed 16 March 2023. Available at: https://unfccc.int/process-and-meetings/bodies/funds-and-financial-entities/loss-and-damage-fund-joint-interim-secretariat/members-nominated-to-the-loss-and-damage-fund-board
A printable version of the table is available here.
Endnotes
[i] Loss and Damage (capitalized) has been used to refer to the political discourse as well as the spectrum of policies which can be implemented to address loss and damage while loss and damage refers to the manifestation of the impacts and risks of climate change (IPCC, 2018).
[ii] As of mid-March, only 25 of the 26 LDF Board members were appointed, with one member still to be nominated “from a developing country not including in the regional groupings and constituencies” (with three members each from Asia-Pacific states, three members from African states, three members from Latin American and Caribbean States, two members from small island developing States, and two members from least developed countries, in addition to 12 members from developed countries selected (GI, para.17)).
[iii] Noting that loans are largely inappropriate for loss and damage, and that the LDF should focus on providing grant and non-debt creating finance.
Acknowledgements: Thanks are owed to Heidi White for her extensive suggestions, comments and feedback, as well as to Lien Vandamme (CIEL) and Isatis Cintrón (Citizens Climate International) for their comments and feedback.