In early November, after tense negotiations, the Transitional Committee on Loss and Damage (TC) adopted a package of proposals to operationalise a new Loss and Damage Fund (LDF), including an agreement that it will be hosted by the World Bank for four years on an interim basis.

The agreement of the TC’s proposals, which were formally approved at COP28 in Dubai, United Arab Emirates, on 30 November, followed stark divisions emerging between developed country and low- and middle-income country representatives during negotiations, as the option of creating a standalone fund was discarded in favour of a US-led proposal for a World Bank-hosted fund.

The LDF, whose establishment was agreed at COP27 in 2022 (see Observer Spring 2023), with the TC given a one-year mandate to clarify how it would be operationalised, is intended to help countries address growing loss and damage from climate change. As Barbados representative Avinash Persaud noted at the November TC meeting, this already amounts to nearly $200 billion per year in climate vulnerable countries.

The World Bank, as the interim host of the new Loss and Damage Fund, embodies a deeply flawed approach. Rooted in neoliberal policies, its governance structure has long favoured wealthy nations, often to the detriment of developing countries. The Loss and Damage Fund must be independent, equitable, and truly attuned to the needs of vulnerable communities.Harjeet Singh, CAN-International

However, the negotiations resulted only in language on voluntary rather than mandatory contributions based on developed countries’ historical responsibility for climate change. Initial pledges to the LDF and other loss and damage funding arrangements  amounted to $792 million, according to the COP28 Global Stocktake released on 13 December.

Civil society voices reject World Bank’s selection as Fund host

As the Bank emerged as the likely host of the LDF in November, developing countries put forward a wide-ranging list of demands required for them to agree to the proposal, including autonomy of the Fund’s board to select its executive director and to “establish and utilize its eligibility criteria, based on guidance from the [UNFCCC and the Paris Agreement], including in cases where it differs from the criteria of the World Bank.”

Civil society advocates also voiced strong concerns about the Bank being selected as the host. “The World Bank, as the interim host of the new Loss and Damage Fund, embodies a deeply flawed approach,” said Harjeet Singh of Climate Action Network International. “Rooted in neoliberal policies, its governance structure has long favoured wealthy nations, often to the detriment of developing countries. The Loss and Damage Fund must be independent, equitable, and truly attuned to the needs of vulnerable communities. It cannot be under the control of an institution with a history of inequitable and environmentally detrimental practices” (see Briefing, The World Bank and the environment: A legacy of negligence, reform, and dysfunction).

Although the LDF will be under its own governance structure – rather than under the control of the Bank’s board of directors where the US retains de facto veto power over key decisions – there are other reasons to be concerned about the hosting arrangement.

In an op-ed for online news outlet Climate Home on 3 November, David Archer of ActionAid International, who is a civil society representative at the Global Partnership for Education (GPE) – one of 26 financial intermediary funds currently hosted by the World Bank – commented on the increasing administrative fees charged by the Bank in recent years: “A few years ago, this went up to 17% [from 12% of the Secretariat’s costs] and then the bank tried to increase it to 24%. This provoked outrage from the GPE board who negotiated it down to 20.5%.”

The notion of the Bank being an ‘interim’ host of the LDF was also greeted with incredulity by civil society observers, after the long-running saga of the World Bank-hosted Climate Investment Funds (CIFs). When the CIFs were created in 2008, a ‘sunset clause’ was included, with the understanding that the CIFs would later close to make way for a UN-based climate fund. Despite the subsequent creation of the UN-based Green Climate Fund, the decision to invoke the sunset clause was delayed in 2016 and suspended indefinitely in 2019 (see Observer Summer 2019).