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Green Climate Fund, 5th Board Meeting: Background Briefing

by Climate Finance and Markets on .

Ministry of the Economy, Finances and Industry, Bercy

The French finance ministry, where the GCF 5th Board meeting will take place. Photo: Philippe Berdalle/Flickr

The Green Climate Fund (GCF) aims “to make a significant and ambitious contribution to the global efforts towards attaining the goals set by the international community to combat climate change.”[1] It was formally established by the United Nations Framework Convention on Climate Change (UNFCCC) in December 2011, although the groundwork was laid in the Copenhagen Accord of 2009.

It is widely claimed that the objective of the GCF is to raise $100 billion per year in climate financing by 2020. This is not an official figure, however, and disputes remain as to whether the funding target will be based on public sources, or whether “leveraged” private finance will be counted towards the total. Only a fraction of this sum has been pledged so far, mostly to cover start-up costs.

The GCF is overseen by a 24-person Board, composed of equal number of members from developing and developed countries, and will be headquartered in Songdo (Incheon), South Korea.

Paris Board meeting, 7-10 October

The fifth meeting of the GCF Board will take place from 7 to 10 October in Paris, hosted by the French Ministry of Finance, Economy and Industry (informally referred to as “Bercy,” in reference to the 1980s concrete fortress on the banks of the River Seine where the meetings will take place).

The Board agenda includes several items establishing the “business model” of the Fund, how money will be raised and disbursed, information disclosure, the extent to which countries hosting projects will be able to object to projects (called a “no objection procedure”), administrative arrangements, committee memberships and the relationship of the fund to the UN climate negotiations.[2]

Decisions are taken on the basis of a series of documents prepared by the Interim Secretariat, jointly housed by the UNFCCC in Bonn, Germany and the Global Environment Facility in Washington DC, USA.

The documentation for the Paris meeting includes over 400 pages of text. These are all available online at: http://gcfund.net/documents.html  

Lack of funds, lack of urgency

Almost four years after the Green Climate Fund was first proposed, it has raised only $7.5 million.[3] South Korea, which hosts the Fund’s new headquarters, has informally pledged another $40 million.[4] These are paltry figures compared to the $100 billion per year that developed countries have committed themselves to mobilizing for climate finance to developing countries by 2020, or to the up to $1.5 trillion per year that more recent estimates say is needed.[5] It’s highly unlikely that the GCF will channel anything close to $100 billion per year by 2020 (a figure that would dwarf current disbursements by the World Bank), but it should still have a central role to play in providing climate finance.[6]

The key issue in Paris is setting a timetable and process for the GCF’s funding drive. Hela Cheikhrouhou, the Fund’s new Executive Director, has been briefing that “the third quarter of 2014 we would successfully conclude what we are calling an ad-hoc pledging process, the equivalent of the first financial close.”[7]  But the decisions put before the Fund itself are more ambiguous, with no actual timetable for pledges to be made, and the whole process made conditional upon prior agreement to a wide range of other policies (including on the Fund’s Private Sector Facility).[8] These conditionalities give developed countries a significant extra bargaining chip in how the Fund should be structured. It is likely to prove controversial with many developing countries, already aggrieved at the delays in establishing a Fund that should have been fully operational in 2014.

Private sector finance

Discussions on private sector finance are amongst the most contentious issues that the GCF Board faces. There are actually two main conflicts here: one concerning the responsibility of developed countries to provide public funds for climate mitigation and adaptation in developing countries, and another about the extent to which the fund appeals to financial markets, in particular via its Private Sector Facility (PSF).

The 2008 financial crisis in developed countries left them less willing and, in some cases, less able to afford climate finance. “Mobilizing” (or “leveraging”) private sector climate finance is seen as a way to plug this gap. But many developing countries are concerned that this moves the goalposts, going back on agreements made in the UN Climate Convention that make developed countries responsible for financial and technology transfers to help address climate change.

Measures designed to appeal to financial markets have also been met with suspicion. The PSF has been a major source of contention, with most developed countries wanting to follow the model of the International Finance Corporation (IFC), the private sector arm of the World Bank. Many developing countries have promoted a very different model of bolstering domestic private sector activity, centered on small-to-medium-sized enterprises.[9]

A focus on “leveraging” private investment emphasizes the creation of a more attractive environment for international investors from developed countries – but it risks distorting the priorities of climate finance, leaving poorer countries and adaptation projects under-funded.[10] It is one symptom of a trend amongst donor countries to focus on the use of aid and climate finance to promote their own commercial and political interests, as seen most recently in the changes to AusAID (of which GCF co-chair Ewen McDonald is now acting director general).[11] This focus completely contradicts the Fund’s agreed emphasis on lending based on developing countries’ own national climate strategies.

Although the PSF is not central to discussions in Paris, many issues related to its role within the Fund are on the table. These include a discussion on the structure of the Fund, which would give the Private Sector Facility its own director and a staff larger than the main mitigation and adaptation funding windows. The scope of how grants and loans are used, and whether and when to use other financial instruments (like private equity and risk insurance) is also up for discussion. The establishment of several committees to screen investments, and proposals for initial staff recruitment, also heavily weigh upon the extent to which there is a focus on appealing to financial markets, versus a focus on bolstering developing countries’ domestic efforts.

Relationship with the UN Climate Change Convention

The Green Climate Fund was established as a financial mechanism whose main purpose is to implement the United Nations Framework Convention on Climate Change (UNFCCC). In short, that means it should be a vehicle to transfer public resources from developed to developing countries to cover the costs of dealing with the long-term impacts of climate change, and to help them avoid taking the same high-emissions paths along which the industrialization of developed countries took place.

In agreeing to the 1992 UN Convention, developed countries (“Annex 1 countries” in the jargon) signed up to provide “new and additional… adequate and predictable” finance in the form of grants or concessional loans.[12] They have delayed and backtracked from these responsibilities ever since, while the estimated costs of addressing climate change have soared.

The relationship between the GCF and the UNFCCC Conference of the Parties (COP) is seen as being of crucial importance by most developing countries – it’s the main means to hold the GCF accountable, although some private sector investors have warned that this kind of vetting could keep them away.[13]

The Paris meeting will see the formal adoption of a policy affirming that “The GCF shall receive guidance from the COP, including on matters related to policies, programme priorities and eligibility criteria.”[14] This relates to decisions taken at the UNFCCC Standing Committee on Finance, although there may still be attempts to roll back on this.

The GCF will also be asked to set up an independent redress mechanism to address complaints about the operation of the Fund.

Other issues

The GCF Paris Board meeting will address several broad issues about how the GCF will allocate funds, when it finally has some, and who will control this process.

As part of its Business Model Framework, it will discuss how to measure the performance of its financing, including whether the provision of funds should be conditional upon certain results being achieved; and the priority sectors to receive financing. A key question here is whether measures should be heavily focused on emissions reductions, or whether a broader range of development “co-benefits”, as well as measures of participation and accountability, should be considered.

Under the heading of “access modalities,” the Board will discuss how money from the GCF can be channeled through other financial institutions, government agencies and companies, as well as what environmental and social safeguards should govern these practices. Related issues are picked up in relation to “country ownership,” and “no objection” procedures, which may give host countries a right to veto projects and programs that do not meet their prior approval (or may merely pay lip service to this commitment).

An information disclosure policy and new rules on civil society participation will also be discussed, with the GCF Board already coming under significant criticism for its decision not to webcast its meetings, as the UNFCCC and some other climate funds do.

In addition, future work plans and administrative budgets will be approved – as will a new logo.

Who to watch

The Paris Board meeting is the first since Hela Cheikhrouhou, a Tunisian national formerly employed by the African Development Bank, became the Fund’s Executive Director.

Several developing country seats have been re-allocated, according to planned regional distributions. Brazil (Sergio Serra), Ecuador (Pedro Páez), The Philippines (Joey Salceda) and Saudi Arabia (Ayman Shasly) all take up seats on the Board for the first time.

The meeting will also see elections for the position of Board co-chairs. Australian co-chair Ewan McDonald, has been appointed acting director-general of AusAID, which faces massive cuts as it is incorporated into the country’s Foreign Ministry. He will step down after the September Board, and speculation in the Australian press suggests that the Abbott government may pull him back before the Paris meeting.[15]

South African Co-Chair Zaheer Fakir is also under pressure to end his term.

It’s also worth watching the US government delegation, which is usually staffed by a team of lawyers and policy experts backing up the main delegates. Because of the ongoing US government shut down, it’s like that only the Board member Matthew Kotchen and his alternate, Alexander Severens, will attend. This could level the playing field with developing country members, who often lack any advisers to help them through hundreds of pages of dense decision texts. Alternatively, it could increase US reluctance to agree any substantial measures.

 


[1]   Green Climate Fund (2011) Governing Instrument for the Green Climate Fund,
http://gcfund.net/fileadmin/00_customer/documents/pdf/GCF-governing_instrument-120521-block-LY.pdf p.2/fn>

[2]    Friends of the Earth USA, Institute for Policy Studies and GAIA (2012) “The Green Climate Fund’s No-Objection
Procedure and Private Finance: Lessons Learned from Existing Institutions”,
http://libcloud.s3.amazonaws.com/93/21/8/2350/no_obj_reprt_foe_gaia_ips_FINAL_8-10.pdf

[3]     Green Climate Fund (2013) “Green Climate Fund Trust Fund Financial Report”,
http://gcfund.net/fileadmin/00_customer/documents/pdf/GCF_B05.Inf04_GCFTF_Financial_Report_20130917_.
pdf $7.55 million had been deposited in GCF accounts as of 30 June, 2013, with a further $1.44 million pledged
but not yet delivered.

[4]    King, E. (2013) “South Korea pledges 40 million to Green Climate Fund”, RTCC, 10 September,
http://www.rtcc.org/2013/09/10/south-korea-pledges-40-million-to-green-climate-fund/

[5]     UNFCCC (2010) “Report of the Conference of the Parties on its sixteenth session, held in Cancun from 29
November to 10 December 2010, Part II”, http://unfccc.int/files/na/application/pdf/07a01-1.pdf para.98; Montes,
M. F. (2012). “Understanding Long-Term Finance Needs of Developing Countries Main Messages. UNFCCC
Workshop on Long-Term Finance”, Bonn. It’s worth noting too that South Korea is not amongst the developed
countries listed in Annex I of the UNFCCC.

[6]     Green Climate Fund (2012) Business Model Framework: Structure and Organisation,
http://www.gcfund.net/fileadmin/00_customer/documents/pdf/B-04_08_BMF_Structure_Organization_final_drf_
10Jun13.pdf, p.3. The World Bank disburses close to $16 billion per year.

[7]     Carr, M. (2013) “Climate Fund Head Prepares First Fundraising for 2014”, Bloomberg, 19 September,
http://www.bloomberg.com/news/2013-09-19/un-climate-fund-head-prepares-first-fundraising-for-next-year.html

[8]     Green Climate Fund (2013) “Resource Mobilization,”
http://gcfund.net/fileadmin/00_customer/documents/pdf/GCF_B05_18_Resource_Mobilization_fin_20130924.pdf

[9]     Orenstein, K. (2012) “A struggle for the soul of the GCF”, Friends of the Earth USA,
http://www.foe.org/news/archives/2012-11-a-struggle-for-the-soul-of-the-gcf

[10]   Reyes, O. (2013) “Critical issues for Channelling Climate Finance via Private Sector Actors”, BOND,
http://www.cafod.org.uk/content/download/9496/76572/file/Channelling%20Climate%20Finance%20via%20PS
%20actors_April2013.pdf

[11]   Narayanasamy, T. (2013) “What the overhaul of Australian Aid will mean”, Crikey, 24 September,
http://www.crikey.com.au/2013/09/24/crikey-clarifier-what-the-overhaul-of-australian-aid-will-mean/ ; ABC
(2013) “Oxfam, World Vision hit out at Government’s decision to bring AusAID into the Foreign Affairs
Department”, 19 September,
http://www.abc.net.au/news/2013-09-19/aid-agencies-criticise-ausaid-realignment/4966924

[12]   UNFCCC (1992), “United Nations Framework Convention on Climate Change,” http://unfccc.int/essential_background/convention/background/items/1349.php 

[13]   Clark, P. (2013) “Weak economic conditions pose problems for UN climate fund”, Financial Times, 25 September,
http://www.ft.com/cms/s/0/db80026a-3ded-11e2-93cb-00144feabdc0.html?
siteedition=uk&siteedition=uk#axzz2g7hkgGq9

[14]   Green Climate Fund (2013), “Draft Arrangements between the Conference of the Parties to the UNFCCC and the
Green Climate Fund”,
http://gcfund.net/fileadmin/00_customer/documents/pdf/GCF_B05_17_COP_Arrangements_fin_20130919.pdf
p.4

[15]   Hannam, P. (2013) “Clouds over support for climate fund”, Sydney Morning Herald, 22 September,
http://www.smh.com.au/federal-politics/political-news/clouds-over-support-for-climate-fund-20130922-2u81h.ht
ml

 

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