TWN Info Service on Finance and Development (May23/04)
30 May 2023
Third World Network

Rich exchange at Transitional Committee meeting on Loss and Damage funding

30 May, Bonn (Prerna Bomzan & Indrajit Bose): The second meeting of the UNFCCC’s Transitional Committee (TC) tasked with the operationalisation of new funding arrangements for responding to loss and damage and the fund, convened in Bonn, Germany, on 25-27 May. The TC Co-Chairs Richard Sherman (South Africa) and Outi Honkatukia (Finland) presided over the meeting, which covered a wide range of substantive and technical issues over the new fund and funding arrangements.  

Establishing institutional arrangements, modalities, structure, governance and terms of reference for the fund

Discussions under this section centred around the purpose and scope of the new funding arrangements; governing body of the fund and its relationship with the fund; review of the fund and its scope and process; legal implications of establishing new funding arrangements and a fund; arrangements for the fund’s governance in terms of composition, tenure, chairpersonship, decision-making, roles and functions; thematic windows of the fund; arrangements for the secretariat and which institution will serve as the trustee; eligibility to access the fund and what are the access and delivery modalities; instruments and sources of the fund; and mechanisms for multi-stakeholder engagement in the fund.

Mohamed Nasr (Egypt), also representing the Presidency of the 27th session of the UNFCCC’s Conference of Parties (COP 27), underlined that the fund has to be an “operating entity of the financial mechanism” and hence, the governing body should be accountable to the COP and serve the Conference of Parties to the Paris Agreement (CMA). He made clear that if the fund is an operating entity, then the established process exists of annual COP guidance as is the case with the Global Environment Facility (GCF) and the Green Climate Fund (GCF). “We are not creating another GCF or a development fund but a fund to regain development losses in developing countries due to climate change”, he underscored and further elaborated that when loss and damage happens (time zero = T0), the humanitarian sector kicks in with immediate relief but there’s no support for quick recovery to ensure livelihoods of people and hence, the fund should respond and address this “T+1” time period with direct support in the form of grants and very concessional loans through programmes and projects, “complementing” humanitarian relief and not duplicating it.

On legal aspects, he stressed the need for the fund to have privileges and immunities (in relation to its operations in countries). On the board structure, he suggested the model of the World Bank’s Climate Investment Funds, which has its own board and also stressed the need ensuring its own independence. On the review of the fund, he suggested following the GCF’s model of having an independent evaluation unit, as well as in relation to the participation of non-Party stakeholders. On the scope of the fund, he called for three windows: (i) for the T+1 period to ensure peoples’ livelihoods; (ii) long-term for reconstruction which is underfunded and currently comprised of loans which are not feasible with present indebtedness and (iii) for slow-onset events. He reiterated that direct budgetary support (for the fund) is what is needed, since it is the responsibility of the governments to respond while pointing out that insurance is one of the instruments. Nasr stressed that the fund is a “reconstruction and livelihoods” fund.

Hana AlHashimi (United Arab Emirates), also representing the incoming COP 28 Presidency, emphasised the need for a “clear and complete” suite of recommendations that can be “owned” by all Parties, further highlighting complementarity and coordination between current and new funding arrangements. She said that there are growing areas of convergence but more work needs to be done.

Diann Black-Layne (Antigua and Barbuda) speaking for the Alliance of Small Island Developing States (AOSIS) said that the fund should be accountable to the COP, adding that a precedent could be set for the fund to be accountable to the UN General Assembly as well. She said that AOSIS is looking forward to the fund’s link to other existing funds. On the review of the fund, she emphasised on coming with an effective review process and highlighted the issue of ensuring “privileges and immunities”, as is the case with most established funds. On the issue of decision-making, if it is designed to approve projects then consensus-based is the best. With regard to the trustee of the fund, she said that eventually “we will end up with the World Bank”.

David Kaluba (Zambia) expressed hope that the UNFCCC’s Standing Committee on Finance (SCF) would generate the terms of reference once the fund is established. He said that the fund needs to be periodically reviewed like the GCF and the Adaptation Fund and on the funding arrangements, he reminded that there’s an already existing model for complementarity, coherence and coordination such as the GCF and AF. He said that the International Monetary Fund (IMF) has an important role to play. On the scope issue, he emphasised that “all developing countries” need loss and damage support.

Adao Soares Barbosa (Timor-Leste) speaking for the least developed countries (LDCs) underlined that the fund must be a “stand-alone operating entity of the financial mechanism” and its design based on Article 11 of the Convention (UNFCCC). The fund should be periodically reviewed not only under the Convention but also under the CMA. He said that there needs to be a board with an “independent” secretariat as well as a trustee, expressing support for the World Bank for the latter. He stressed on the need for geographical balance the board. Further, he also said that the recommendations from the TC to the COP must include a draft governing instrument for the fund incorporating lessons learnt from the GCF. On the scope issue, he this fund is a “climate justice fund” and that the resources should come from developed countries, and should be mainly “grants-based and public”.

Sonam Phuntsho Wangdi (Bhutan) said that the fund should be periodically reviewed and that the LDC group’s proposal is to review every five years aligned with the global stocktake process. He proposed a resident board with two seats each for the LDCs and SIDS.

Christina Chan (United States) provided three options in relation to where the fund would sit: (i) as a stand-alone built from “scratch”; (ii) housing it in existing operating entity; and (iii) housing it in an external entity (not an operating entity). She mentioned that her preference is to use an “existing” entity since it makes most sense for a faster start. On governance, she expressed the need for “shared governance” with the board having guidance from the COP and CMA. On legal implications, she said that it depends on where the fund would sit, also picking up on the CIFs-like model mentioned by Nasr (Egypt). She also brought up the issue of the legal implications of the fund accepting donations from private sources. On models of governance and composition, she expressed interest in looking at other models like the Global Fund and the Pandemic Fund. On decision-making, she proposed for consensus-based but also for “options” in absence of the former. She highlighted that the fund could cover slow-onset events as it has come across as a gap and supported a small grants window, but cautioned that the board may not want to be approving every small grant, but this could be by the secretariat instead. On the role and functions of the board and secretariat, Chan said that it depended on the scope and modalities of the fund. On the scope, she said the fund should be addressing priority gaps and that it needs to be fit for purpose, countries’ needs and level of vulnerability, adding that gaps are different for “different categories” of countries.

Hyekyoung Jung (Republic of Korea) said that “flexibility” in decision-making should be guaranteed and given urgency of disaster events, there should be a “post-approval” process. She said there should be “autonomy” of the secretariat.

Jun Yamakazi (Japan) said that elements such as governing body, legal implications and the like would depend on under which “existing” organisation the fund would be established, adding that establishing the fund under an existing organisation would “perhaps be more realistic”. On the issue of the trustee, he said that the World Bank has comparative advantage and on the scope of the fund, there’s a need to avoid overlap and address shortcomings of existing arrangements, restricted to developing countries that are “particularly vulnerable”.

Milagros De Camps (Dominican Republic) said that the fund will be accountable to COP/CMA and will be one of the operating entities of the financial mechanism under the Convention. She added that resources for the fund should be “new, additional, predictable and adequate” as well as be “grants-based”. She called for a periodic review of the adequacy and effectiveness of the fund such as that followed by the GCF since the fund should respond to “evolving needs” of developing countries. Regarding legal implications, she emphasised that the fund should possess legal personality to fulfill its function and needs to have privileges and immunities, adding that the fund requires a different approach due to the “unique” nature of loss and damage. She highlighted that the fund requires operational modalities that reflect urgent and immediate needs with budgetary financial support, and that using a commitment authority of a defined replenishment period should be avoided as it limits availability of resources annually to support developing countries. She also said that the board should be based on equitable geographical representation.

Sarah Metclaf (United Kingdom) said that a range of “existing” different models could be used like the CIFs and the GCF and that there is a need to break down the different options. She added that it is important to delineate roles between governance and the secretariat and that the scope and frequency of meetings define whether to have a resident board or not.

Jean-Christophe Donnellier (France) stressed on the need to “speed up” the operationalisation of the fund and that would mean to locate it under an “existing” entity.  He also proposed a “transitional option” to host it under an existing entity for five years and then to review it. Agreeing that the fund would report to both COP and CMA, he also cautioned that the reporting would involve the “mosaic” of actors which meant that the board should meet at least once a year with the mosaic of actors. He also suggested the inclusion of stakeholders to the board to assist it with strategic decisions.

Steven Kuhn (Canada) pointed out the delay in setting up new funds and stressed on finding ways to “maximise existing institutions” citing the case of the recent Global Biodiversity Fund. He also showed support for the World Bank’s CIF model as well as the transitional model suggested by Donnellier. He emphasized the need to ensure that governance is aligned with “maximising innovative sources” and in not constricting them. He also asked whether the fund could become the secretariat of the Santiago Network on loss and damage (which is to provide technical assistance to developing countries) over time. He added that whether to have a resident board or not depends on the scope and form of funding instruments.

Khadeeja Naseem (Maldives) stressed on the priority to have a fund that has the scale and speed to disburse resources quickly and with direct access, and it should make decisions very quickly to respond to an emergency situation. She said that there is a need to link the fund to the COP and CMA and there could also be a “high-level” coordinating mechanism led by the UN Secretary-General including all key players of the funding arrangements.

Sinead Walsh (Ireland) said that decisions made about the governance of the fund will affect its “attractiveness” for resources and called for a regular review which fits with the evolving model of the fund.

Defining the elements of the new funding arrangements

TC members discussed whether it includes the new fund or whether it is a separate coordinating council/body, and whether the arrangements include other national and international actors involved in addressing loss and damage, as well as on how to ensure accountability since the COP and the CMA do not have authority to make direct requests to bodies outside the UNFCCC.

Nasr (Egypt) said he had heard of very high expectations from developed countries that entities outside of the UNFCCC system would adhere to their guidance and added that they seem to be working in an “imaginary sphere”. He said his view on the funding arrangements is a spectrum of entities inside and outside (of the UNFCCC) and those entities would need guidance, which could come from a panel under the UNFCCC, since the new funding arrangements are being created under the UNFCCC. He also said the funding arrangements should deal with preparedness (before the disaster), during the disaster as well as after the disaster.

Barbosa (Timor Leste) said the fund and the funding arrangements should not create debt and the funding arrangements should be grant-based to address recovery and rebuilding. He also said that humanitarian assistance is not enough and there are gaps, which would need to be filled. He also said that the funding arrangements should address rehabilitation and reconstruction for all developing countries, and especially those with limited capacity. Wangdi (Bhutan) echoed Barbosa’s intervention.

Jaime Tramón (Chile) said the new funding arrangements should include a range of actions aimed at strengthening current funding and providing and mobilizing new and additional and predictable resources for addressing loss and damage to all developing countries. He suggested setting core criteria which among others, align with the provisions of UNFCCC and the Paris Agreement, specific windows, programmes and policies for addressing loss and damage on a grant basis or concessional finance, instruments that do no increase indebtedness in developing countries, and which hold interaction with the Warsaw International Mechanism on loss and damage and the Santiago Network. He also said the new funding arrangements must maintain the principles of Common but Differentiated Responsibilities (CBDR), historical responsibilities, equity, gender responsiveness, climate justice, among others.

De Camps (Dominican Republic) said she recognises the Santiago Network playing a role in the funding arrangements but not the coordinating role. Responding to calls by developed countries for recommendations on humanitarian assistance, De Camps said humanitarian aid is not loss and damage finance. Such aid, she said, depends on geopolitics, the goodwill of countries and is not systematic.

Naseem (Maldives) said addressing loss and damage required more than a single-pronged solution and require responding to extreme as well as slow onset events, stabilizing assets and financial systems in risk prone areas or after adverse climate impacts, enhancing social protection, supporting those that will be temporarily or permanently displaced by climate impacts and developing new tools for non-economic losses and damages. She also said the players in the new funding arrangements could be the new fund, a coordinating council and other international and national actors involved in addressing loss and damage, adding that they would not consider the funding arrangements complete without action on debt.

Chan (US) said there must be a role for the Santiago Network as an element for the funding arrangements, and that the US did not think that creating a fund that provides emergency support is needed given the existing humanitarian architecture, which should be improved and fit for purpose in the context of climate change and the issue of growing losses and damages. She also said the TC could recommend that the humanitarian sector could be as anticipatory as is possible. She further said the second thematic area is reconstruction, and there are opportunities in the other areas of funding arrangements to call for improving access gaps. The US said the third thematic category would be related to fiscal space where on MDB loans, part of the recommendation could be to expand climate related debt deferment clauses. She added further that another thematic area is non-economic losses where recommendations could be made on broader funding arrangements. Another area is the human mobility, displacement, migration and planned relocation where the TC could recommend inviting increased support for climate related projects under the migration multi-partner trust fund and invite other funding arrangements to link the trust fund to scale up successful projects. Chan added that the US fully recognises that the COP and CMA do not have the legal authority to direct outside bodies, but “we can request, invite, encourage shareholders of outside institutions to take on these activities” and to further develop more concrete modalities to ensure accountability of the requests/invitations to the outside bodies. 

Donnellier (France) also said Santiago Network is a key element of the architecture and that they must discuss how vulnerable countries can tap into innovative financing. On the humanitarian aspect, he said the TC should recommend that they do better. On the reconstruction aspect, he said that the TC needs to work out a recommendation on how the World Bank and the multilateral development banks (MDBs) can streamline loss and damage in their work, adding that non-economic losses have to be part of the mandate of some of the actors.

Jens Fugl (Denmark) said strong systems exist in the humanitarian area, but there are resource gaps, as well as gaps on anticipatory action and pre-arranged financing. He also said the system must connect different parts working on the issue of reconstruction, rehabilitation and those parts that do not exist in a strong manner and which need to be built, and that the TC must issue recommendations in these areas including for a coordinating mechanism such as the Santiago Network.

Metcalf (United Kingdom) said the Santiago Network has an important role to play in the funding arrangements in terms of capacity building, sharing lessons, knowledge, skills and technical assistance. She also said that there is need to see how the humanitarian system can be made anticipatory, adding that there is need to think how instruments such as climate related debt clauses can be further expanded and used. She spoke about the importance of the World Bank and MDBs as being part of the funding arrangements and thinking through recommendations of encouraging ambition in that space.

Identifying and expanding sources of funding

The TC members responded to questions on sources, which ranged from identifying the existing sources of funding for loss and damage, effective ways of utilizing blended public-private finance, as well as identifying possible innovative sources of financing for loss and damage. Developing countries also drove home the message that existing funding arrangements were far from enough and that there is very little explicit funding for loss and damage needs.

Nasr (Egypt) said when it comes to preparedness and slow onset events, which are not covered (by the humanitarian assistance which is usually active post disasters), must be covered by the fund and the funding arrangements, and where the principles and provisions of the Convention and Paris Agreement would apply. He added further that the fund should be resourced through direct contribution by developed countries and financial instruments such as promissory notes or Special Drawing Rights (SDRs) that could be monetized. These could be “complemented” by countries that want to fund, philanthropies etc. Responding to interventions that spoke about levies from shipping and aviation, as well as the voluntary carbon markets as potential sources of funding, Nasr said there would be a lot of requirements including approval from governments for even a part of resources for loss and damage, and it would be totally out of UNFCC Parties’ control as to what decisions are taken at the International Maritime Organisation (IMO) and the International Civil Aviation Organisation (ICAO) or voluntary carbon markets because different sets of rules and principles apply in the other forums.

Naseem (Maldives) said there is some money for relief in the global humanitarian system but no dedicated funding for rehabilitation and reconstruction from extreme and slow events. She also called for a solidarity levy ahead of COP 28, debt relief and measures to increase fiscal capacity, which hinders countries’ efforts to address loss and damage effectively. She cautioned that climate for debt swaps were difficult to scale and that more generalized debt restructuring and forgiveness is needed from major public and private creditors. She also suggested that the IMF and SDR could also be part of the funding arrangements.

Black-Layne (Antigua and Barbuda) said the fund should get money from donors and recommended that all Annex 1 and Annex 2 Parties to the Convention should have the polluter’s pay principle enshrined in their national law. She also advocated taxing the carbon market, generating Environmental, Social and Governance (ESG) units, and airline levies as sources.    

Carlos Mendez (Venezuela) said the principles of the fund should be grant based and added that innovative sources should not have negative impacts on developing countries and any recommendations on innovative sources must be based on the principles of CBDR and fiscal sovereignty.

Chan (US) said the funding for the new funding arrangements including the fund would need to be from a wide range of sources, including Parties. Referring to sources, the US said that they did not think this to be based on the principle of CBDR but a broad base which included Parties, private sector and philanthropies. Innovative sources could include voluntary carbon markets, added Chan and that the US is “positively inclined to the discussions happening in the IMO on maritime pricing mechanism”.

Georg Børsting (Norway) advocated for the widest possible variety of sources such as public, private and alternative sources of funding and also said the TC should recommend that all Parties should contribute to the funding and alternative sources linked to greenhouse gas emissions and the polluter pays principle. He suggested that some parts of the share of proceeds from the Article 6 mechanism of the Paris Agreement (dealing with carbon markets) could go to loss and damage. Revenues from emissions trading scheme or taxation from emissions from shipping should also be considered in the recommendations by the TC, he added.

 

Donnellier (France) emphasized on the diversity of sources and levies, while respecting the fiscal sovereignty of states and in not adding burdens on the poor, targeting proceeds of globalization in fossil fuel consumption and private sources of funding.

David Higgins (Australia) said there is need to be open to the widest possible range of sources, while acknowledging the challenges associated with engaging the alternative sources and for the TC to be creative about sources.

Walsh (Ireland) said they cannot afford to curtail sources because of the “radical” shortage of finance for loss and damage and that they need to go beyond the “usual contributors”.

Ensuring coordination and complementarity with existing funding arrangements

Co-Chair Sherman (South Africa) opened the discussion suggesting to have language as a “principle” and whether there was agreement to the suggestion from TC members.

Black-Layne (Antigua and Barbuda) called for some “contractual obligation” to make a stronger connection and said that the language in the GCF is too weak and not appropriate for this fund.

Nasr (Egypt) said that the fund is the “centre-piece” and will play a major role not only in terms of scale but also speed (in disbursements). He made clear that the Global Shield or the IMO or the ICAO are not under the authority of the COP. (The Global Shield financing facility is an initiative under the World Bank Group to help developing countries access more financing for recovery from natural disasters and climate shocks.)

Higgins (Australia) endorsed a working principle that minimises duplication and maximises coherence and complementarity.

Chan (United States) supported the Santiago Network as a coordination mechanism but said that when this did not receive support from some developing countries, she questioned why then should it be operationalised.

Barbosa (Timor-Leste) clarified that the Santiago Network is only for technical assistance and called for an entity under the COP to facilitate coordination, adding that at the national level the loss and damage focal point would play the role.

In closing, the Co-Chairs produced and shared a summary of the “emerging views” of TC members which emerged out of the TC meeting, as an “internal document” for going forward towards the third TC meeting. However, some members from both developing and developed countries voiced concerns that the summary did not capture their views completely or correctly.

The Co-Chairs after hearing interventions said that the summary would be revised without calling it “emerging views” and that the list of views is non-exhaustive and will be taken as “building blocks” towards the third TC meeting.

The third TC meeting is scheduled from 29 August to 1 September 2023. De Camps (Dominican Republic) offered a proposal to host the meeting with the fourth TC meeting to be then hosted by Barbados. However, the venue of the upcoming third TC meeting was not confirmed and is expected to be notified by the Co-Chairs soon.

The dates and venue of the next mandated workshop on loss and damage were confirmed as 15-16 July 2023 to be held in Bangkok, Thailand. This will be the second of two mandated in 2023 to inform the recommendations of the TC on the funding arrangements including the fund. The first workshop was held on 29 – 30 April this year in Bonn. (For more details see https://twn.my/title2/climate/info.service/2023/cc230502.htm)