Developed countries push to move L&D Fund out of the UNFCCC

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As the crucial WB and IMF board meetings get underway, developed countries look to shake the loss and damage fund loose from the tethers of the UNFCCC (and it’s principles)

Europe’s latest proposal to the transitional committee for the Loss and Damage Fund tramples on several red lines drawn by developing countries for a fund meant to fight losses due to climate change. The European Union’s (EU) submission has several controversial suggestions that poorer countries have opposed over the past year.

Their recommendations disregard most of the inputs from poorer countries on how the fund should function.

The loss and damage fund was set up last year at the 27th Conference of Parties (COP27) held at Sharm El Sheikh in Egypt. All countries who are party to the United Nations Framework Convention on Climate Change (UNFCCC) agreed to set it up, following the devastating floods in Pakistan. The fund is expected to help developing countries respond to losses suffered due to extreme weather events caused by climate change.

Recently, the EU and other developed nations tried to limit the number of countries who would be eligible for the fund at a technical committee meeting held in Dominican Republic’s capital city Santo Domingo last month. While certain countries in the EU had mentioned, reportedly behind closed doors, that the fund would be only for Small Island Developing States (SIDs) and Least Developed Countries (LDCs), this is the first time they have formally acknowledged it. The latest submission by the EU goes further in the attempt to pave the way for restrictive conditions on the fund, its functions, how it will be used and for whom.

This move comes in the wake of the devastating floods in Libya, which killed more than 11,000 people. If the demands made by the EU are implemented, the fund will become inaccessible to several developing countries, including India, Pakistan and even Libya.

Apart from this, the EU’s submission also has propositions that have been heavily contested by poor countries in the past. Activists argue that developed countries “can’t change the rules in the middle of the game” by putting forth new propositions.

Taking the fund away from United Nations

The initial part of the EU’s submission mentions only governing bodies established under the Paris Agreement that would guide the fund’s policies and priorities. This was included despite a clarification from the loss and damage committee’s co-chair Richard Sherman last month that this would not be possible. Sherman stated that since the fund was established by governing bodies of both the UNFCCC as well as the Paris Agreement, the exclusion of any of the two bodies must be taken up only at the Conference of Parties or COP. This, he said, cannot be done at the Technical Committee (TC) meeting. This proposal by the EU would basically de-link the UNFCCC from the Loss and Damage fund.

“It is vital that the new Loss and Damage fund be situated within the financial governance of UNFCCC, rather than falling under the jurisdiction of the World Bank. Locating the fund elsewhere could give rise to a plethora of accessibility and eligibility issues for developing nations,” says Harjeet Singh, head of global political strategy at Climate Action Network (CAN) International.

Singh believes that the principles of equity and climate justice, which are fundamental to the United Nations climate framework, might not be respected or adhered to by institutions operating outside this structure. “We aspire to place affected communities at the core of the fund, ensuring substantial direct access support,” he says.

The EU has also asked for the fund to be hosted by the World Bank as a financial intermediary or middleman. This was also opposed earlier by developing country parties at the TC meeting last month as it would exclude countries who are not members of the World Bank.

This is not the first time such a suggestion has been put forward. In fact, it would seem as if developed countries were gradually closing ranks on this idea, in time for the WB/IMF board meetings scheduled this week, in which reforms to incorporate the risks and pressures of climate change are high on the agenda. The US, too, has made similar submissions in the past weeks, asking for the L&D Fund to be overseen by the World Bank rather than a facility created under the UNFCCC.

Developing countries had argued that this meant that the fund would be governed by the policies of the World Bank, rather than the UNFCCC where they are comparatively better represented.

This proposal, which ignores earlier criticisms, has therefore not gone down well with developing country parties who want the fund to function independently.

“A new Loss and Damage fund responsive to the needs of all developing countries with easier access and without being burdensome is necessary. So, taking the fund out of the UNFCCC is a bad idea that runs counter to the spirit of the decision taken at COP27 for such a fund,” says Meena Raman, Head of Climate Change Programme at Third World Network.

Singh added that mechanisms of the Convention like the Green Climate Fund gives a voice to the marginalised and impacted. Institutions outside the UN, however, may not provide equal opportunities and representation.

New fund, old issues

The EU’s proposal also brings back an old issue that developing countries have fought against for several years now. They propose that the pool of resources that make up the fund should also include loans. This goes against the developing countries’ demands that all resources must be new and additional. That way it will not add to the debt burden of poor countries.

Another suggestion that features in the submission is the Global Shield initiative. Launched at COP27 last year, it aims to provide “pre-arranged financing for loss and damage” to certain countries against climate risk. In simple terms, this is an insurance against climate-related damages. Experts have flagged several problems with setting up such an insurance mechanism. They claim that it may not be sufficient to address losses nor would it cover slow onset events like rising sea levels.

At the COP last year, there was uproar among developing countries and climate justice activists as the EU proposed that even the largest emitters must contribute to the fund, putting China and India on the spot. This, too, had found its place in the EU’s submissions. The submission mentions that contributors should include those “parties in a position to do so”, which means that even larger developing countries may be asked to contribute to the fund.

Finally, the EU along with other developed countries are also pushing for the loss and damage fund to be weaved into existing financial architecture rather than establishing a separate fund. This, again, was not the idea when the fund was established as most countries have agreed that the existing financial mechanism has failed the poorer countries and an overhaul is required.

“The EU proposal, like the US proposal before it, would create a fund that, while intended to support developing countries, would be controlled by rich countries and serve the interests of rich countries,” says Brandon Wu, Director of Policy and Campaigns at Action Aid.

Mrinali is the Climate Change Research Lead with Land Conflict Watch, an independent network of researchers studying land conflicts, climate change and natural resource governance in India.