Climate Finance Fundamentals 13: Fund for responding to Loss and Damage

The decision at COP28 in Dubai, United Arab Emirates, adopting a governing instrument for a new Fund for responding to Loss and Damage (FRLD)1, 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 functions under the guidance of and is accountable to Parties under the UNFCCC and the Paris Agreement as an operating entity of the Financial Mechanism, but is set-up as a financial intermediary fund (FIF) under the World Bank, which hosts its new, dedicated independent Secretariat and provides trustee services for an interim period of four years until COP33, as confirmed by COP29 in Baku. Coming together in April 2024 for the first time, the 26-member FRLD Board with equitable and regionally balanced representation of developed and developing countries met over the course of the past year three more times despite the tight timetable to comply with a number of deadlines by COP29. Over three Board meetings, it managed to formalise the FRLD’s institutional set-up, chief among them the conclusion of the hosting agreement with the World Bank. Other key priorities completed included securing the Board’s legal personality through an agreement with the Philippines as its host country, approving important Board procedures and selecting the Fund’s inaugural Executive Director, who by mid-2025 will transition the interim Secretariat with UNFCCC, GCF and UNDP staff to the new and independent Secretariat housed at the World Bank. With institutional priorities dominating the Fund’s first year, Board and Secretariat will turn now in 2025 to develop 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. The Board, which still has to agree on the Fund’s overall operational model, will start with a quick start up finance for interim arrangements while simultaneously working on its longer-term policies, ambitiously setting itself the target for potential initial investments by late 2025 to early 2026. While COP28 delivered some USD 650 million in initial pledges to the Fund, the Dubai decision did not include any agreement on how adequate and sustained funding for the FRLD will be secured, indicating instead that all contributions will be voluntary. And with only about USD 100 million new funding pledges in 2024, many of them not yet converted into paid contributions, the financial future of the Fund is tenuous at best. Without a substantial initial capitalisation and long-term resource mobilisation strategy, which the Board will only finalise in late 2025, there is the danger that the FRLD could have well articulated operational policies, but could remain a largely empty shell in the face of growing needs.