While delegates in Sharm El-Sheikh debate the specifics of loss and damage finance, it would be well to remember to balance ambition and justice with pragmatism.

Loss and damage has been an intrigue at the climate negotiations. It was not even on the agenda of the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC) until two months ago and is now the biggest item for COP27.

This is the subject of much analysis and discussion. I write this from Sharm El-Sheikh in Egypt, the site of COP27, where the delegates are debating several pending issues. For instance, it is hard to determine who and what is eligible for compensation, and what the limitations might be. Add to that the other issues: who pays, how much, in what way.

Let us take this moment to talk about how to channel this finance, which is an equally and yet-underemphasised piece.

Advocates of loss and damage finance are arguing that this finance should come from developed countries and in addition to the finance already provides for adaptation and mitigation. There is some argument that the finance can be channeled through existing climate funds, insurance schemes, humanitarian aid, or risk management. But this risks fragmentation of the finance. Instead, should this finance be channeled through a new fund or facility? This is where things get interesting.

Some countries, especially some of the developing countries, have argued that the funds cannot be channeled through the Green Climate Fund (GCF) and other UNFCCC funds like the Adaptation Fund. The reasoning for this appears to be based on several factors. The GCF and other funds have been quite slow, bureaucratic, not large enough. How would urgent finance work, when it can take years to get GCF projects approved?

Further, there seems to be a concern that the funds would get mixed up, and compete with already thin and essential finance for adaptation. This seems to be quite on point. There are many challenges with the GCF delivery, and it is definitely not built to deliver a rapid response to climate catastrophes.

But then, there are several points of pragmatic value. Let me count three.

First, it is far-fetched to assume that a new institution for loss and damage would be easily operationalised. The GCF took several years to agree upon, and then put into operation. Multilateral systems are slow at best and painfully slow at worst; climate change itself is far too urgent to depend on such speed. The invention of a new institution would take precious time.

Second, there is no guarantee a new institution would succeed. GCF was set up for speed and agility. It is still finding its footing and settling down in this role of delivery of climate finance. Any signs of weakness are then hotly contested and extremely challenging to resolve from a political perspective.

Third, and most importantly, we know from science that any new institution will start to resemble pre-existing institutions. There is no way to prevent this ‘institutional isomorphism’. When governing bodies start to design their multilateral institutions, they first turn to the lessons from current institutions. They would synthesise current knowledge, and then make modest or incremental changes in creating their new institutions.

The GCF has come to resemble the GEF in several dimensions, differing only in some respects. Other climate funds also totally resemble this model. In fact, they all resemble each other so closely that one of the strategic challenges facing all of them is to find their unique identity and ‘comparative advantage’ over other institutions. This is a simple issue of human nature but has to be accounted for in the negotiations. The best bet at this stage would be to fall behind one of the existing institutions as a host for the new loss and damage institution. For instance, the Global Environment Facility (GEF) is nested within the World Bank system. In turn, the GEF itself ‘hosts’ other trust funds like the Least Developed Country Fund and Special Climate Change Fund.

Likewise, an argument could be made that the new fund for loss and damage would be best housed within one of the existing institutions. The GCF is an uneasy but the best available choice (disclaimer: I am currently employed here). I concur that the business model and overall approach of the GCF might not quite match the needs of loss and damage finance, which would resemble humanitarian assistance rather than the project and program-based approach of the GCF. But the GCF has the legitimacy, scope, reach, and institutional infrastructure. At this stage, it seems like the best available option.

The task wouldn’t be easy. There would still be the need to negotiate how this fund would work. The new fund and its operations would have to work in parallel with the GCF’s current model, which is quite specific to the GCF’s own mandate.

While delegates in Sharm El-Sheikh debate the specifics of this loss and damage finance, it would be well to remember to balance ambition and justice with pragmatism. A pragmatic response would match the urgency, realism and practicality needed for loss and damage.

Disclaimer: This article was first published in DownToEarth on 13 November 2022. The views expressed in this article are the author's own and do not necessarily reflect the views of the Independent Evaluation Unit of the Green Climate Fund