Pay attention to what’s happening with the Loss & Damage Fund

“It’s late, we’re tired, we’re frustrated. We have, to a large extent, failed you”, said a statement by Richard Sherman, co-chair of the Transitional Committee (TC) for the Loss and Damage Fund (LDF). As the conflict in Israel-Palestine raged on, a small group of climate negotiators convened in the Nile-side city of Aswan in southern Egypt to fight another crucial battle for climate justice that has continued for about three decades.

At the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change, also held in Egypt last year, a historic agreement was reached to establish a Loss and Damage Fund. It was designed as a multilateral entity that will disburse money to recover from damage that poor countries have suffered due to climate change-induced weather disasters and other impacts. 

One of the provisions of the agreement was to set up a 24-member committee (the TC) representing developed and developing country Parties, co-chaired by Sherman of South Africa and Outi Honkatukia of Finland. The TC was to meet four times (TC 1-4) before producing its recommendations for the LDF at COP28 this year. 

How events unfolded in Aswan

What started at TC1 as a cooperative and optimistic process earlier this year, has rapidly morphed into a battleground for the rich and the poor, the polluters and the victims. 

At the TC4 held last week in Egypt — what was to be the “absolutely final” meeting of the TC — disagreements soared, meetings ran past 1 am and negotiators had to postpone their scheduled return flights.

Sherman’s statement reflected the disarray with which the gathering, tasked with operationalising the LDF, concluded. The meeting formally closed with no agreement except for one: To have a TC5 at Abu Dhabi in November.

Source: The Numbers Behind Climate Change, Centre for Science and Environment, 2021

The LDF negotiations are interesting because although the TC members represent specific countries and blocs, their overall constituencies are classified as “Developed” or “Developing” Parties. Therefore, the points made starkly show the views of the Global North versus that of the Global South. 

One such example is of the location of the Fund — the element that derailed the agenda of TC4.

Developed country parties including the United States, the United Kingdom, France, Germany and Australia are staunch advocates for the World Bank to host the LDF. According to them, as an established institution, it has what it takes to quickly operationalise the Fund. This is concerning developing country blocs such as the G77 and China, African Group of Negotiators and Alliance of Small Island States (AOSIS).

Given the World Bank’s track record, they believe an LDF under it will stall finance, increase debt and undermine country needs. Instead, they want the LDF to have new, independent hosting under UNFCCC, where it will mandatorily uphold the principles of common but differentiated responsibility (CBDR) and equity.

The location debate led to a twist on Day 2. Observers were locked out as World Bank representatives held a closed-door session with TC members. The sudden development led to further closed sessions throughout the second day. 

On day 3, as the open sessions resumed, it was clear that the World Bank had provided little solace. As Dianne Black-Layne of Antigua and Barbuda representing AOSIS put it: “If the World Bank is the only option, [then] let us stop negotiating. It is a decision of the developed countries, not a TC4 decision”. 

The key issue seemed to be a 17 per cent “hosting fee” proposed by the World Bank. To pay money in order to receive critical Loss and Damage finance is “highway robbery”, as Dianne Black-Layne said.

In contrast, Jean-Christophe Donnellier of France said the 17 per cent fee of the World Bank, “is probably one of the lowest on the market.” 

Christina Chan of the US stated that the time spent on discussing the location of the Fund is “concerning”. However, for developing countries its location will determine the policies it is governed by, ultimately deciding on equitable and timely access to the LDF, laying bare the difference in fundamental priorities regarding the Fund’s operation.

The next most contentious debate was on eligibility. Developed countries have long advocated for the LDF to be accessible only to Least Developed Countries (LDC), Small Island Developing States (SIDS) and “particularly vulnerable” countries. 

Developing countries have said that “all developing countries” should have access to the fund. At TC4, developed countries referred to specific allocations for LDCs, SIDS and the particularly vulnerable under eligibility. 

"You are saying [that] some human beings are of [a] higher level than other human beings,” said Mohamed Nasr of Egypt, representing the COP27 Presidency. Nasr stressed the need to separate the language on ‘eligibility’ and ‘allocation’. He added that he is ready to be flexible around different allocations for different country groups, but eligibility must include all developing countries.

On day 4, expected to be the final day, developing countries pointed out an imbalance in the proposed draft. Matheus Bastos of Brazil representing G77 and China (the largest group of developing countries), stressed that they will not accept the World Bank option. Nasr pointed out that the replenishment of the Fund has not been addressed. 

Angela Rivera Galvis of Colombia brought back the importance of acknowledging the eligibility of all developing countries. In response, Jaime de Bourbon de Parme of Netherlands agreed on the need for safeguards for developing countries to ensure access to the funds while saying that developed countries need similar safeguards to justify the finance to their taxpayers. 

In simple terms, this means justifying the LDF for “particularly vulnerable” countries will be easier. But then, it becomes a case of the rich countries deciding how, when and where the money will go to the Global South — going against equity and the acknowledgement of the historical responsibility of the Global North. It was not a surprise to us, therefore, when Christina Chan said unequivocally: “We would not accept language on principles and provisions of the Convention.” 

Harjeet Singh, head of global political strategy, Climate Action Network International, said:

Developed countries must be held accountable for their shameless attempts to push the World Bank as the host of the fund, their refusal to discuss the necessary scale of finance, and their blatant disregard for their responsibilities under the UN Climate Change Convention and the Paris Agreement. Behind closed doors, developed nations not only attempted to fracture the solidarity of developing countries, but when unsuccessful, brazenly asked even the poorest nations to contribute to the fund.

All eyes should remain on LDF

UNFCCC is regarded as a sacred space by many, particularly those countries which find their voices drowned out by wealthier countries at fora like the World Bank or the World Trade Organization. It operates on ‘consensus’ and each country has an equal voice that must say ‘yes’ for every decision to pass. 

No country is more powerful than others in those rooms. Stallers are clearly visible to all; every hesitation is noted for all to see.

Loss and damage, in particular, is one of the purest distillations of the climate justice issue — the fact that the polluters are being asked to pay for damages that have reversed decades of development in the poorest parts of the world; damages that are themselves caused by carbon-intensive development which has enriched the polluters.

At loss and damage negotiations, developed countries can’t hide behind the private sector — there is no money to be made here, only grants will do. They are attempting to hide behind Multilateral Development Banks — among which the World Bank can be considered a Western institution heavily influenced by the US. But developing countries — especially the G77, representing over 80 per cent of the world’s population — clearly see their attempt to hide behind a puppet institution.

In loss and damage discussions, it’s hard to point to current emitters like China and India, since most of the damage today is being caused by CO2 emitted a century ago. 

In fact, loss and damage is the true manifestation of the principle of CBDR and equity. It shows how developed countries’ climate posturing — with John Kerry denouncing coal and Ursula von der Leyen touting carbon pricing — is no more than, well, posturing. They appear to be climate leaders but are in fact dodgers of responsibility.  

TC4 saw developed countries constantly asking for more flexibility from the developing countries over the draft recommendations, with little compromise themselves. If they are successful in watering down the needs of the Global South in the final draft at TC5, it will be a mirror to the fading of equity in international cooperation on climate action.