Safeguards and exit points for the World Bank as host of the Loss and Damage Fund

A last-minute deal on the Loss and Damage Fund was finally struck at the fifth and final meeting of the Transitional Committee this month. The draft agreement – adopted at COP28 – establishes the World Bank as interim host. While a controversial choice, developing countries agreed to this on certain conditions.

We unpack the safeguards put in place and look at the three points at which the Fund could exit the World Bank.

Compromise: interim role for World Bank

There was a sigh of relief when the Transitional Committee finally reached an agreement after hurriedly scheduling an extra final meeting, yet the number of concessions settled on in the final moments to push through the ‘take it or leave it’ text curbed the enthusiasm in the room. The ‘agreed recommendations’ were also met with considerable push back from civil society observers.

Following the COP27 decision, developing country Committee members and the wider G77 have been united on the need to design a new, fit-for-purpose, standalone fund operated under the UNFCCC. Developing countries shared concerns around the working culture of the World Bank, its primary role as a lending institution, its donor driven and shareholder-based interests, and its rigid, inflexible policies.

To many developing countries, the World Bank’s profile flew in the face of key concepts and requirements for the Fund. For example, ensuring the fund can provide direct access to finance for vulnerable countries; the need for flexibility and responsiveness to different national circumstances; and the need for the Fund to receive financing from a wide range of traditional and non-traditional sources.

The World Bank’s ongoing struggles with reform and its perception as a soft power tool controlled by the interests of particular large donors exacerbated the narrative surrounding the Fund’s negotiations.

After facing an impasse at the fourth Committee meeting, developing countries demonstrated flexibility early on in the fifth meeting, coming forward with a compromise and willingness to entertain a potential interim hosting arrangement with the World Bank.

These concessions weren’t made lightly; developing countries worked to introduce a set of conditions and review periods to safeguard their concerns. If the recommendations and draft decision text are agreed at COP28, these safeguards will fundamentally define the final form of the Loss and Damage Fund.

Safeguards put forward by developing countries

Developing countries agreed a set of central conditions that the World Bank needs to adhere to over the initial interim period. Current World Bank policies would restrict the operations of the Fund and potentially override some of the key objectives of the COP27 decision that established the Fund. The conditions therefore seek to safeguard developing country interests and protect their role in the governance of the Fund.

The conditions imply that the rules and basic parameters outlined in the text would remain the basis on which the Fund operates. Otherwise, the World Bank might have designed the Fund according to its own approach. The conditions also state that the Fund’s Board, not the World Bank, selects the Executive Director. The Board can also set policies in relation to eligibility and access to the Fund, rather than relying on existing World Bank policies.

Importantly, the conditions specifically state that governments and non-traditional implementing entities (those beyond multilateral/regional development banks and UN agencies) can directly access the Fund. The overall gist of the conditions amounts to a package that ensures all countries oversee the design and operations of the Fund.

Three ways the Fund could exit the World Bank

If the World Bank meets all the conditions outlined in the Committee’s draft decision, it will become the permanent home for this historic new Fund, beyond the interim four-year period. The Fund under the World Bank would still be accountable to Parties to the Paris Agreement.

Meeting these conditions takes more than the World Bank saying they accept them. If it turns out that these conditions can’t or won’t be met during the interim period, countries have options to transition the fund to a standalone, independent entity within a host country, similar to the Green Climate Fund.