"Millions of people depend on us, and we cannot fail them"
These were the words of Mr. Ibrahima Cheikh Diong, the first Executive Director of the Fund for Responding to Loss and Damage (FRLD) at an event hosted by ODI Global last week.
The conversation could not have been timelier as runaway global heating drives up the frequency and severity of extreme weather and slow onset events around the globe.
The vast human and economic cost is increasingly quantifiable due to advances in climate attribution science. ODI Global's recent analysis found that small island developing states alone have paid a $107 billion bill due to extreme weather events between 2000-2022.
A diplomatic breakthrough in the final days of COP27 in 2022 saw the world agree to form the Fund for Responding to Loss and Damage (FRLD). The existence of the fund signals a major shift in the global response to this problem, recognizing that those least responsible for the climate crisis should not be left to pay the price of changing climate alone. Yet the real challenge remains: will this fund truly deliver money swiftly and fairly to the most vulnerable?
The challenge of operationalizing the fund
Since COP27, the FRLD has taken several steps forward: a governing board is in place, a host country and secretariat have been chosen, and $741 million in pledges have been secured from 27 contributors (as of January 23, 2025). Despite this promising start, the looming question persists: when will the money start reaching those who need it most?
There are several challenges that stand in the way of operationalising the FRLD, but three of them stand out. First, the conversion of pledges into actual financing - an area where climate commitments have repeatedly fallen short in the past. Further, long-term sustainability remains a pressing concern. The fund needs to ensure that alternative options of 'funding the fund', for instance, through private-sector contributions, philanthropy and bonds and even global taxation measures are carefully considered.
Second, developing a uniform and transparent fund allocation approach that prioritises considerations of vulnerability to climate risks, and not just rely on income-based measures of allocation which remain unfair to smaller but more vulnerable countries like small island developing states (SIDS). Third, the dealing of excessive bureaucracy, which has historically slowed down climate aid to a crawl. Many stakeholders worry that the FRLD could suffer a similar fate.
Although, Mr. Diong appears committed to proving otherwise, insisting that "the stakes are high and the FRLD cannot afford to repeat past mistakes." He emphasised that, "2025 is the year of operationalisation of the fund" and the fund's board aims to start disbursing funds in 2025-2026 by implementing the lessons learned from any such previous experiences.
What should FRLD prioritise?
At ODI Global we think that the fund could prioritise five key areas for immediate interventions, given its limited resources in the early phase:
- The fund should aim to support comprehensive national strategies that position loss and damage finance within broader climate resilience efforts. This step is crucial to ensure that funds are not treated as mere short-term relief but instead embedded into existing disaster response funding systems and processes of the governments and provide long-term financing solutions.
- The fund could provide readiness support to countries struggling to navigate application processes. It's no secret that smaller nations often lack the administrative or technical capacity to tap into big funding pools.
- The fund could ensure faster responses to extreme weather events with streamlined disbursement processes. With limited funding, the fund could prioritise funding response activities in its initial phase, gradually moving towards covering recovery and reconstruction activities as it expands.
- FRLD could contemplate community-led small grant programs. Historically, large-scale climate financing has gone directly to governments, leaving grassroots groups underfunded. Local organizations, which often have the clearest view of community needs, frequently struggle to access any portion of climate aid. Therefore, to support them directly could be a game-changer.
- Insurance will have a role to play, but only if it's subsidised enough to be accessible to the poor and most vulnerable countries and doesn't weaken the focus on direct, concessional and unconditional grants and financing they would otherwise receive. Whether the FRLD would incorporate insurance mechanisms into its funding priorities, is still unclear.
Mr. Diong emphasised that the fund's board is committed to address these and other priority areas as it envisions a framework that can deploy resources rapidly when communities need immediate relief, avoiding creation of any red tape which could stifle their effectiveness. Mr. Diong added:
"Despite the progress we have made on governance, what's important for countries is not about governance - it's about the relevance of the fund to the loss and damage demands and issues they face."
Will the FRLD deliver on its promise?
The next 12 months will define whether the FRLD becomes the transformative mechanism its advocates envisioned - or just another empty promise. Several milestones loom on the horizon. In March 2025, the board will convene in Barbados to finalize the fund's distribution mechanisms. April will bring a high-level climate finance dialogue in Washington, D.C., where international donors could solidify their commitments. By November's COP30, all eyes will be on the FRLD to prove its credibility, especially if it hopes to attract new funding.
The steps taken so far suggest progress. Yet history reminds us that climate finance is littered with incomplete pledges, complicated allocation methods and bureaucratic barriers. If the FRLD genuinely learns from past experiences by prioritising direct, timely support, community engagement, and rigorous accountability, then it could stand apart. As Mr. Diong put it while concluding the event:
"This fund is not just about money. It's about people's lives. We must ensure it works-not in five years, but now."
Whether the fund will succeed is a question only the actions of the board in the coming months can answer, and millions of vulnerable people are counting on a yes.