The Fund for Responding to Loss and Damage: Governance challenges,tensions and opportunities

Abstract

The Fund for Responding to Loss and Damage (‘FRLD’) marks a milestone as the first global mechanism for addressing climate impacts beyond mitigation and adaptation. This article analyses its evolving governance, political paradoxes and regional significance. While World Bank administration ensures early functionality, it also raises concerns over autonomy and access. The FRLD reflects demands for justice from vulnerable States but avoids liability or compensation language. To be located in the Philippines and shaped by Pacific leadership, it opens space to advance recognition of non-economic losses, pilot direct access and strengthen regional agency. The article argues that the FRLD’s legitimacy and future trajectory will hinge on governance choices that reconcile financial integrity with responsiveness to affected communities. The direction it takes in its formative years will determine whether it becomes another technocratic instrument of limited reach or a mechanism capable of advancing justice-oriented climate finance.

The Fund for Responding to Loss and Damage (the ‘FRLD’) is one of the most significant innovations in global climate governance. It is also one of the most contested as it sits at the intersection of two powerful yet conflicting narratives – the Global South’s long-standing demand for compensation from historic polluters, and the Global North’s positioning of climate finance as aid not liability. The latter aligns with the apolitical framing of the funding arrangements of the FRLD, which focused on the need for ‘new, additional, predictable and adequate financial resources’ ¹ and which does ‘not involve liability or compensation’. ² This tension is also visible in the approach of countries such as Australia, which has cautiously supported the FRLD’s creation while emphasising solidarity and practical assistance rather than reparative responsibility.

For decades, climate vulnerable States, led by Small Island Developing States (SIDS) and the broader Global South, have pressed for recognition that climate change causes harms that cannot be prevented by mitigation or adaptation alone. In 2022, at COP27 ³ in Sharm el-Sheikh, those calls crystallised into the decision to create a dedicated fund for loss and damage. ⁴ A year later, at COP28 in Dubai, governments agreed on the FRLD’s Governing Instrument and decided that the World Bank would host the FRLD pending its capacity to meet 11 conditions. ⁵ Australia joined other developed countries in endorsing the FRLD’s operationalisation, contributing initial finance through multilateral pledges and committing to support Pacific partners in accessing the fund’s resources. ⁶ In a field often marked by incremental progress, the FRLD is widely seen as a milestone: the first institution specifically mandated to provide financial support for communities suffering from the unavoidable impacts of climate change. ⁷ The Philippines was then selected as the host country for the FRLD’s Board. ⁸ The decision to locate the Board in the Philippines has been described as deeply symbolic, placing a key mechanism for climate justice within one of the world’s most climate-vulnerable regions. ⁹

As the FRLD begins to take shape, three threads merit close attention. The first relates to the institutional challenges of its governance. Like other climate finance bodies, the FRLD must operate within a framework of fiduciary standards, environmental and social safeguards, and results-based management. Yet the FRLD is expected to deliver differently by providing resources to countries and communities facing not hypothetical risks but ongoing, sometimes irreversible harm. This creates pressures to design procedures that are both robust and flexible, ensuring accountability without replicating the burdensome structures that have often delayed disbursements in other funds. This reflects wider debates on the technocratic character of climate institutions, where fiduciary safeguards can both enable and constrain justice claims.

Second are the political tensions that surround the FRLD. It arose from decades of demands for climate justice, often included demands for reparations. The Alliance of Small Island States (AOSIS) led the proposal for the creation of a dedicated fund for loss and damage over 30 years ago. ¹⁰ This has been sustained by developing countries through the Group of 77 (G77), which has actively lobbied the proposal at COP meetings. ¹¹ However, the FRLD’s foundational framework makes explicit that it does not involve liability or compensation. ¹² This paradox sits at the heart of its politics: can the FRLD meet expectations of justice while functioning as a pragmatic financial mechanism?

Third are the regional opportunities the FRLD creates. Its Board’s location in the Philippines’ capital of Manila anchors an important climate finance institution in Asia, one of the most climate-vulnerable regions in the world. SIDS and other developing countries in the Pacific, whose early advocacy placed loss and damage on the international agenda, continue to provide moral leadership on the issue. There is potential for regional actors to shape the FRLD’s evolution. If designed and implemented well, the FRLD could demonstrate that climate governance institutions rooted in the Global South can combine financial integrity with justice-oriented responsiveness. Such developments speak to work on the institutional agency of the Global South, which emphasises how developing countries shape international law regimes.

This article examines the FRLD through these three lenses: governance challenges, political tensions and regional opportunities. It argues that the FRLD’s legitimacy and trajectory will depend on governance choices that reconcile financial rigour with responsiveness to affected communities. Framed within ongoing debates on climate reparations, the FRLD offers a window into how States such as Australia navigate the moral, political and financial dimensions of responsibility for climate harms beyond their borders.

Governance challenges

The governance architecture of the FRLD reflects the need to balance credibility in the eyes of contributors with legitimacy among those it is designed to serve. Its Governing Instrument sets out a familiar set of institutional features: a Board with representation from developed and developing countries; ¹³ interim hosting by the World Bank for four years; ¹⁴ procedures requiring fiduciary integrity, ¹⁵ environmental and social safeguards; ¹⁶ and adherence to a results measurement framework. ¹⁷ These elements mirror arrangements in other parts of the climate finance landscape ¹⁸ but their application to loss and damage raises distinctive challenges.

A significant challenge lies in the interim hosting by the World Bank. While the decision to use an established institution ensures administrative capacity from the outset, it also raises concerns about autonomy and alignment. ¹⁹ Developing countries in particular were cautious that the FRLD not become subsumed under the Bank’s governance structures. Civil society representatives have expressed concern that interim hosting by the World Bank risks path dependency, reproducing inefficiencies, conditionalities, and power imbalances familiar from other finance instruments. ²⁰ These concerns echo wider critiques of the technocratic character of international organisations, where formal rules and fiduciary safeguards can both enable credibility and constrain justice claims. International relations scholars Barnett and Finnemore observe that international organisations draw their authority from bureaucratic forms that enable them to validate certain claims while obscuring or excluding others. ²¹ Global sustainability governance scholars Biermann and Gupta maintain that institutions that engage in global environmental governance are not immune to politics, and should endeavour to guarantee representation in procedural and organisational arrangements. ²² The field of earth system governance offers a critique of the dominant paradigm of global environmental governance by advancing an understanding of the earth as part of an interdependent and integrated social-ecological system marked by the participation of public and private actors including institutions, governments, and activists. ²³ Drawing on this framework, a recognised issue is inclusion and the need to ensure that developing countries that lack influence in world politics are given the opportunity to participate meaningfully in multilateral governance architectures. ²⁴ Political scientist Eva Lövbrand and her colleagues argue that the very institutions that are brought in to address the crisis of the Anthropocene have helped entrench the domination of nature in the first place. ²⁵

Against a backdrop of critiques on the FRLD’s governance structure, the COP28 decision placed requirements on the hosting arrangement and its hosting by the World Bank was made conditional on meeting 11 requirements set out in Decision 1/CP.28. These include assurances that the Board will retain full decision-making authority, ²⁶ that the Bank will apply fiduciary standards and safeguards in ways functionally equivalent to those agreed by the FRLD, ²⁷ and that costs remain reasonable. ²⁸ Significantly, there should be direct access for developing countries including through subnational, national and regional entities and through small grant funding for communities. ²⁹ For the FRLD, the test will be whether the hosting arrangement provides reliability without constraining the Board’s authority or reproducing the bureaucratic obstacles that have hindered other multilateral finance flows.

A significant contribution to ongoing concerns on feasibility comes from moral and political philosopher Laura García-Portela. She argues for an adequacy-for-purpose approach in which probabilistic and storyline attribution methods are sufficient to ground reparative obligations for loss and damage. ³⁰ This reframing is important for the FRLD, which must operate under political and institutional constraints while responding to justice claims rooted in historical responsibility. On this view, attribution studies can inform the FRLD’s assessments of eligibility and prioritisation by linking specific climate impacts (such as extreme weather events or slow-onset processes) to anthropogenic climate change without requiring legal standards of proof. ³¹ Attribution science, as such, becomes a bridge between moral responsibility and institutional action.

Moreover, access remains a central governance issue. In practice, developing countries already face obstacles. Many lack the capacity to prepare complex submissions and documentation requirements have become burdens that have hampered access to other climate funds. ³²

The FRLD is expected to offer direct access, including to sub-national actors and through a small-grants facility. ³³ This is ambitious and potentially transformative, since it creates openings for local governments, Indigenous peoples and community-based organisations to apply directly for funding. ³⁴ Yet it also raises difficult governance questions: how to design accreditation and due diligence processes that are rigorous enough to assure contributors, but streamlined enough not to exclude the very actors most in need of support. Experience from the Adaptation Fund and the Green Climate Fund suggests that without careful design, direct access risks becoming an aspiration rather than a reality. ³⁵

Finally, the composition and operation of the Board will shape the FRLD’s legitimacy. The representation in the Board aims to be equitable with 12 members from developed countries and 14 from developing countries. ³⁶ This structure offers balance but also creates the risk of political gridlock. It may also affect the amount of funding that the FRLD will receive. As scholars on international organisations Graham and Sedaru show, voting mechanisms and the ability to earmark funds influence the willingness of donor States to make financial contributions. ³⁷ This in part explains why bodies with egalitarian voting receive less funding than bilateral agencies and multilateral development banks. ³⁸ This partiality is a challenge that will need to be met and overcome. Furthermore, governance in the FRLD should not only maintain active participation of developing countries, but should be expanded to include non-state bodies. ³⁹ Ensuring the meaningful participation of observers, including civil society and affected communities, will be crucial to maintaining legitimacy.

Political tensions

If the governance architecture of the FRLD reflects institutional pragmatism, its politics are far more contested. The FRLD was born out of sustained advocacy by developing countries which insisted that climate change creates harms requiring recognition and redress. ⁴⁰ For many, the establishment of the FRLD at COP27 was seen as the closest the climate regime had come to acknowledging reparations for historical responsibility. ⁴¹ Yet from the outset, industrialised States drew a firm boundary: the COP28 decision operationalising the FRLD expressly states that funding arrangements ‘do not involve liability or compensation’. ⁴² This explicit disavowal of reparations reflects the political compromise that enabled consensus, but it also sets up enduring tensions in how the FRLD is perceived and used.

This compromise is further reinforced by the FRLD’s financing language. Beyond excluding liability and compensation, the COP28 decision does not recognise any obligation on developed countries to provide finance for loss and damage or to the FRLD. Instead, it merely invites ‘developed country Parties continuing to take the lead to provide financial resources for commencing the operationalization of the Fund’. ⁴³ The use of invitational and qualified language underscores the limited scope of responsibility reflected in the FRLD’s design, positioning contributions as discretionary rather than obligatory and reinforcing the political sensitivity surrounding historical responsibility.

Recent philosophical work attends to this tension by demonstrating how historical responsibility for loss and damage can be acknowledged without collapsing into the liability frameworks that industrialised States have resisted. García-Portela’s ‘continuity account’ grounds reparations in persistence of emission-generating activities that foreseeably infringe human rights, rather than in backward-looking fault or legal culpability. ⁴⁴ This offers a normative foundation for loss and damage finance that aligns with the FRLD’s political design, which aims to encourage responsibility without juridical liability and reparative action without formal compensation claims.

At the heart of these tensions lies the question of justice in climate finance. ⁴⁵ Vulnerable countries argue that loss and damage is not charity, but a matter of fairness: those least responsible for greenhouse gas emissions are suffering the most severe impacts. ⁴⁶ This argument reflects what Roberts and Parks, leading scholars of climate inequality and North-South politics, term a ‘climate of injustice’, where responsibility for emissions and vulnerability to impacts are starkly misaligned. ⁴⁷ Scholars of environmental law and climate politics have extended this critique further, observing how climate finance has been recast as a profit-driven business opportunity, ⁴⁸ and how Northern nation-States have worked to downplay the applicability of historic responsibility through the language of the ‘green economy’. ⁴⁹

These concerns resonate with a broader literature on reparations, which situate contemporary climate finance within longer struggles over responsibility for colonial and economic harm. In this view, the politics of loss and damage are part of a larger contest over how the international order conceives the idea of repair. Fitz-Henry and Klein, scholars in the field of environmental justice, question whether just transitions are genuinely reparative, that is, whether they address the enduring legacies of racial capitalism and dispossession. ⁵⁰ In her historical account, international law scholar Eliana Cusato argues that international law’s treatment of reparations is underpinned by a particular temporary imaginary that constructs time as linear, measurable and forward moving. ⁵¹ This temporal framework, embedded in doctrines such as causation and restitution produces a legal order that privileges closure and progress while rendering colonial and ecological injustices as ‘too remote’ to address. ⁵² Meanwhile, researchers in the field of climate justice Schmelzer and Nowshin advance the idea of ‘ecological reparations’, which seeks to align reparative justice with the principles of ‘degrowth’. They argue that efforts to repair colonial and ecological harm cannot be achieved through redistribution alone but must involve transforming the economic structures of the Global North through the deliberate contraction of extractive and consumption-based economies. ⁵³

The FRLD disavowal of liability sits uneasily within this broader debate on climate justice and reparations, raising questions about whether it can meaningfully address the inequities that climate finance scholarship has long highlighted. From this perspective, finance for loss and damage should be understood as an obligation, not a discretionary contribution. Donor countries, however, are wary of any arrangement that could be interpreted as a legal admission of liability. ⁵⁴ The compromise that led to the disavowal of liability might have ensured the FRLD’s creation, but it also constrains its justice narrative.

Australia’s stance reflects this careful balance. While acknowledging the moral imperative of responding to loss and damage, its policy discourse avoids the language of reparations, compensation or climate justice. ⁵⁵ This mirrors a broader trend among developed States to reframe climate responsibility as partnership rather than liability. While this approach may succeed in securing support and financial contributions from industrialised countries, it risks diluting the FRLD’s justice ambitions.

A further tension arises in the definition of eligible losses, damages and recipients. In principle, all developing countries are eligible, but prioritisation is expected to focus on those deemed ‘particularly vulnerable’. ⁵⁶ The Governing Instrument begins to structure this prioritisation by committing to a minimum percentage allocation floor for Least Developed Countries (LDCs) and SIDS, while leaving broader criteria for vulnerability undefined. ⁵⁷ This partial specification creates uncertainty and generates political tensions. At the inter-State level, disagreements emerged over the FRLD’s eligibility and prioritisation. Developed countries emphasised ensuring broader contributions and shaping access terms, while many developing country Parties pushed for the FRLD to be broadly accessible to all developing countries rather than narrowly prioritising only SIDS and LDCs. ⁵⁸ At the same time, the absence of agreed criteria for such vulnerability creates uncertainty. Economic losses such as damage to infrastructure, agriculture or tourism revenue are relatively straightforward to value and compensate. Non-economic losses, by contrast, encompass harms to culture, identity, health, biodiversity and territory. ⁵⁹ For climate-vulnerable communities, these non-economic losses are often the most long-lasting: the erosion of ancestral lands, the dislocation of communities or the disappearance of cultural heritage. Yet they are also the most difficult to translate into the results frameworks and fiduciary standards that govern fund disbursements. The FRLD’s challenge will be to avoid privileging what is easily measurable over what is most meaningful to communities and affected groups.

Furthermore, the FRLD faces political pressures over scale, adequacy and financing models. Initial pledges, while symbolically important, remain far below the scale of projected needs. ⁶⁰ This scarcity heightens competition over what qualifies as ‘fundable’ loss and damage interventions. Contributors are likely to prioritise projects that demonstrate measurable results. ⁶¹ Moreover, the discourse around private finance and insurance models has grown more prominent, raising concerns that public finance obligations are being diluted. ⁶² In many countries much of what is counted as climate finance has taken the form of loans, reinforcing debt burdens rather than alleviating vulnerability. ⁶³ These practices risk undermining the very rationale of the FRLD, turning what should be a mechanism of solidarity into a new layer of financial dependency.

The political tensions surrounding the FRLD reflect the dual nature of the fund. It is a mechanism built on financial safeguards as well as a political symbol born of decades of justice claims. Its effectiveness will depend on whether it can inhabit both roles at once. Too much emphasis on technocratic design risks hollowing out its justice promise, reducing the FRLD to another climate finance instrument. Too much reliance on justice rhetoric without institutional solidity risks alienating contributors and undermining sustainability.

Regional opportunities

For Asia and the Pacific, these tensions are especially acute. They are among the most climate-vulnerable regions in the world, facing intensifying typhoons, floods, sea-level rise and slow-onset events such as salinisation and coastal erosion. For Southeast Asia as a whole, the stakes are high. Countries such as Vietnam, Indonesia and Myanmar face recurring floods and storms, while Cambodia and Laos are increasingly vulnerable to drought. ⁶⁴ Typhoon Haiyan in 2013 illustrated the scale of devastation that the Philippines itself confronts. ⁶⁵ The region’s climate vulnerabilities make it a natural focal point for fund support, but its States have also been among the most vocal in pressing the justice agenda. SIDS have framed loss and damage as a matter of survival, not just finance. Global South actors are agents in the shaping the content and direction of international law, ⁶⁶ as illustrated by Vanuatu’s leadership in securing a request for an Advisory Opinion from the International Court of Justice on States’ obligations in relation to climate change. ⁶⁷ Far from passive recipients, SIDS have positioned themselves as institutional entrepreneurs, leveraging vulnerability into a form of political authority that now anchors the FRLD in the Global South. They have strategies to secure their agenda and interests in spite of the near absence of structural power. ⁶⁸

The Philippines’ selection as host is both symbolic and practical. It places a central climate finance body in the Global South, close to communities who regularly endure climate-related devastation, while drawing on the country’s experience in disaster response, its active civil society and its consistent engagement in climate negotiations. ⁶⁹ Hosting in Manila provides visibility for Southeast Asia and signals a commitment to regional voices shaping the FRLD’s direction. Within the region, national and sub-national actors, including civil society organisations, could use modalities such as direct access and small grants to pilot approaches that respond not only to immediate recovery but also to slow-onset events and livelihood disruptions. The region also has institutions that could be leveraged. ASEAN, the Association of Southeast Asian Nations, has begun to address climate resilience through its working groups, ⁷⁰ while national climate commissions and development banks have experience in channelling finance locally. ⁷¹ If the FRLD’s governance actively engages with these structures, it could model multi-level climate finance that combines global support with regional implementation.

SIDS represent the origins of the loss and damage agenda and the moral leadership that undergirds its creation. Since the early 1990s, AOSIS has framed loss and damage as an existential threat, and the establishment of the FRLD owes much to its persistence. ⁷² For SIDS, the FRLD is the institutional realisation of decades of advocacy. Their opportunity now lies in shaping the FRLD’s substantive agenda. For SIDS, non-economic losses are as significant as economic ones. By pressing for recognition of such losses, they can help ensure that the FRLD’s justice mandate is not hollowed out by narrow metrics. This history and moral authority gives them leverage to influence priorities even within a system that avoids explicit liability.

These regional opportunities point to the potential for collaboration across Asia and the Pacific. While vulnerabilities differ, both regions face extreme weather events and long-term risks. Collaboration could take the form of joint proposals to the FRLD, knowledge-sharing through regional institutions, or coalitions within the Board to advance issues such as simplified access. Partnerships between ASEAN and Pacific regional bodies could amplify developing country voices in the FRLD’s governance. The FRLD’s emerging approach to direct access could, if developed further, create opportunities to strengthen responses at the sub-national level. The Governing Instrument leaves small grants as a possibility rather than a commitment, and their inclusion remains politically contested. Nevertheless, if pursued, such modalities could empower sub-national actors such as local governments and civil society organisations, which are often first responders to disasters. In archipelagic contexts where national governments struggle to reach remote communities, these modalities could address a persistent flaw of international climate finance – its distance from those most affected.

The first years of the FRLD will be decisive as its formative choices will shape not only internal procedures but also its identity in the broader landscape of climate finance. Countries in Asia and the Pacific have a particular role in shaping these choices. The Philippines’ hosting, combined with the Pacific’s decades of advocacy, creates a unique regional stake in the FRLD’s success. By advancing inclusive access, pressing for recognition of non-economic losses, and piloting innovative disbursement models, these regions can demonstrate that the FRLD can deliver in ways that are both accountable and justice-oriented.

Ultimately, the FRLD’s future will depend on the quality of its leadership. Those entrusted with the FRLD’s governance and management will need to reconcile competing imperatives: efficiency and inclusivity, prudence and urgency, financial discipline and justice. They must build trust with contributors while remaining responsive to recipients, and design procedures that are both credible and accessible. This is a demanding agenda, but it is precisely what will determine whether the FRLD becomes a technocratic mechanism of limited scope or a vehicle for meaningful climate justice.

Conclusion

The FRLD is a milestone in the evolution of global climate governance. Its creation reflects decades of persistent advocacy by vulnerable States and civil society, and its operationalisation signals that the international community has, at last, accepted the need for a dedicated mechanism to respond to the unavoidable harms of climate change. Taken together, these dynamics situate the FRLD within three broader scholarly debates – the justice dilemmas in climate finance, the technocratic constraints of international organisations and the institutional agency of the Global South. The FRLD’s trajectory will demonstrate whether these debates converge on a story of constrained managerialism or a more justice-oriented rebalancing of global climate finance.

For Australia, participation in the FRLD marks a policy as well as a political turning point. Its contributions, although modest in scale, signal recognition of loss and damage as a legitimate pillar of climate action. At the same time, such contributions are given in a framework marked by a continuing hesitancy to engage with reparative framings. Australia’s evolving role will therefore serve as an indicator of how developed States reconcile domestic political constraints with global justice expectations.

Governance choices will shape whether the FRLD is seen as credible and legitimate. A balance must be struck between rigorous fiduciary and safeguard standards, which reassure contributors, and inclusive modalities that allow communities and local actors to access support directly. Political tensions will remain inescapable: the FRLD was born of justice claims often framed in reparations language, even as its founding texts disavowed liability and compensation. Its legitimacy will depend on whether it can channel finance in ways that speak to these justice demands without collapsing under political controversy. Regionally, Asia and the Pacific have a particular stake in the FRLD’s success. The Philippines’ hosting of the Board situates the institution in one of the most climate-vulnerable regions, while the SIDS’ long-standing leadership ensures that the justice dimensions of loss and damage remain visible. These regional dynamics create opportunities to anchor the FRLD’s work in lived experience, piloting models that can inform global practice.

The FRLD is thus at a crossroads as it establishes itself. It can become a technocratic mechanism, burdened by procedures and limited resources, or it can evolve into a vehicle that genuinely responds to the realities of loss and damage and affirms the justice claims that brought it into being.