Lone palm, Daulatkhan, Bhola Island, Bangladesh, (2017), from future Scenarios by Lena Dobrowolska & Teo Ormond-Skeaping
Future Scenarios exhibition, Kunst Haus Wien, Museum Hudertwasser, Vienna, Austria, (2019), Lena Dobrowolska & Teo Ormond-Skeaping
Future Scenarios film installation, Kunst Haus Wien, Museum Hudertwasser, Vienna, Austria, (2019), Lena Dobrowolska & Teo Ormond-Skeaping
07 / 09 / 2023
Adao Soares Barbosa , Transitional Committee member for Timor-Leste representing the Least developed Countries (LDC's), highlight points from the LDC's proposal at TC3 in the Dominican Republic. Image credit: UNFCCC / UNClimateChange.
COP27 in Sharm el Sheikh made a momentous decision to establish a fund for responding to loss and damage (the Fund). The COP agreed broad parameters and established a Transitional Committee (TC) to spend 2023 sorting out the details of how to operationalise such a fund at COP28. The TC has just had its third of four meetings (TC3) ahead of COP, making progress, albeit incrementally, against its mandate. There were many interesting elements and proposals that emerged during this penultimate meeting, and the reiteration of some tried-and-tested strategies and ideas, as outlined below.

What is the scale of funds needed for Loss and Damage?

The first noteworthy item is that developing country Transitional Committee members stipulated $100 billion (USD) a year as the floor for the Fund to distribute, scaling up over time to meet the rising trajectory of losses and damages from climate change. This is a very clear marker for success. 

It’s worth noting that this amount is only a fraction of the estimate of current loss and damage in developing countries, so it really is the minimum viable amount for the Fund to be effective. When scoping loss and damage earlier this year my colleagues and I considered $400 billion (USD) a year as the minimum required for existing loss and damage needs.

What should the scope of the Fund be?

One of the key elements of discussion at TC3 was the scope of the Fund. With developing countries seeking to design a Fund that meets needs, and developed countries seeking to constrain the scope in order to constrain costs —and therefore their need to contribute.

The COP27 decision would seem to be clear: “decides… to establish a fund for responding for loss and damage whose mandates includes a focus on addressing loss and damage” in the context of “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”. 

However, in the time honoured tradition of developed countries walking back from COP decisions on loss and damage, the US, Germany and others argued hard that the Fund should focus on the “gaps”. Heike Henn of Germany looked to minimise the scope of the Fund, and saw the funding arrangements, i.e.: existing programs including the Global Shield, playing a bigger role than the Fund itself.

Developed countries argued that humanitarian response to address extreme climate events and programs from the World Bank and other multilateral development banks (MDBs) —which are primarily loans— are already addressing elements of loss and damage. The United Kingdom (UK) TC member, Debbie Palmer, saw leveraging and redirecting existing humanitarian and multilateral resources onto loss and damage as a significant role that the Fund could play. Angela Rivera, Colombia, made the point that these resources are already insufficient and that the objective of the Fund is to create new funding for loss and damage.

Who should be eligible to access the Fund?

The US proposal used a different approach to limit scope, by seeking to prioritise countries with populations of less than five million people, and essentially push other countries to deal with existing MDBs, thus limiting the scope by limiting eligibility. Whereas Jean-Christophe Donnellier of France was clear that the target of the Fund should be the most vulnerable countries, defined as small island developing states (SIDS) and least developed countries (LDCs). 

David Higgins from Australia and Jaime de Bourbon de Parme, Netherlands, both made the point that “particularly vulnerable” should apply not to eligibility of the Fund but to priority focus. The idea is not to exclude but to prioritise the most vulnerable, whilst the aspiration is to leave no one behind, the obligation is to help those most in need.

However, Mohamad Nasr of Egypt, called out the elephant in the room: defining “particularly vulnerable countries” as LDCs and SIDs would mean that the people of Pakistan who are still suffering and displaced from epic floods of 2022 would be excluded from accessing the Loss and Damage Fund. 

Developing countries came with an excellent proposal to break the impasse: that targeting of support should be based, not by specifying groups of countries, but on an event-approach, using triggers.

Triggers should be based on the magnitude of the event and impact on: the economy (an impact greater than 5% of GDP was mentioned by Avinash Persaud of Barbados), non economic losses including ecosystem services, biodiversity and cultural losses, amongst others. 

The LDCs provided the example of the EU Solidarity Fund (EUSF) in their submission which supports EU member states hit by disasters where losses exceed 0.6% GNI. The EUSF disburses 25% of the anticipated financial contribution rapidly and then the remainder is informed by more detailed needs assessments. In 2021 five EU states, including Germany, affected by massive flooding received over €700m. I’m not sure whether it was my imagination, but I thought this concept might have gained support from developed country TC members.

To be an Operating Entity of the Financial Mechanism of the Convention, or not?

There is a hard and bright line between developing countries - who want the Fund to be designated an operating entity of the financial mechanism of the Convention - and developed countries* who want it set up as a financial intermediary fund (FIF) of the World Bank.

The argument against designating the Fund as an operating entity of the financial mechanism of the Convention (via Article 11) prosecuted by developed country TC members include:

Establishing a Fund outside of the Convention would deliver greater flexibility and speed.

All of the important elements contained in Article 11 in the Decision can be specified in the Decision without invoking Article 11 of the Convention.

The arguments put forward by developing country TC members for the Fund to be designated an operating entity were:

Article 11 of the Convention provides clear, tried and tested guidance on eligibility, program priorities and governance, including receiving guidance from and reporting to COP/CMA.

The Green Climate Fund (GCF) and Global Environment Facility (GEF) are designated operating entities, and they are working well. In the case of the GCF it is the world’s largest climate fund, with $20 billion in pledges, disbursing over $1 billion annually (~50% to adaptation). In comparison the Adaptation Fund is not an operating entity; its Board reports to the Paris Agreement only, not the UNFCCC. By contrast with the GCF the AF has received pledges of a little over $1 billion in total. The argument that keeping the Fund outside of the Convention in order to receive greater contributions clearly does not stand up to evidence.It makes no sense to say (as developed countries have) that you can recreate all of the elements of Article 11 in a Decision document, yet not have Article 11 apply. 

There is symbolic value to making the Fund an operating entity of the Convention - it would place it at the same level of importance as, for example the GCF. And place addressing loss and damage at a core level of importance.

To identify the real crux of the matter, or to say the quiet part out loud, developed countries are arguing for the system that gives them more power. Firstly, the UNFCCC is founded on the principle of common but differentiated responsibility and respective capability (CBDRRC), which means that responsibility for funding loss and damage would fall to developed countries. The Convention also has equity enshrined in how decisions are made, which means that developing countries would have a strong say in how the funds are spent. In addition, designating the Fund as an operating entity of the financial mechanism means that its policies and programs are designed with the eligibility criteria of the Convention.

Whereas, the World Bank operates within a completely different paradigm, one of aid, or “charity”, which is at the discretion of the “donor”. Establishing the Loss and Damage Fund as a World Bank FIF would give developed countries greater control over how it operates directly —votes in the World Bank Board are based on how much you contribute— and indirectly— the World Bank is evangelical in its enthusiasm for markets, loans, debt and the private sector, all elements which minimise and divert the responsibility of rich countries and have exacerbated loss and damage. The World Bank separates countries into income groupings, which would likely mean that middle income countries like Pakistan and the Philippines would be expected to take loans to fund recovery from loss and damage, which is exactly what happened following the extreme Pakistan floods in 2022, and only low income countries would receive grants.

Privileges and immunities (P&I)

One of the issues often used to complicate the choice between an operating entity of the financial mechanism or a World Bank FIF is that of privileges and immunities (P&I). Raj Bavishi, Senior Counsel for the Green Climate Fund and a member of the group of experts advising the Transitional Committee gave a presentation on this matter. 

The fundamental purpose of P&I is to enable the institution to operate so that it is not affected by different laws in each country it operates in. This adds bureaucracy and slows down operations. For instance, customs may delay program implementation; taxation may be charged (which international contributors are typically not keen on). P&I also safeguard the board and staff when they are carrying out their work.

Raj outlined four options for P&I:

i.   Seek an institutional linkage with the UN, similar to UNFCCC Secretariat.

ii.  State that LDF will have P&I but leave it up to the Board to achieve. The GCF has followed this path and found developing bilateral arrangements with countries to be slow and cumbersome. In 9 years the GCF has signed just 30 P&I agreements.

iii. Undertake a multilateral process to confirm P&I in one of two ways:

 Develop a treaty and use this as the basis for bilateral agreements, for example the Global Fund;

Use the provisions of an existing treaty to carry into a new treaty. For example the WTO and UN Specialized Agencies Convention, invited countries to lodge an instrument of ratification, or similar, to the treaty, effectively agreeing and establishing P&I by doing so.

Raj presented a paper which compares the Institutional Arrangements, including P&I, of the Fund if it was set up as: a standalone fund, hosted by the GCF, by the GEF, by the Adaptation Fund (AF), by the World Bank as a FIF, as a UN Multi Party Trust Fund (MPTF).

The advantage that the TC has is that it can learn from GCF implementation.

Principles of the Fund

The principles of the Fund that were identified during TC3 included:

The Loss and Damage Fund should follow the principles of the UNFCCC and Paris Agreement and report to and receive guidance from the COP and CMA.

The Fund Should be responsive to the receiving country's needs and circumstances.

The Fund should be designed in a flexible way to enhance national systems and priorities.

○  The Loss and Damage Fund should not exacerbate the indebtedness of developing countries. Finance must be grant-based.

○  The new Fund should be flexible, innovative and responsive. It needs to adapt to the needs of developing countries. 

○  All developing countries should be eligible to receive support from the Fund.

○  The Loss and Damage Fund must be country led.

○  Equity must play a core role. The main source of funding for the Fund should be from developed countries. Innovative sources must also consider equity.

○  The Fund needs to minimise the administrative burden on developing countries.

○  The Fund must take into account traditional and local knowledge, not just Western-style data.

○  Fund should deliver support for both extreme and slow onset for recovery, reconstruction and rehabilitation.

○  Funding must be new and additional to ODA.

○  Data availability —which is scarce in some developing countries— should not be an obstacle to accessing the Fund.

○  The Fund should recognise the disproportionate impacts on women, people with disabilities, Indigenous Peoples, youth and children.

There was insufficient attention given to ensuring the Fund addresses human rights of affected communities, and TC members should ensure they address this. 

Structure: the Board and Secretariat

The LDCs reiterated that they seek a resident Board to be able to make quick decisions following a climate event. It seems that this lacks support from developed countries, but they did not make it a significant talking point in the open sessions at TC3. 

Whereas the composition of the Board was a significant talking point. In the US proposal developed countries clearly dominated. Whilst Christina Chan of the US denied this imbalance and claimed the math worked for balance, on the assumption that, firstly, developing countries will be some of the significant contributors to the Fund, and secondly that Parties will accept a “donor makes the rules” approach favoured by the World Bank and other MDBs to bleed into the Fund governance. Whereas the developing country TC member proposal laid out an equitable representation of developing countries, in line with a Fund anchored within the equity principles of the Convention.

The US proposal has a detailed delineation of the role of the Secretariat. There seemed to be general agreement on the Secretariat being represented regionally so as to be able to engage locally, with gender balance, linguistic diversity, and with a range of experience.

There were also differences on how much decision making authority the Secretariat would have, with some developing countries emphasising that they saw the Board as the decision making body and the Secretariat serving the Board and putting into place the mandate they receive from the Board, not taking decisions. 

Concerns were raised by developing country TC members about the Secretariat being established within an institutional culture, for example the World Bank, that was not established by the international climate regime. Whereas some developed country delegates were enthusiastic about a Secretariat being established within the World Bank, as a way to adopt the existing policies and logistics of that institution and therefore be able to be in place quickly.

Funding Arrangements

Funding Arrangements can be used to mean two things: firstly the existing ‘mosaic’ of funding/financing for loss and damage activities. For instance, the humanitarian sector reacting after an extreme climate event, or the MDBs providing loans to recover from climate events. It also refers to how funds will be raised to fill the Fund.

Existing positions were largely reinforced at TC3. With developed countries pushing for an expanded role of existing institutions and arrangements —ones that in general they have more power and control over and which are already inadequate— and developing countries making the case for doing things differently with more, and more relevant, resources required. 

The UK TC member, Deborah Palmer, saw an opportunity for the Fund to catalyse humanitarian and multilateral financing —directing this existing finance to address loss and damage more effectively. Developing country representatives, including Angela Rivera of Colombia and Daniel Lund of Fiji, pushed back against the idea that humanitarian assistance should shift and be used for loss and damage. Noting it is already inadequate for its existing mandate and that the objective of the Fund is both to create NEW funding for loss and damage, not reallocate it from existing uses, and to fund in a completely different way to what exists already one more fit for purpose to address loss and damage.

The developing country TC member submission stipulates that funding arrangements should be grant-based and non-debt financing for addressing loss and damage, and be consistent with the principles and purposes of the Convention and the Paris Agreement. TC members went further with some adopting the suggestion from civil society that a set of criteria be developed to identify whether funding arrangements could count toward loss and damage, for instance the criteria that they be non debt creating; and that they be additional to existing finance (not just “loss and damage washing”).

The US proposal includes a recommendation that the Fund could offer lower rates of interest compared with loans from MDBs. However, as Avinash Persaud of Barbados said, even low interest rate loans will still lead to increased debt, and many vulnerable countries are already facing a global debt crisis. Daniel Lund of Fiji, noted that one of the main ways that loss and damage manifests for countries is in increased debt when major disasters occur. What is required is a more robust approach to loss and damage than insurance and loans. We know that insurance and risk layering won’t work with the scale of loss and damage being experienced.

A key element under discussion is how to create coherence and coordination amongst existing and new funding arrangements. There was general agreement that a high-level council (or similar) be mandated to ensure greater coordination and coherence but very different approaches to constituting it.

The US proposal establishes a “Resilient Futures Coordination Council” which has a heavy focus on the World Bank and other MDBs, and foreshadows a set of recommendations to enhance coherence amongst the following groupings of Funding Arrangements: pre-arranged finance, the heading now being used to describe insurance, the US specifically identifies a role for the Global Shield here; humanitarian assistance; recovery and reconstruction through MDBs and the Common Framework for Debt Treatment; the human mobility section specifically mentioned the Migration Multi-Partner Trust Fund.

Whereas the proposal from developing countries on funding arrangements (made on the final day of TC3) takes a different and broader approach, with the Fund at the heart of coordination, and coordination structured around: coordination of funding arrangements; technical and procedural coordination; high level dialogue / political coordination. I recommend reading their proposal for more. 

Progress and next steps

TC3 did make progress —as Co-Chair Richard Sherman said— TC3 started with five options for hosting and it was narrowed down to two options of: a stand alone Fund or a World Bank FIF. In addition, as identified above there were also new solutions proposed, for instance access based on triggers. 

However, given the rate of progress to date I foresee a white knuckle ride into the Ministerial, to be held on 22 September and the final TC meeting on 17-20 October in Aswan, Egypt. The Co-Chairs are sharing a note with TC members as an options text, with submissions from TC members due 10 September, then the Co-Chairs will pull things together ahead of TC4. 

One major gap without any clear pathway or timeline to date, is the development of alternative sources of finance that are fair and publicly controlled. Such polluter pay sources of finance —like a levy on fossil fuels— will be essential to reach the $100 billion (USD) floor that developing countries are asking for and reaching the $400+ billion (USD) that is already necessary.  Without “Identifying and expanding sources of funding” (5c of the TC mandate from COP27) the TC will have failed to meet its mandate and we will have an empty —and therefore useless— fund.


There is no way to write a blog about TC3 without noting the extraordinary lack of transparency around the meeting and work of the TC. Two out of five days were closed to observers; the registration process excluded civil society from the region attending; and the working papers from the Co-Chairs have not been shared with observers. This exclusion of civil society from a Fund that is meant to serve impacted communities needs does not bode well. Closing sessions and reducing transparency has long been a negotiating tactic of developed countries to delay action on Loss and Damage. A change in mode of work should be adopted for the remainder of the year.

Julie-Anne Richards is the Loss and Damage Collaboration’s Strategy Lead. She has two decades of experience working on the climate crisis, has written extensively on loss and damage, and campaigned with civil society and in collaboration with vulnerable countries on the need for loss and damage finance.

This article has been Funded by the Rosa-Luxemburg-Stiftung New York Office with support from the German Ministry for Economic Cooperation and Development (BMZ). The publishers are solely responsible for the content of this publication; the opinions presented here do not reflect the position of the BMZ. We also note that views and any errors, are the authors alone and that the content of this brief does not necessarily represent the views of all the members of the Loss and Damage Collaboration (L&DC).