Climate Finance Fundamentals 13: Loss and Damage Fund

The decision at COP28 in Dubai, United Arab Emirates, adopting a governing instrument for a new Loss and Damage Fund (LDF), was the latest and most significant milestone after decades of advocacy efforts by developing countries to push for financial support to help them respond to and address increasingly catastrophic loss and damage resulting from the adverse effects of climate change. The new Fund will function under the guidance of and be accountable to Parties under the UNFCCC and the Paris Agreement as an operating entity of the financial mechanism, but is to be set-up as a financial intermediary fund (FIF) under the World Bank, which will host its new, dedicated independent secretariat and provide trustee services for at least an interim period. Since January 2024 an Interim Secretariat with UNFCCC, GCF and UNDP staff has been active, providing support for the 26 new LDF Board members with equitable and regionally balanced representation of developed and developing countries. With the first Board meeting scheduled for end of April 2024, already several months behind schedule, the new Board faces a tough first-year workplan in order to comply with a number of deadlines by COP29, chief among them the conclusion of the hosting agreement with the World Bank. A failure to finalise this agreement would trigger the process for the LDF to become a standalone fund. Other key priorities include securing the Fund’s and Board’s respective legal personality as prerequisite for the LDF’s full functioning and setting core operational policies for the Fund, including simplified and unbureaucratic access modalities and allocation parameters to deliver funds with urgency to vulnerable countries and marginalised communities by building on key lessons learned from other climate funds. While COP28 delivered some USD 661 million in initial pledges to the Fund, the Dubai decision did not include any agreement on how adequate and sustained funding for the LDF will be secured, indicating instead that all contributions will be voluntary. Without a substantial initial capitalisation and long-term resource mobilisation strategy, there is the danger that the LDF could have well articulated operational policies, but could remain a largely empty shell.