Pledges have been made towards the new Loss and Damage (L&D) Fund, but challenges remain as to how the most vulnerable groups can receive funds. To make sure the vulnerable communities and countries are compensated, we suggest adopting six principles and 16 guiding points for operationalizing the L&D Fund (See Fig 1).
Principle 1: The L&D Fund must prioritize equity in fund distribution to redress climate
injustice by ensuring resources are allocated based on the severity and urgency of impacts,
especially for the most vulnerable groups.
Principle 2: The L&D Fund’s decisions must be guided by the voices of the most vulnerable
groups, ensuring their meaningful participation in the governance process to address their
specific needs.
Principle 3: The L&D Fund must ensure that funding access procedures are simple and
accessible for vulnerable communities, drawing on emerging good practices to overcome data-
scarce environments and limited local institutional capacity.
Principle 4: The L&D Fund must be responsive to evolving needs, providing context-specific
and adaptive financing to effectively address the dynamic nature of climate-induced losses and
damages.
Principle 5: The L&D Fund must ensure traceable and transparent fund flow, with clear
allocations and robust reporting mechanisms to maintain accountability to the intended
recipients.
Principle 6: The L&D Fund must actively source additional finance from diverse and
innovative sources, ensuring that it supplements rather than replacing or overlapping with
existing climate finance commitments.
It has been six months since a breakthrough decision was made to operationalize the Loss and Damage (L&D) climate finance on the opening day of the 28th Conference of the Parties (COP28) of the United Nations Framework Convention on Climate Change (UNFCCC) in 2023. The decision was immediately followed by initial pledges of around USD700 million for the new Fund. This marked an important beginning towards supporting the world’s most vulnerable countries in addressing climate-induced losses and damages (Richards & Jowahir, 2023). However, challenges remain in the Fund’s operationalization. Advocates of climate justice seem to be worried about the slow progress in the operationalization of the Fund, as well as the potential loss of traction and momentum that emerged in COP28 (Schalatek & Richards, 2024).
Some estimates put the total costs of addressing climate-induced losses and damages at more than USD 671 billion by 2030 (Richards et al, 2023). However, it has been widely acknowledged that integrated assessment models cannot adequately capture the nature and scale of the risks from climate change, and thus the models likely underestimate the costs of losses and damages in developing countries and in specific regions. In addition, the intersecting hazards have cascading and compounding impacts upon areas already suffering the adverse impacts of climate change, including both slow onset and extreme weather events.
However, operationalization of the Fund is not straightforward and can prove extremly challenging. Some of the previous efforts with international climate finance have had severe limitations, failing to fulfil their intended outcome of supporting the most vulnerable communities (Omukuti et al, 2022; OXFAM, 2023). Indeed, Small Island Developing States (SIDS), widely acknowledged for their extreme climate vulnerability and special circumstances, have been found to receive significantly less finance than least developed countries (7 times less), lower-middle-income countries (11 times less), and less than upper- middle-income countries (5 times less) (UNDP, 2024).
So how could the L&D Fund be effective in locally delivering finance to the most vulnerable communities? In this policy perspective, we outline six guiding principles for operationalizing the L&D Fund from a climate justice lens (See Figure 1). These principles are derived through our policy-engaged and participatory research in STRENGTH Project countries, Bangladesh, Nepal, Senegal, and Vanuatu, listening to community voices, and stakeholder opinions as part of our research and capacity-building efforts. These principles also embrace UNFCCC’s founding concept of climate justice, including procedural justice, distributive justice, justice as recognition, and restorative justice (Robinson & Carlson, 2021).
Climate Justice Lens
The idea of L&D as it has emerged in the global policy discourse embraces the principles of justice, unlike the humanitarian response to disaster. With climate change increasingly becoming attributed as the cause for losses and damages, questions of justice emerge, particularly concerning who should be held responsible for the damage. The idea of polluters’ pay and litigation has heated up the policy debates, revolving around the principle of historical responsibility, leading to division and a lack of compromise between developed and developing countries. However, partially due to decades of inaction caused by fear of liability and compensation, there is now a shift towards approaches rooted in solidarity and restorative justice. Four conceptions of climate justice are crucial in shaping the operationalization of the Fund:
First, distributive justice in relation to climate change focuses on the equitable distribution of risks and resources needed for climate action, including financing, technology, and capacity- building opportunities, to address disparities and support climate-vulnerable countries and communities (Jafino et al., 2021; Joshi, 2023). Second, procedural justice emphasizes inclusive decision-making and meaningful engagement of all relevant stakeholders, particularly vulnerable communities and indigenous groups, ensuring their voices are integral to designing and implementing climate solutions (Schlosberg, 2013; Juhola et al., 2022). Third, justice as recognition underscores the importance of respecting the rights, identities, and traditional knowledge of marginalized and indigenous communities, promoting a holistic and culturally sensitive approach to building climate resilience (Schlosberg, 2004; Westra, 2016; Lopez, 2019). Finally, restorative justice focuses on repairing harm and addressing systemic inequalities exacerbated by climate change, advocating for the restoration of rights, livelihoods, and cultural heritage of impacted groups, guided by principles like the Common but Differentiated Responsibilities (CBDR) (Stojanovic, 2019; Agyeman et al., 2016; Peters, 2020).
Informed by these concepts and based on the empirical analysis of the local realities in four STRENGTH countries, the following six principles are crucial in operationalizing the L&D Fund.
Principle 1: Equity in Fund distribution
Why is this principle necessary?
Existing social inequalities make certain groups more susceptible to the impacts of climate change than others (Thomas et al., 2018). Across the Global South, women and girls often lack financial independence and property ownership, which makes them more vulnerable to climate-related events.
Women and girls constitute 80% of those displaced by such events (WGC, 2021). Take a local example from the lower Teesta basin of Bangladesh, where women experience disproportionately more impacts from floods due to prevailing gender roles and responsibilities that constrain their public interactions and access to climate-related knowledge and external support (Ferdous & Mallick, 2019).
In Vanuatu, women and girls rely significantly on climate vulnerable natural resources for their livelihoods, spiritual, customary, and social protection purposes (Addison et al., 2022). However traditional gender roles and division of labour marginalize women’s voices and agency in addressing loss and damage to these resources and ecosystems. For example, the climate loss and damage of coral, sea grass and mangrove ecosystems (and associated loss of family income) are having a disproportionately negative impact on ni-Vanuatu girls as school fees are commonly paid only for eldest sons where household finances are limited. School fees are often the biggest barrier identified that is stopping girls from accessing and completing secondary education.
How can this principle be translated into action?
The Fund must develop mechanisms through which the most vulnerable groups can easily and effectively access funds. These mechanisms should consider the differentiated impacts and diverse abilities of communities to cope with losses and damages. These delivery mechanisms must emphasise allocating resources to people and communities based on the extent and intensity of impact that they experience and the urgency of the need.
Principle 2: Governed by the voice of the vulnerable
Why is this principle necessary?
Engaging with local communities, particularly women and marginalised groups is essential to identify the specific needs and to formulate tailored funding mechanisms to address their unique losses and damages. The involvement of the World Bank, as a Western-formed, developed country dominated Bretton Woods Institutions, was a challenging compromise for developing countries who had proposed other alternatives during the year-long Transitional Committee (TC) discussions. Direct access is not a World Bank modality, as funds are traditionally disbursed through intermediaries such as MDBs and UN agencies, without being able to deliver funds directly to Government treasuries let alone directly to communities because of higher perceived risks.
There are concerns about the meaningful participation of affected communities, as they are often ignored, with discussions typically limited to state officials (Bouyé & Waskow, 2021). This kind of exclusion was evident in the Transitional Committee (TC) meetings, where non- party stakeholders such as civil society organizations (CSOs), Indigenous peoples, and local communities faced restrictions on their meaningful participation during the discussions, not even allowed in the room at critical junctures on topics that directly affected them.
Farmers in Bangladesh, particularly in coastal regions, face increasing salinity of water and more frequent cyclones, affecting their agricultural practices (Aryal et al., 2021). Despite being the most affected, often have limited participation in decision-making processes (Kundu et al., 2020).
Considering the risks of exclusion in the governance of the L&D Fund, the voices of the most vulnerable must be at the center of the Fund governing process. The Fund board should take targeted actions to enhance the participation of non-party stakeholders, mainly CSOs, indigenous peoples, women, and youth by inviting them and considering their voices, including through formal written submissions in the board discussions and technical sessions. An inclusive approach will foster trust and confidence in the Fund while ensuring fairness in decision-making and fund allocations.
How can this principle be translated into action?
Inviting and empowering local communities to guide the utilization of the Fund ensures a more bottom-up and context-specific approach. This approach recognizes the unique challenges and needs of each community, allowing for customized solutions that are informed by local knowledge and experiences. Adopting a decentralized approach aligns with the idea of subsidiarity, acknowledging that those closest to challenges are often best positioned to devise and implement meaningful solutions. The Pacific SIDS made a strong justification in the Transitional Committee process for localized decision-making that gives flexibility for local beneficiaries to define utilization in the most contextually appropriate and relevant ways.
Principle 3: Simplified funding access procedures
Why is this principle necessary?
Vulnerable countries usually have limited data, resources and local institutional capacity. Complex funding processes often delay the delivery of essential resources, marginalize those most in need, and increase administrative costs. By streamlining these procedures, funds can be disbursed more quickly and equitably, ensuring timely and efficient support for communities facing urgent climate-related challenges. A key aspect of simplification includes shortening disbursement timeframes. The L&D Fund must significantly reduce the time it takes to access finance, reduce transaction costs, simplify compliance and reporting requirements, and enable substantial flows to reach countries and communities through direct access.
In Senegal, smallholder farmers and pastoralists, struggle to access finance due to complex procedures and lack of awareness (Sy, 2022). Simplifying funding access procedures is necessary to enable these communities to obtain the financial support needed to mitigate and adapt to climate impacts effectively (Dione & Felix, 2023).
Communities in Nepal, especially those in remote and marginalised areas, struggle to access financial aid for post-disaster recovery due to complex procedures, lack of awareness and language barriers (DCA, 2021).
Procedural barriers usually ignore the true needs of the local communities. Too often the procedures of the Green Climate Fund (GCF) have been reported to be too complex and even prohibitive for vulnerable communities (Singh & Bose, 2021). This challenge is particularly pronounced for Small Island Developing Countries (SIDS), whose need for climate financing is most critical, but there have been reports of these countries having to wait for more than three or more years to obtain GCF accreditation approval (Wilkinson et al., 2023).
How can this principle be translated into action?
Emerging good practices around local delivery of climate finance can provide some useful basis. For example, Vanuatu’s Blockchain-powered Cash Transfer technology via ‘tap-and- pay’ cards where money is loaded allows communities to choose and buy disaster relief items from local vendors. Likewise, Bangladesh’s Climate Bridge Fund provides funding to local CSOs to carry out work on the ground. Such innovative ways can be adopted or refined to address the urgent needs of affected communities. A key aspect of simplification includes shortening disbursement timeframes. The L&D Fund must significantly reduce the time it takes to access finance, reduce transaction costs, simplify compliance and reporting requirements, and enable substantial flows to reach countries and communities through direct access.
Principle 4: Flexible, agile and adaptive fund flow
Why is this principle necessary?
Quantifying risks and estimating finance is not straightforward, due to the diverse and evolving nature of risk situations and understanding of loss and damage (Lakhami, 2023). Climate risk portfolio for localities is also changing radically as seen in the arid trans- Himalayan regions of Nepal (such as Mustang) having experienced unprecedented floods caused by heavy rainfall. In such cases, the L&D Fund should not only be based on the records of climate risks but also support likely future loss and damage to effectively address the dynamic climate losses and damages by providing financing where and when needed.
The understanding of loss and damage is also evolving rapidly in vulnerable countries. In 2020 in Vanuatu, a post-disaster needs assessment after category 5 Cyclone Pam included a quantification of the non-economic loss and damage to ecosystems.
Bangladesh faces a range of climate-induced challenges, including frequent natural hazards like tropical cyclones, floods, and riverbank erosion (Displacement Solutions, 2012). These hazards have varying impacts across different regions and communities.
Climate losses and damages include long-term and non-economic aspects such as cultural loss, displacement, and psychological impacts. A flexible fund can address a broader spectrum of needs beyond immediate relief. Agility is essential in navigating complex processes, such as accreditation and fund allocation, allowing for swift responses to emerging situations. It may even be possible for the Fund to allow for reallocation of expenditures amid an approved program implementation due to emergency or crisis emergence. A flexible and agile L&D Fund is better equipped to meet the specific needs of vulnerable communities.
In Vanuatu, climate-induced disasters devastate kava cultivation, causing intolerable damage to farms, which not only affects the subsistence farmers’ livelihoods and the country’s food security but also leads to unemployment (AF, 2023; RNZ News, 2023). Additionally, the absence of kava endangers the cultural traditions and heritage of the country.
How can this principle be translated into action?
Growing evidence suggests that small grants, rather than large-scale projects, are more effective in reaching disempowered and marginalized groups (Soanes et al, 2017; Price, 2021). These grants offer greater flexibility with fewer due diligence and operational requirements and are essential for enhancing the capacity of local actors to design, implement, and monitor projects. In addition, larger and programmatic financing vehicles are necessary, providing flexible and sustained funding over several years. Programmatic approaches, such as the World Bank’s Community-Driven Development (CDD) initiatives, provide a praised model for combining flexibility and large-scale impact.
Principle 5: Transparent and accountable in Fund utilization
Previous climate finance streams have been associated with controversies regarding data transparency and accountability (Weikmans et al, 2019). The issue is particularly critical as studies estimate that about 93% of climate funding is not sufficiently transparent to be tracked to its intended purpose (Lefstad & Paavola, 2023).
Despite receiving climate finance, Nepal struggles with transparency issues and inadequate fund allocation at the local level (Bishwokarma et al, 2022). This hinders accountability and undermines efforts to track the effective utilization of funds, particularly in supporting local- level adaptation and disaster risk reduction and response initiatives.
How can this principle be translated into action?
Learning from the past lessons on climate fund traceability in delivery, the L&D Fund should clearly define the allocations for the utilization of its funding. This includes administrative and intermediate allocation percentages at a minimum. It should also involve clear terms of fund allocation and eligibility of recipients.
Reporting mechanisms must also be acknowledged and strengthened when they already exist at the sub-national and local levels. Additionally, a platform should be provided for vulnerable groups to have a meaningful voice in the use of funds. Providing accurate, complete, and timely information about funding, and decision-making processes, will help effective delivery of funds.
Principle 6: Ensure additionality of funding
Why is this principle necessary?
With just 0.2% of the pledge committed so far, the L&D Fund must actively source the required finance from diverse sources, ensuring additionality in relation to other climate finance commitments. The drive to secure additional finance for the L&D Fund should be underpinned by a strong sense of solidarity with the climate-vulnerable community. The core funding should derive from public sector concessional finance, from those countries which have responsibility for polluting the planet and causing harm. The Fund should remain committed to the principle of Common but Differentiated Responsibilities (CBDR), which acknowledges that all states have a shared obligation to address environmental destruction but with differentiated responsibility.
In Senegal, the rural population is reliant on natural resources, with shifting rainfall patterns and prolonged droughts exacerbating food insecurity, especially for women who make up 80% of the agricultural workforce (Casado-Asensio et al, 2021; Nébié, 2021; Schäfer et al, 2021).
Despite national policies to build climate resilience, limited financial capacity hinders the integration of measures to address the escalating losses and damages.
Despite progress in climate adaptation initiatives like seed technology and disaster management projects, Bangladesh still lacks adequate funding for comprehensive loss and damage mechanisms (IRRI, 2020; Farbin & Huq, 2021).
How can this principle be translated into action?
Innovative ways of sourcing equitable public financing abound such as the French air ticket levy, which was launched in 2006 to combat diseases that cause over four million deaths annually. This levy raised approximately EUR1 billion till 2019, highlighting the capacity of such mechanisms to generate significant funds for L&D initiatives. Contributions should also be sought from philanthropic and corporate social responsibility (CSR) contributions (Müller, 2023; Vanderheiden, 2023).
L&D finance mechanism must be designed to enable the tracking and differentiation of funds specifically allocated for loss and damage. This should ensure the credibility of claims regarding ‘additionality’. National ownership systems, including the use of existing planning, budgeting, allocation and M&E are suggested as a means to ringfence and safeguard the intended use of L&D finance, to avoid potential overlap with other financial commitments.
Concluding remarks
Since Vanuatu first introduced the proposal in 1991 for an International Insurance Pool to compensate low-lying islands for the loss and damage associated with sea level rise in its role as founding chair of the Alliance of Small Island States (AOSIS), it has taken over 30 years of negotiations to establish the L&D Fund and the next four years are crucial to operationalizing the Fund, which will impact the implementation afterwards (Intergovernmental Negotiating Committee for a Framework Convention on Climate Change Working Group II, 1991).
Delivering financing to the most vulnerable is not an easy endeavor. However, there are ample lessons from practice and voices from the most vulnerable groups, to show how the Fund can deliver financing equitably and efficiently. The six principles and guiding points presented above provide a useful basis for operationalizing the Fund. These principles are also embedded in the concept of climate justice and can help in shaping, influencing, executing, and implementing the Fund to achieve climate justice in the context of escalating climate risks in vulnerable countries.
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