After three decades of work, advocates for developing countries scored a major victory at last year’s United Nations climate change conference in Dubai: World leaders unanimously agreed to set up a climate recovery fund. As the planet warms, the poorest nations are hit hardest by drought, rising sea levels, hurricanes and a host of other climate impacts — even though these countries have done the least to cause global warming, compared to their early-industrializing peers. Enter the so-called loss and damage fund, which is supposed to compensate them for the inevitable consequences of climate change. So far, the international community has pledged more than $650 million to the venture.
Now begins the tedious, unsexy – and often tedious – work of establishing the fund.
This week, a 26-member board meets for the first time to discuss the administrative and institutional policies needed to make the fund operational and distribute money to developing countries in need. The council’s to-do list is long. This varies from the procedure – the choice of co-chairs and the agreement on a host country for the fund – to the more substantive: deciding which countries are eligible to receive funding, how to raise funds and raise the fund fill, and whether the World Bank helps manage the fund.
The board was supposed to hold its first meeting at the end of January, but a stalemate among rich countries, including the US and those of the European Union, over who to nominate for the board led to delays, putting the meetings three months behind schedule. Much of this work must be completed in just over six months, ahead of the next United Nations climate conference, known as COP29, in Baku, Azerbaijan.
“There is a very big work plan for the year,” said Brandon Wu, director of policy and campaigns and head of international climate justice work at the nonprofit ActionAid USA. “They are still trying to squeeze in three meetings before COP29 to stay on schedule.” Wu attends the board meeting as an observer.
The stakes are high. The roughly $650 million pledged so far is a fraction of the estimated need — which researchers pegged at as much as $580 billion per year by 2030 – and is generally seen as start-up money that is just sufficient to establish the fund. As the main contributors to the climate crisis, rich countries are expected to be the primary donors to the fund. But before the fund can start allocating money to poorer nations in need, a number of decisions must be made.
Key among them is whether the World Bank will serve as a trustee and help manage the operations of the fund. Wealthy nations believe that the bank, which hosts several other environmental and climate funds, has the experience, reputation and administrative know-how to best manage a financial effort of this magnitude. But developing countries was initially opposed to the idea, citing the failures of the bank’s previous programs and its role exacerbating debt crises in poor countries. Ultimately, developing countries reluctantly agreed to allow the World Bank to host the loss and damage fund on an interim basis. But that decision was dependent on the bank meeting 11 conditions, including allowing recipients to directly access money from the fund instead of requiring the money to go through an intermediary international institution, such as a United Nations agency or multilateral development bank. The World Bank has until June to deliberate and report on whether or not it can meet the conditions.
Initial discussions about those conditions have already hit problems, according to reporting by E&E News. The loss and damage fund’s board and the bank can’t seem to agree on who should sign off on financial agreements when money is paid out. The World Bank has a number of policies in place to ensure that the money it distributes is not misused and meets various environmental and social safeguards. As the loss and damage fund is expected to distribute money to a range of national and sub-national groups as a result of the direct access condition, the bank is likely to work with hundreds of entities. This increases the chances of a recipient misusing the money or defaulting on a loan, putting the bank on the hook. As a result, the bank wants the responsibility – and liability – to lie with the board, while the board argued that the bank as trustee should have final signing authority.
If a project receiving money from the fund is unable to repay the bank, the bank’s credit rating could be affected, which in turn could lead to a decrease in the bank’s lending power, said Michai Robertson, a chief negotiator for the Alliance of Small Island States, a group representing 39 island countries. “They see it as a big cluster of issues,” he said. “If you have one entity from each developing country, that’s 140 countries that can directly access the fund and not use an intermediary. The bank sees it as a big risk.”
If the bank eventually reports that it cannot meet the 11 conditions, countries will go back to the drawing board to establish an independent fund. These decisions will be taken at COP29 in Azerbaijan.
Even if the deadlock between the board and bank is resolved, the board will still have many more thorny questions to work out, including which countries will be eligible to receive money from the fund. In the agreement signed in Dubai last year, countries agreed that the fund’s resources are intended for “developing countries that are particularly vulnerable to the adverse effects of climate change.” But the agreement not defined which countries qualify as “particularly vulnerable”. The phrase has typically referred to small island states and those classified as “least developed countries” in climate talks – but it leaves out countries such as Pakistan, which faced catastrophic floods in 2022, and others widely seen as suitable recipients for loss and damage. funding.
Also hanging over these discussions is the question of how the fund will raise the trillions of dollars that will be needed in the coming years to address the loss and damage countries face as a result of climate change.
“There’s kind of the elephant-in-the-room question, which is when the fund is going to get really meaningful amounts of money,” Wu said. If the fund receives very little money, the board will eventually design policies intended to facilitate the transfer of millions of dollars — not the trillions needed, he said.
“The extent of the ambition of the fund is a big question,” he said.
