By Douglas Alencar (Federal University of Pará)
The 28th Conference of the Parties (COP28) report, held in the United Arab Emirates from November 30 to December 13, 2023, highlights several critical decisions, particularly those related to new funding mechanisms designed to address loss and damage associated with climate change impacts. These decisions are part of a broader effort to strengthen the financial support framework under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement.
During COP28, specific mechanisms were established to address the needs of countries that are especially vulnerable to climate-related challenges. The document outlining long-term finance strategies emphasized the creation of a fund dedicated to supporting developing countries in their efforts to cope with the adverse effects of climate change. The fund is designed to assist in responding to both economic and non-economic losses resulting from extreme weather events, such as floods, droughts, and rising sea levels. For instance, in Brazil, this fund could play a significant role in addressing the devastating floods in the state of Rio Grande do Sul, as well as the severe droughts and wildfires that frequently affect the Midwest region due to prolonged dry spells.
The core objective of this fund is to mobilize new and additional resources, while also attracting a variety of funding sources. This approach aims to complement existing mechanisms under the UNFCCC and the Paris Agreement, including the Green Climate Fund (GCF) and the Global Environment Facility (GEF). By doing so, the fund seeks to create a more comprehensive and integrated financial response to climate change impacts. Management of the fund will be entrusted to a Board responsible for overseeing project approval processes and ensuring that funded activities adhere to the strategic priorities set by the COP.
However, the creation and management of this fund presents some challenges. One potential issue is the traditional approach often adopted in the administration of such funds, which tends to be guided by risk assessments and financial market principles. The Board, composed of individuals with expertise in finance, may focus heavily on the creditworthiness and repayment capacity of the recipient countries. This could result in a situation where the allocation of funds favors countries with lower perceived financial risks, rather than those that are most vulnerable and in need of immediate support.
Furthermore, the governance structure of the fund involves an independent secretariat, tasked with handling daily operations. This secretariat will report to the Board, which includes representatives from various regional groups, ensuring a balanced and inclusive approach to decision-making. For the first four years, the World Bank has been invited to act as a financial intermediary, managing the assets of the fund and ensuring the security of resources. The World Bank’s involvement aims to provide stability during the initial phase of the fund’s operations while a more permanent structure is developed.
However, the role of the World Bank raises additional concerns. As a major player in the international financial system, the World Bank operates under strict lending standards that often include requirements for guarantees and collateral. These criteria can pose barriers for the most vulnerable countries, which may lack the financial capacity to meet such conditions. Thus, while the fund’s creation is a positive step towards addressing loss and damage, the involvement of the World Bank might limit the fund’s accessibility for those countries that need it the most, reducing the overall effectiveness of the initiative.
The fund’s design includes multiple access modalities to improve its reach. These include direct financial support to national governments, channels through regional and local entities, and the provision of small grants to communities. This diverse approach aims to facilitate a more rapid and flexible response to climate-related needs. The fund also aims to simplify its project approval criteria, making it easier for countries to access the resources.
However, even with simplified procedures, the reliance on traditional risk models—such as credit scoring—could still hinder the distribution of funds to the countries that face the most severe climate impacts. These risk assessments often do not fully account for the urgency and scale of climate emergencies faced by vulnerable regions. As a result, a significant portion of the resources may not reach the areas where they are most needed. This situation underscores the need for a more tailored approach to financial support that prioritizes the unique challenges faced by the most climate-vulnerable countries.
In summary, while COP28 marks a significant step forward in mobilizing financial resources to combat climate change, the operationalization of the new fund raises questions about equitable access. To ensure that the fund achieves its intended impact, it will be crucial to address the structural barriers that could limit support to the countries that are most affected by climate change.
