What if a New International Financial Institution Started from Scratch? The Case of the Loss and Damage Fund for Climate.

credit Kiara Worth, UNFCC website, "COP 27 Reaches Breakthough Agreement on new "Loss and damage" Fund for Vulnerable Countries"
credit Kiara Worth, UNFCC website, “COP 27 Reaches Breakthough Agreement on new “Loss and damage” Fund for Vulnerable Countries”

At the 27th session of the Conference of the Parties of the UNFCCC (or, as everybody says, the COP27), held in Egypt from 6 to 20 November 2022, delegates from 197 countries, civil society and other institutions met again to discuss the further implementation of the Paris Agreement and the United Nations Framework Convention on Climate Change.

The usual “too little, too late” refrain usually filling the comments was somehow disrupted by an apparently colossal step forward: the historical (?) decision to establish a new financial instrument: a Loss and Damage Fund. Its goal would be to share among the richer countries the burden on those most affected by climate change, unfortunately mainly classified among the developing or least developed countries.

Yet, reading the papers anyone can quickly realize that the historical decision is an empty one: it is easy to agree on the establishment of a new institution/fund/financial tool (still we don’t know what it will be) if you don’t have to agree to the how, when, where and who…. and especially to who pays and how much.

Yet, at least one decision was taken: who would be on the Transitional Committee in charge of all these decisions. Almost. In fact, this “who” is quite unspecified.

We just know they will represent 24 countries, comprising 10 members from developed countries and 14 from developing countries. Among the 14, we also know that 3 will be from Africa, 3 from Asia and Pacific, 3 from Latin America and the Caribbean, 2 from small island developing States, 2 members from the least developed countries; and to get to 14, 1 from some category non specified above (which?).

Why 24? Maybe because this is the size of the IMF and (until a few years ago) World Bank boards. Does it mean that the fund, more than a financial instrument will be an international financial institution? One that we could classify as an international organization? Maybe.

If so, great opportunities lay ahead. After so many years of discussions on how to revise IMF and WB to make them more equitable and closer to their “clients”, both geographically and culturally, we could just take the new Fund as an occasion to design an entirely different way to build an equitable world organization. In fact, what best opportunity than starting from scratch?

The process in itself is not exactly transparent

The same Decision -/CP.27 -/CMA.4 establishing the Committee (not the Fund) was quite hidden among the COP27 documents. Moreover, it would be interesting to know who are the 24 selected countries and who are their appointed representatives. As these 24 people are in charge of submitting a detailed proposal for the real creation of the Fund on the occasion of the next COP, their knowledge, experience and wisdom are quite relevant.

I would also love – and maybe many experts and activists would as well – to know how to get in touch with them to submit suggestions or, even better, contribute to the work in progress.

I had a very interesting conversation about this topic with Nico Heller, founder and CEO of the Democracy School. You can listen to it here:

And here are a few suggestions to add some democratic features to the new financial institution, if they dare!

  1. A Multistakeholder Assembly, as a second chamber flanking the (usually intergovernmental) Governing Council;
  2. A Ministerial Committee with the same composition as  the Transitional Committee to be renewed on a rotating basis, to provide political guidance;
  3. An independent Executive Board, appointed by the chambers after a proposal by the Ministerial Committee;
  4. Membership of regional integration organizations as an alternative to membership of States, with full rights;
  5. Transparency, transparency, transparency (e.g. motivated decisions, to be published online);
  6. An advisory role for civil society (e.g. online   consultations on drafts of policy and strategy documents;
  7. Structural links with other international organizations whose role is related or overlapping to avoid duplication of functions, fragmentation and dispersion of resources. We could start with…
    • UNFCCC
    • IPCC
    • WMO
    • UNEP

It does not happen every day that an interesting case study for institutional engineering is also a crucial tool to tackle a global issue.

And we didn’t talk about financing! There we have an even greater challenge as the new institution should be able to support itself and finance its grants somehow. Would be too much bold to imagine states’ contributions based on some kind of algorithm where both emissions and GDP are part of the equation? Could that not encourage indirectly reducing emissions? Just saying…

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