Associate Director Liane Schalatek explains what happened at the first board meeting of the new Loss and Damage Fund, and provides key insight into where the board should go from here.
Carla Adams: You attended the very first meeting of the Board, of the new Loss and Damage Fund (LDF)[1], held in Abu Dhabi. What is this Fund and how is it supposed to differ from other existing climate finance funds?
Liane Schalatek: Well, the Loss and Damage Fund is a fund that is supposed to support countries and communities in the Global South that are already gravely affected by what is called losses and damages. These are climate impacts that are usually unavoidable and cannot be adapted away from, meaning that these impacts cannot be avoided with resilience measures. Some examples of these unavoidable climate impacts are extreme weather events: we know that because of climate change and temperature rise, there are a lot more extreme weather events in both frequency and severity. Severity and frequency in typhoons, drought, floods, wildfires… these cause significant losses, both in human life and in livelihoods, and damages. The damages include both short-term impacts, from extreme weather and long-term impacts that result from among other things sea level rise, salt intrusion and desertification that make it impossible for communities and people to adapt a way out of the crisis.
So, this new fund is intended to support people and communities in developing countries financially in order to address loss and damage. This is a financing gap that none of the other climate funds so far has filled or addressed, and it is something that developing countries and communities in developing countries have requested for a very long time.
The Fund’s establishment became politically feasible only over the last couple of years. We had an agreement at COP27 in Sharm El-Sheikh to have such a fund and then last year, we had a design process called the Transitional Committee (TC). Now, we are in the phase of operationalizing the Fund, and the first Board meeting was the first step to try to get the Fund up and running.
CA: So, speaking of the beginning of the operationalization phase, the Board will have a very busy first year with a cramped schedule to try to get the Fund operationalized quickly. In your paper, you outline key suggestions for key priorities for the LDF for this year. Which topics did the Board prioritize this meeting?
LS: It’s generally very difficult to set up a new fund. In this particular case, we have a couple of added complications that pertain to how the Fund is going to be structured and set up.
The first Board meeting focused not on taking a long list of operational decisions, but instead started a couple of important processes. When the Fund and its governing instrument were approved, only the bare skeleton of the structure was established. Now the Board has to put meat on that skeleton, the meat that are the operational policies, procedures and guidelines that determine who gets money and under what circumstances, how it can be accessed, so on and so forth. In order to get to that stage, the Board has to start a couple of the preparatory processes.
There were three main structural issues prioritized: the relationship with the World Bank, the selection of an executive director and establishment of additional rules of procedure for the new Fund’s Board. The Board needs to come to an agreement of what the Fund is actually going to look like for the Word Bank to be able to support hosting the secretariat. One ad hoc Board sub-committee was set up in order to engage in that. While it sounds technical, it’s crucially important, because there were certain deadlines set by the COP28 climate conference that need to be fulfilled, such as the World Bank’s acceptance of the invitation by the COP to host the Fund’s Secretariat by mid-June and then the submission of a host agreement by mid-August that takes into account conditions set by the climate summit, most importantly on allowing direct access by national and sub-national actors in developing countries.
The second issue is that ultimately the new secretariat of the new Fund will need an executive director, . somebody who will actually oversee the day-to-day operations, select the staff, make sure that whatever Board of the new Fund decides gets implemented, because the Board is not a sitting Board and they will only meet three or four times a year. The Board set up a second ad hoc sub-committee that would get the process running to search for an executive director and decide what the next steps are so that by the third Board meeting, which is supposed to be in September, they can actually appoint the executive director and have that new, independent secretariat up and running.
The last structurally important issue is articulating additional rules of procedure for the Board so that the Board can operate smoothly, and a third ad hoc sub-committee will address this issue. As I mentioned, the Board of the LDF is a non-sitting Board and that means that they need to figure out how to structure their decision-making and the preparatory work. One of the core issues under additional rules of procedure that we as civil society are looking at is the engagement of observers. How can observers actually work with the Board and make sure that their opinions, priorities, and voices are brought into the discourse and into the policy considerations and eventual decision-making?
Those were the main discussions that we had during Board meeting one, which means that we kick started the work. Now, a lot is happening before the Board is supposed to convene for its second Board meeting s in early July.
CA: Speaking of the core issue of observers, during last year’s design process of the transitional committee, several members supported the representation of those most impacted by climate change with voting positions on the Board. Ultimately, the governing instrument only promises observer participation in meetings and related proceedings and allows for the possibility of some active observers. What was your experience in terms of engagement as a civil society observer in the first Board meeting? What can be done to further support the representation and active participation of constituencies and groups to improve current practices in the other climate funds and ensure that the LDF takes the needs and priorities of affected communities and people into account in designing policies and procedures?
LS: That’s a mouthful, but it’s important and I think the context is important. It goes back to the discourse about the Loss and Damage Fund needing to be a different fund that particularly focuses on access and making sure that financing reaches affected people and communities and doing so by applying lessons learned from what is happening or rather what some of the shortcomings are with existing climate funds. That includes the issue of observer representation and engagement in Board proceedings.
As you mentioned, civil society had pushed and hoped for voting representation on the Board. This has not been realized. Instead, we have the promise to include active observers. An active observer, at least in the experience of how it has been handled so far in other funds, for example the Green Climate Fund (GCF), is a self-selected representative of observer groups that for example, women’s groups or indigenous peoples’ groups are nominating to sit in on and participate in Board meetings. Active observers are usually allowed to make interventions in the Boardroom, which are supposed to channel the opinions, the priorities and the voices of the larger groups and constituencies they represent.
Now the way this active engagement takes place is very important. For example, in the GCF, we’ve been limited to a representation of two civil society representatives and two private sector representatives in the Boardroom, and they are usually only allowed come at the very tail end of the discussion. Therefore, they are not part of the discourse that has happened. This is something that we would like to see changed in the LDF, where it should be clear that the active observers are part of the discussion. While they have no voting rights, and will have no voting rights, they should be part of the conversation including with the ability to react to and come in more than once if need be.
This level of engagement still has to be articulated, including as part of the rules and procedures that we talked about in an earlier question. It’s also not quite clear yet how many active observers we are going to have in the LDF. The governing instrument names active observers as representatives from constituency groups including women, youth, indigenous peoples and environmental NGOs. There could theoretically be even more representation. Some of the groups that have been brought up in previous discussions were local communities and climate migrants, people that were left homeless and forced to migrate due to climate impacts.
It is also crucial that observers can participate, not just at Board meetings, but in Board proceedings as well. That highlights again the importance of having engagement and dialogue with the Board and Board representatives in between the Board meetings. Observers from the different constituencies need a chance to discuss with Board members the preparation of decision texts on civil society engagement before they get to an adoption stage.
Related is the question of the representation of observers that are not active observers, but would like to still participate and follow what is happening in Board meetings. For the TC process and the first Board meeting, we have had restricted participation limited to only a couple of representatives from UNFCCC constituencies meaning the constituency groups that are under the UN framework convention. Any group that is not registered with the UNFCCC is currently not represented and that includes many of the local, affected groups that don’t have formal representation in the UN climate process. The Board of the LDF, in terms of its observer engagement procedures, should think beyond the UNFCCC and its constituencies and allow for the participation of other groups, in particular community based groups or groups that are representing local communities and might not have engaged in the climate process so far.
It’s also important to consider how people can follow. At the moment, there is no talk of financial support for the participation of observers. Including financial support for observers has to be bare minimum at least for the active observers from developing countries and the Board should also put a funding contingent aside that would allow, for example, for some representatives from affected communities to go to those meetings. However, for those people that are not able to travel and follow the Board meetings in person, it should be possible to follow via webcast. That means for example that the Board tries to keep a meeting open, has closed sessions only when absolutely necessary, discloses documents early, transparently, and in other languages than just English. Although English will be the working language of the LDF, some of the more fundamental policies, procedures and related documents should be made available in other languages than English to expand the possibility of engagement. This should be proactive, meaning unless it’s absolutely necessary not to disclose certain documents, engagement needs to be as open as possible If in doubt, engage rather than not.
The goal here is to make it very clear: Civil society is here, observers are here, we have much to contribute, we have the experience from engaging with other funds. Many of us are either representing communities on the ground or working with communities on the ground. We can be an ear and provide inputs that are very different from academic expert inputs or the experience of the Board members. In order to get the best fund possible and the best operationalization possible, we should obviously draw on as much diversity of expertise and input as we can get.
CA: Another concern for the Board to address as a priority for 2024 is dealing with the lack of initial capitalization and long-term resource mobilization strategy. Do you have a sense of a scale of finance that can be provided by the LDF versus what is needed? Were there any promising signals coming out of th first Board meeting? What are the main obstacles to capitalization?
LS: Capitalization is a very difficult issue. When the decision to operationalize was confirmed at the last climate summit, the COP28 in Dubai, we had a number of countries come forward with pledges. During that time, there were around 660 million dollars collected and that sounds like a lot, but that’s obviously nothing when compared to the needs of losses and damages that are already occurring in the hundreds of billions per year. There are some estimates that it could be around 400 billion per year by 2030.
What is very important for people to understand is the relationship between mitigation and adaptation. Really, mitigation, adaptation, and loss and damage are on a continuum. That means that the less effort we take to reduce emissions, the more we will need to spend to try to adapt to climate impacts that are occurring and the less we invest in adaptation and early resilience building, the more severe will be those climate impacts to which we can no longer adapt, the unavoidable losses and damages. Now the 660 million US Dollars or so that have been pledged so far, are not really an initial capitalization, even if you look at the text of the decision. It’s essentially startup funding and it’s certainly not going to last very long. There needs to be a discussion on how to get more money into the Fund and then how to think about replenishing the Fund regularly going forward.
Now this is where it gets really challenging. A lot of the developed countries would argue that there is really no financial obligation for them to contribute to the LDF. This is in contrast to funding for deadline with issues related to mitigation and adaptation, where there is clear language on financial support obligations in the UN Framework Convention. The wording as we currently have it for the decision text for the LDF speaks only of voluntary contributions, including by developed countries. This is of course a challenge to the extent that countries so far, voluntarily have not been exceedingly forthcoming. So for example, you have a country like the United States that has so far pledged 17.5 million US Dollars, which is nothing. I mean, it’s a token. Japan has pledged 10 million US Dollars, which is also a token. These contributions make it possible for the Board to meet and start setting policies, but the buck literally might stop once the Fund tries to react to extreme weather events in countries where the financing needs can very quickly cost more than what we have in the original pledges. A pledge is also only as good as it’s converted into a paid in commitment and a lot of the pledges haven’t been converted yet.
The first order of business is having those pledges converted as quickly as possible into paid-in commitments. The second order of business is to get additional commitments and substantially higher commitments by all of the developed countries, particularly by some of the larger developed countries whose contributions so far are clearly coming short. And yes, developing countries should be allowed make voluntary contributions as well. However, it should be very clear that because mitigation, adaptation and loss and damage exist on a continuum and developed countries have not yet fulfilled their own mitigation commitments nor their financing commitments to sufficiently support both mitigation, but particularly also adaptation that there is a correlated responsibility to support loss and damage. I think this is where some continued civil society push is very important, including for example to make that part and parcel part of the discourse and the decision for a new collective quantified goal on climate finance (NCQG) which is supposed to be decided at the next COP.
Now, there are certainly options to think what other sources of finance can be put into the Fund as part of a larger resource mobilization strategy. There is a lot of talk about innovative financing sources, like for example taxation on wealth or a tax on fossil fuels or some of the levies that might be applied to international shipping or air transport. These are not new ideas, but in the context of the discourse of the LDF and now again the NCQGs, they are getting a new and second look, because it’s very clear that they could bring in substantial additional money while disincentivizing some of the bad behavior of for example continued fossil fuel support and related expenditures.
CA: Moving away from financing…
LS: We are never moving away from financing…[LAUGHS]
CA: Your paper also highlights the need for the Fund to take a strong human rights based and gender- responsive approach. Was there any discussion on this at this first Board meeting? What are some of the challenges and opportunities going forward? What roles does, for example, the reference to an “equivalency framework” with the environmental and social safeguards at the WB play?
LS: I think this is a longstanding issue of civil society in trying to engage with and envision their ideal fund. We do want to have a really strong and clear commitment that the Fund has to operate under a human rights based approach, which protects and enforces human rights through funded actions and obviously doesn’t harm or violate human rights. It should be strongly gender responsive as well as obviously think about issues related to just transitions, to intergenerational justice, to rights of indigenous peoples and so forth.
Now, the governing instrument, which again is the core skeleton, does not refer to human rights at all. It does refer to gender responsiveness, but it also does not currently foresee that the Fund would have its own gender policy or its own indigenous peoples’ policy like for example the GCF or the Adaptation Fund have. Instead, the LDF is currently thinking of focusing on more of a safeguards approach, which is very different from a proactive approach where you actually think about an action being in direct support of human rights and gender responsiveness. In that context, civil society colleagues like the Heinrich Böll Foundation feel it’s important to actually have a specific gender policy, a specific indigenous peoples policy to make it very clear that the framing of operational policies has to be a human rights based approach.
Now the equivalency [framework] is a safeguards approach that says if you have implementation partners, their own safeguards and standards should be about equivalent in strengths and coverage to what the World Bank’s are. However, the World Bank’s are not necessarily specific to some of the issues that we are looking at in terms of loss and damage. Losses and damages in many instances are very new challenges and require new approaches. This is not a field in which the safeguards approach of the World Bank has focused, which is a more development finance, with a traditional development engagement approach. A lot of us would be questioning whether the World Bank’s safeguards approach is fi for purpose. The second thing is that it would only focus on funded actions. While that’s a lot, it doesn’t encompass everything that the Fund is and the Fund does. For example in human rights framing or gender policy, one would then also think about how a secretariat operates, how gender balance, gender equality and other issues impact the Board’s operation. What does that mean for expertise that you would want to bring into different panels or supporting groups or fora?
There are a lot of things that go beyond a safeguards approach that we would like to see anchored in the operation of the LDF and that would make it much clearer that there is a human rights integration throughout all of the operational approaches and not just related to the funding discourse.
CA: There are three more meetings of the Board planned for the rest of this year, which allows for little time in between meetings and the necessary intersessional work. What needs to happen during these three meetings to ensure that the Fund can delivering finance if in not already 2024, then the latest 2025?
LS: As I indicated, some of the procedural questions that the Fund has started working on are very crucial. We need to come to an agreement with the World Bank to see whether it is able to fulfill conditions that were set by the climate community at the COP28 in Dubai. The third Board meeting would be the point at which the Board approves the full agreement with the WB and the signal is given to the next COP that the conditions can be fulfilled and the WB would host the secretariat of the LDF for four years starting from COP29. This would also mean shifting from the current interim secretariat to the independent secretariat which is going to be headed by the executive director. The hope is that the secretariat will be staffed by professionals with a diversity of experience and will be able to have out-of-the=box, creative thinking that goes beyond some of the orthodoxies that you have in a lot of UN agencies or in multilateral development banks where many of the staff traditionally come from.
In parallel comes setting up the core operational policies. Many operational policies need to be approved before the Fund can start giving out money. The plan is that a lot of that is actually kick started at the second Board meeting. They want to discuss for example access modalities and financial instruments among other things. What documentation would countries then have to submit in order to get funding? How does it differ if you are looking for example at a very quick response following an extreme weather event, where you look at having money released relatively quickly, from funding support some longer-term reconstruction, infrastructure reconstruction, for which you have a very different planning time frame. Do you need triggers that automate the release? If you have very little money, as we currently have, how much can it be? Would it have to be capped?
One of the issues that is particularly important is what is called direct access. That means that developing countries, institutions or agencies should be able to access money directly from the Fund rather than having to go through multilateral development banks or the IMF or UN agencies. This is important, not only as a matter of reducing transaction costs, but also for agency and empowerment of developing countries , which have institutions that are much more closely attuned with the needs of and better able to reflect the priorities of their communities. This is one important condition that needs to be fulfilled for the set up.
The most important thing beyond developing the policies and the operational guidelines funding is making sure that the Fund has the money, can distribute it and is not wiped out in year one of the operation, the first time they disperse money following extreme weather events in certain countries. If you consider the realities of just the extreme weather events we already had this year and their costs, you will see that the money that the Fund has so far is not going to last very long unless it is spend sparingly and very restrictively.
Those are all very tough questions, but they should not hinder our thinking about the best operational policies. If money were not an object, the Fund would ideally make sure to provide small grants to communities and, allow communities to access funding as unbureaucratically as possible. What could and what should that look like? This has to be a priority. While we to come up with the best policies, we should also think about continuing to push for more financial support for the LDF as a matter of climate justice, because ultimately that’s what this is all about.
[1] The formal name for this fund has yet to be set. For the purposes of this interview, we refer to it as the Loss and Damage Fund (LDF).