TWN Info Service on Climate Change (Jul25/02)
21 July 2025
Third World Network

Developing countries assert direct access to Loss and Damage Fund’s resources

Penang, 21 July (Chhegu Palmuu): At the sixth meeting of the Board (B.6) of the Fund for responding to Loss and Damage (FRLD), which met on 9-11 July in Cebu, Philippines, developing country members unitedly asserted that all developing countries are allowed to directly access resources from the Fund in accordance with decisions adopted in Dubai at COP 28 (in 2023).

They referred to decisions 1/CP.28 and 5/CMA.5, which operationalized the Fund, with a set of conditions that the World Bank [WB] has to comply with, to host the Fund and serve as its interim Trustee, during the four-year interim period.

The assertion by developing countries was reflected in the adopted decision on ‘direct access via direct budget support’, which was taken in response to a proposal by the Fund’s Secretariat on the said modality. During the meeting, it came to light that the Secretariat had come up with an exclusive “eligible” list of only 50 plus developing countries that have passed the WB’s fiduciary assessments required for its development policy financing, that rendered the rest of over 90 developing countries ineligible to directly access the Fund’s resources.

[The Secretariat using the WB criteria, blatantly contravened two of the key conditions set by paragraphs 20(e) and 20(g) of decisions 1/CP.28 and 5/CMA.5, which “allows all developing countries to directly access resources from the Fund…” and “ensures that Parties to the Convention and the Paris Agreement [PA] that are not member countries of the World Bank are able to access the Fund…”, respectively.]

Adding to the controversy, during the final moments of the closing day, the decision on this crucial issue before being adopted was also held hostage by developed countries behind the scenes, as per sources who revealed to TWN. [See details below.]

[At the last Board meeting (B.5), by decision B.5/D.4, the Board established the Barbados Implementation Modalities (BIM) as the start-up phase of the Fund consisting of a first set of interventions, for the calendar years of 2025 and 2026, for a total of USD 250 million. B.5 also decided to review the need for further allocation at B.8, subject to available commitment authority, and that an amount in the range of USD 5-20 million may be allocated to each of the activities, projects and programmes to be approved during the BIM start-up phase, subject to funding criteria to be approved by the Board. With regard to the operationalization of the BIM, the Board further requested the Secretariat, under the guidance of the Co-Chairs, to develop a set of documents/papers for consideration and adoption at B.6.]

According to sources, TWN learnt that the Secretariat prepared a “framing paper” to start with, consulting Co-Chairs Richard Sherman (South Africa) and Jean-Christophe Donnellier (France), which outlined the following seven technical papers to deliver on the operationalization of the BIM: (i) Approach for delivering the BIM; (ii) Project/programme cycle; (iii) Initial funding criteria and results management framework; (iv) Initial access modalities; (v) Proposal for direct access via direct budget support; (vi) Terms of reference for the call for proposals; and (vii) Proposed guidelines for the designation of FRLD focal points. In June, the framing paper was shared with the Board followed by two consultation sessions, which resulted in written comments and submissions with especially substantive changes suggested to the full technical papers.

However, it is learnt that the Secretariat developed the full technical papers without consultations with the Co-Chairs, thus failing to adhere to the B.5 mandate, and with the quality of the papers containing major concerns for developing countries without fully incorporating their comments and submissions made on the framing paper, hence disadvantaging them. With obvious push back from the developing country constituency Board members on the full technical papers as being unacceptable, these were eventually relegated to “non-papers”, some of which were discussed only at the informal session on 8 July, preceding the official meeting.

The “framing paper” instead was used as the basis of negotiations when the agenda item on the operationalization of the BIM opened on 10-11 July, which mainly deliberated on the following three issues: initial funding criteria, project/programme cycle and the guidance for the FRLD focal points. Only a procedural decision materialized on the former two contained as annex to the decision, while a substantive decision was adopted on the latter. [Separate article to follow.]

The Board also adopted a procedural decision on the crucial issue of the Fund’s long-term resource mobilization strategy and plan which is to be adopted by the end of 2025. It requested the Secretariat to prepare the strategy and plan “through an inclusive and iterative consultation process with the Board, to be presented for consideration by the Board no later than at its seventh meeting”. It also requested “that the strategy be guided by paragraph 16 of decisions 5/CP.29 and 11/CMA.6 and paragraph 12 of decisions 1/CP.28 and 5/CMA.5 and paragraphs 54-56 of the Governing Instrument”. To recall, developing country constituency had issued a statement, in the evening of 9 July, conveying their concerns and expectations regarding the scale and status of resources of the Fund [See TWN Update].

[Note: The framing paper and the seven technical papers are restricted documents limited to the Board and not published. The framing paper was displayed on screen during the negotiations. Similarly, the draft decisions are restricted documents displayed on screen during Board’s consideration and final adoption by the Board. The adopted decisions are not yet published online.]

Decision to guide Co-Chairs to negotiate with WB on direct access

By decision B.5/D.4, “with regard to direct access via direct budget support through national governments, referred to in paragraph 49(a) of the Fund’s Governing Instrument”, the BIM “will include the transfer of funds to national governments for the purpose of financing activities within the scope of the Fund”. Further, the Board requested the Secretariat to “develop a proposal” for consideration at B.6 “for the operationalization of direct access via direct budget support”, including with respect to paragraph 20(g) of decisions 1/CP.28 and 5/CMA.5 and paragraphs 67-68 of the GI [on functional equivalency with the WB’s fiduciary standards and environmental and social safeguards], “while taking into consideration the necessary flexibility” of the BIM phase.

It is to be noted that ‘direct access via direct budget support’ as a key modality of transfer of resources directly to the national budgets, is considered the most unique feature of the Fund by developing countries, which ensures and strengthens country ownership and national priorities.

The controversy over the Secretariat coming up with an exclusive “eligible” list of only 50 plus developing countries, by using the WB criteria of fiduciary standards thereby denying access to all, stemmed from the fact that it completely defeated the purpose of the conditions set by paragraph 20 of decisions 1/CP.28 and 5/CMA.5 – in particular, the aforementioned 20(e) and 20(g) – which the WB has to comply with during the four-year interim period.

It is learnt that the exclusion list drew acute ire and frustration from the developing country constituency, revealing the Secretariat’s lack of appreciation for the very reason of the creation of the Fund, its unique nature and its negotiating history. Speaking to the issue, Mohamed Nasr (Egypt) stated to “put on record” that currently not all developing countries are allowed access as well as not all accredited entities as per the GI.

Sources said that with regard to the proposed two types of rapid disbursement budget support and policy-related budget support, as well as the proposed two channels through implementing entities and through countries, developing country members underlined the need to establish not only a “bespoke FRLD budget support framework”, but also a fundamentally different WB ‘direct access via direct budget support’ instrument in line with the Fund’s mandate, and to serve its unique requirements; and that to establish that would most likely require the WB to make internal changes or adjustments based on the terms of the hosting agreement, the Fund’s GI and the nature of the Fund.

Some of the queries sought from the WB by the developing countries pertained to: how the concept of functional equivalency of an entity’s safeguards and standards with internationally recognized standards [paragraph 50 of the GI] will be integrated into the WB instrument, replacing the current focus on the assessment of macro-economic frameworks and fiduciary standards as required by its development policy financing, [pointing to decision B.5/D.4 on consideration of flexibility in this regard]; challenges of pre-approved funding and its limited scope on disaster financing, with regard to rapid disbursement budget support; that policy-related budget support is irrelevant and inappropriate to the Fund, coming across as a conditionality for policy reforms as opposed to pragmatic use of resources for direct implementation on the ground; that considerations for non-WB members as per paragraph 20(g) of decisions 1/CP.28 and 5/CMA.5, are not reflected; amongst others. The transfer of resources to national public entities instead of the Treasury and/or Finance Ministry was also favourable to some developing country members in terms of directly accessing resources at the national level.

In this context, it is learnt that the developing country constituency, led by the Small Island Developing States (SIDS), pushed for adopting a separate procedural decision to provide guidance to the Co-Chairs for further negotiations with the WB towards some clear modalities to implement ‘direct access via direct budget support’.

After the draft decision, which was said to be authored by Daniel Lund (Fiji), was displayed on screen and introduced by Co-Chair Sherman (South Africa), there was a seemingly confused pause for some time. Thereafter, Sherman remarked that there seems to be a “deep impasse and we should just close the meeting without any decisions because there doesn’t seem to be a mood in the room that’s conducive to the operations of this Fund”, further signaling that developed countries were “stopping access for developing countries”.

Next, Nasr (Egypt) intervened stating that the Fund is “for all of us”, and suggested that the Board take a “break” and go offline, alluding to find a way of saving the process. After a recess of over an hour that entailed “huddles” among Board members, including separate ones among developed and developing country constituencies, sources revealed that developed countries were holding hostage the decision in exchange for developing countries agreeing to at least a decision on the “project/programme cycle”, which made no sense to some members, in the absence of agreement on the “funding criteria”.

Eventually, a revised iteration of the draft decision ‘Operationalizing the Barbados Implementation Modalities: Guidance to the Co-Chairs for engagement with the interim Trustee’ was reintroduced by Co-Chair Sherman (South Africa), to which Hiroki Matsui (Japan) reacted that he needed more time to scrutinize it, followed by Jan Dusik (European Union) with a similar request. Anna Merrifield (Finland) later took the floor and sympathized with Matsui (Japan), agreeing that the issues are complicated, have come at a late hour and hoped that they are not agreeing with something that their capitals are not going to be happy with.

After prolonged and careful deliberations by especially the developed country constituency, attempting to push for their preferred amendments to the language, the following paragraphs [in italics] were adopted in the decision text:

“(a) Requests the Co-Chairs of the Board, with the assistance of the Secretariat, to engage with   the interim Trustee to identify the modalities to facilitating direct access via direct budget support as part of the Barbados Implementation Modalities as well as for the long-term model of the Fund, while noting the precedent practices of direct budget support provided by WB and other relevant entities, both multilateral and bilateral including on areas outside of climate change, in compliance with decisions 1/CP.28 and 5/CMA.5, and to present the result of this, with different options, their associated implications and, where relevant, further guidance for implementation, engagement to the Board at its seventh meeting”.

“(b) In fulfilling the mandate referred to in paragraph (a) above, the Co-Chairs are guided to engage on the basis of the following understanding:

(i)  All developing countries are allowed to directly access resources from the Fund, including through national and regional entities, consistent with the policies and procedures to be established by the Board of the Fund and applicable safeguards and fiduciary standards (paragraph 20(e) of decisions 1/CP.28 and 5/CMA.5); and

(ii) Parties to the Convention and the Paris Agreement that are not member countries of the World Bank are ensured access to the Fund without requiring decisions or waivers from the World Bank Board of Directors on individual funding requests (paragraph 20(g) of decisions 1/CP.28 and 5/CMA.5)”.

[The original (b) (i) started with the language “All developing country Parties that are particularly vulnerable to the adverse effects of climate change” which is not consistent with paragraph 20(e) of decisions 1/CP.28 and 5/CMA.5 that doesn’t contain this formulation, and therefore, it was successfully pushed back by Elena Pereira (Honduras) supported by Lund (Fiji) and Abdulrahman Alrowished (Saudi Arabia) despite strong, lingering attempts to retain it by Matsui (Japan), Dusik (EU) and Gerard Howe (United Kingdom) and with Sebastian Lesch (Germany) making a Freudian slip remarking “this is not a Fund for everyone”.

This paragraph (b) (i) and (ii) of the decision successfully asserts that all developing countries are allowed to directly access the Fund’s resources in line with the conditions set by paragraphs 20(e) and 20(g) of decisions 1/CP.28 and 5/CMA.5, which the WB has to comply with, to host the Fund and serve as its interim Trustee, during the four-year interim period.

It was the last paragraph that the Board eventually agreed to, paving the way for the adoption of the decision, Matsui (Japan) made a statement for the record expressing his “deep disappointment” to the proceedings given that such a decision should have been circulated “well ahead and duly discussed by the Board”.]

“(c) Further requests the Co-Chairs of the Board, as part of the engagement referred to in paragraph (a) above, to explore and present options for possible arrangements for direct access including via direct budget support to be provided to national public entities instead of Treasury and/or Ministry of Finance, at the request of the focal point of the Fund and with the agreement of the country’s Treasury and/or Ministry of Finance, consistent with the policies and procedures to be established by the Board of the Fund”.

“(d)  Further requests / Notes that, for the purpose of the Co-Chairs’ engagement described in paragraph X and X, and without prejudice to the full operationalization of the Barbados Implementation Modalities or the development of the long-term model of the Fund, that the modalities to be explored for the BIM will support bottom-up, country-led and country-owned approaches to loss and damage that promote and strengthen national responses to and systems for loss and damage, including through the development and implementation of:

(i) Rapid disbursement modalities to respond to climate-induced extreme weather events;

(ii) National-level loss and damage response activities; and

(iii) Other forms of budget support related to policies and programmes for responding to loss and damage”.

“(e) Further requests that the Co-Chairs, based on the outcomes of the engagement with the interim Trustee described in paragraphs X to X of this decision, consult with other relevant entities as may be required”.