The First Step in Operationalizing Loss and Damage Finance: Reflections on the Transitional Committee Process

As the 28th session of the Conference of the Parties (COP 28) commences tomorrow, expectations are soaring, especially regarding the crucial agendas of Loss and Damage (L&D) in 2023. The operationalization of both the Santiago network and the L&D funding arrangement will take center stage of discussions. COP 27 in 2022 marked a breakthrough for the matter of L&D with an agreement reached on new funding arrangements leading to the establishment of a Transitional Committee (TC) to make recommendations on different aspects of the new L&D Fund, for consideration at COP 28. With all eyes on whether COP 28 can follow up successfully to the mandate of the previous COP, it is now a good time to look back at the TC outcomes and proceeding

An Overview of the TC Process

The TC process unfolded over the past year, through a total of 7 events including 5 meetings and 2 workshops. A fifth meeting was added at the last minute, after the failure of the TC to finalize recommendations by the end of its fourth meeting. Despite a delayed start of the TC process in March, the committee – primarily composed of 24 members – worked diligently to make up for delays and achieve something concrete within the short period. To support the process, a Technical Support Unit was established, consisting staff seconded from United Nations (UN) agencies, international financial institutions (IFIs), and multilateral development banks (MDBs).

Member Composition of the Transitional Committee

While the meetings were solely dedicated to the formal TC process with limited scope for non-party state & CSO interventions, the workshops were designed to facilitate open discussion with a wider stakeholder base. These external stakeholders from CSOs and non-party observers were welcome to exchange views and generate ideas geared towards an efficient operationalization of the Fund. The first workshop, mainly focused on presentations and case studies on existing mechanisms addressing L&D, or other modalities that can be replicated by the Fund.  These presentations were by the different Governments, multilateral financial institutions, United Nations Organizations, NGOs, Philanthropic institutions, research and think tanks among others.  The second aimed to facilitate an open discussion on all aspects of Fund operationalization. These two workshops

Summary of the TC Meetings Proceedings

The initial two TC meetings mainly centered on establishing the committee’s workplan, in addition to welcoming exchange on views on the new L&D Fund covering funding arrangements, modalities, structure, governance, purpose, scope, elements, sources, and complementarity. This exchange also included limited interactions with non-party observers

The TC process started gaining momentum from its third meeting, with submissions from different groups and countries – both developed and developing –  on their positions being the subject of discussions. The meeting received criticism from the CSOs on the lack of transparency due to majority of the sessions being closed to non-party observers. It was also during this meeting that the issue on the location of the Fund emerged as the primary bone of contention with developed countries calling for the World Bank as the host and developing countries preferring a standalone Fund as an operational entity of the financial mechanism under UNFCCC.

CSO Representatives at the Fourth Transitional Meeting

The fourth meeting, initially intended to be the final one, commenced with distinct stances articulated by both developed and developing countries, prompting breakout sessions for building consensus. Developing countries eventually conceded to the idea of the World Bank hosting the Fund due to pressure from developed countries, especially the USA, albeit with conditions. Debates also arose over the Fund’s eligibility criteria. Developed countries suggested restricting the eligibility to only ‘vulnerable’ or ‘particularly vulnerable’ developing countries, but met with resistance by the latter. Led by the USA, developed countries opposed including the Common but Differentiated Responsibilities (CBDR) as a guiding principle for the Fund, refusing to accept historic responsibility. Despite a stretched late-night session, consensus on key points could not be reached, prompting the extension to a fifth meeting.

The fifth meeting, held in Abu Dhabi from 3 – 4 November resulted in a compromised outcome of a three-part package agreed upon by all developing and most of the developed countries. However, uncertainty persists around the agreement’s permanence due to the USA opposing the consensus at the last minute, leaving the possibility of the text being reopened and renegotiated at COP 28.

The agreement states that all developing countries can receive grants and concessional loans to address losses and damages from both slow and rapid-onset extreme weather events. The Fund’s board will be independently elected, with a balanced representation of developed and developing countries. The board is tasked to set thresholds and ceilings for ensuring that the Fund reaches those who need it most. Developed countries are urged to take the lead in contributing financial resources to the Fund. The World Bank will host the Fund for an interim period, possibly extending to a longer arrangement, depending on its ability to meet certain central conditions.

Scenarios of Exit/Continuation of The World Bank (WB) as Fund host

The agreement lays down conditions set by the developed countries on the World Bank to be the host of the Fund. These conditions, to be adopted at COP28, mandate the Fund to operate according to agreed-upon rules, preventing undue influence from the bank. They also enable that Fund’s Board to select the Executive Director. Most importantly, the conditions stipulate the Fund’s direct access for governments and non-traditional implementing entities, promoting global oversight of the Fund’s design and operations. In addition to these conditions, the World Bank’s assignment as a long-term Fund host hinges on other factors such as Board’s assessment of its proposed hosting arrangements in the first year and performance evaluation after 4 years.

The TC Outcome from the Lens of CSOs & Developing Countries

The TC outcome package met with mixed reactions from many. The CSOs expressed profound disappointment with the outcomes, citing the failure of the agreement to uphold principles of climate justice and equity, making it unfit for its intended purpose. The main disappointment arose from the decision to have the World Bank as the Fund’s host, stemming from the bank’s history of endorsing fossil fuel projects and undemocratic, donor-driven governance model. Another unmet demand by the CSOs included having non-party members on the Fund’s board. CSOs found the overall agreement compromised, lacking in scale, financial commitments, basic principles of equity and climate justice to effectively address L&D. The decision to allow the World Bank to be in the room during discussions to decide on their hosting was also criticized.

CSO representatives calling for rejection of The World Bank as the Fund host at the fifth TC meeting

The developing country members repeatedly pointed out the amount of concession and compromises from their end to make the TC a success. While not all their proposals were accepted, they did manage to secure certain favorable results. Their demands for safeguarding principles of CBDR and equity were met through references in a footnote of the text. They also succeeded in preventing narrowing down the funding eligibility to ‘particularly vulnerable’ countries. Despite the preference for a standalone Fund, developing countries succeeded in setting central conditions for the World Bank, for protecting their interest.

Looking Forward to COP 28

Despite reservations, hopes are still high for COP 28, with all parties keen on working together towards operationalizing a new fund to help all climate-vulnerable countries address L&D, while incorporating components of inclusion, equity and human rights. It is widely acknowledged that the TC outcomes are only the first step and a considerable amount of work remains to be done. Wealthy nations will have an integral to this end, and make concessions of their own, to mobilize funds for addressing unavoidable L&D. It is agreed by one and all that the success of the upcoming COP hinges on the results of the agenda of financing L&D.

About the Authors:
Towrin Zaman  is working as a research associate at the International Centre for Climate Change and Development (ICCCAD).

S M Saify Iqbal is working at the International Centre for Climate Change and Development (ICCCAD) as a Program Coordinator.