2 December 2015
Balancing Urgency and Integrity in Climate Finance: The Green Climate Fund’s Daunting Task
UN Photo/Pasqual Gorriz
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November 2015 began with an historic meeting of the Green Climate Fund (GCF), where the Board of this new international financial institution (IFI) approved the funding for its very first projects and programmes, totaling US$168 million and allocating an additional US$195 million over time.

November 2015 began with an historic meeting of the Green Climate Fund (GCF), where the Board of this new international financial institution (IFI) approved the funding for its very first projects and programmes, totaling US$168 million and allocating an additional US$195 million over time. November ended with the first day of negotiations at the much anticipated Paris Climate Change Conference, where finance for mitigation and adaptation is expected to be a contentious issue as governments work toward a new global climate agreement. Climate finance has been named one of the pillars underlying a successful outcome in Paris by the French Presidency of the 21st session of the Conference of the Parties (COP 21) to the UNFCCC.

While the US$100 billion in climate finance that developed countries aim to mobilize annually by 2020 will not all be channeled through the GCF, the aide-mémoire released by the COP 21 Presidency after the Pre-COP held in early November indicates that the budding GCF will eventually play a bigger role, becoming the main operating entity of the Convention’s Financial Mechanism.

Now that the launch phase of the GCF has ended, and as the institution focuses on implementation, the Board will face the challenge of balancing urgency with the equally important need to guard against potential negative side effects of projects it funds. While the urgency of mobilizing, distributing and investing climate finance is indisputable, rushing to disburse multilateral finance always carries the risk of unintended consequences. This tension became very real at the 11th meeting of the GCF Board (GCFB 11), which convened from 2-5 November 2015, in Livingstone, Zambia.

The GCF’s first stage can be seen as a balancing act between responding to the urgent need to implement projects on the ground, and getting the institutional structure right to ensure that it will operate effectively in the long run. Scientists continue to impress upon us the urgency of addressing climate change. Indeed, records continue to be broken: October of this year was named the hottest October on record, and 2015 is on track to be the warmest year yet. Beyond the facts and figures, people are clearly starting to feel the effects of a warming climate. The intended nationally determined contributions (INDCs) submitted by non-Annex I Parties leave no question that developing countries require adaptation finance now, as their INDCs identify their immediate need for adaptation efforts. Yet, the Board has recognized that acting quickly should not come at the cost of acting irresponsibly. The GCF became operational much faster compared to funds of a similar nature, and the late-night Board meetings, which have extended to 4:30 am, are a testament to the fact that Board members understand the urgency and are loathe to adjourn without finishing their pressing agenda items.

At GCFB 11, much of the discussion revolved around the eight project and programme proposals that had been recommended to the Board for approval by the Independent Technical Advisory Panel (ITAP). There was intense pressure to approve the GCF’s first investments to build trust ahead of COP 21 and signal that climate finance is flowing to developing countries. On both the third and fourth days of the meeting, discussions carried on late into the night, with Board members grappling with aspects of the proposals related to, inter alia, ensuring projects are taking into account social, environmental, gender and other considerations. A number of concerns were raised about the projects, regarding, among others: consultation, participation and prior consent of local communities and indigenous peoples; gender-sensitivity; country ownership; investment risk; and the need for robust standards. In the end, the Board decided to approve all the recommended proposals, contingent on specified conditions that would address their concerns, with only one project being approved without conditions attached to it.

Ultimately, the preoccupation with finishing the project approvals meant the Board did not have time at GCFB 11 to decide on the accreditation of more implementing entities, which have the responsibility of developing projects and overseeing their implementation. These entities range from multilateral development banks (MDBs), to national agencies, to private companies. The GCF intends to achieve a “paradigm shift” and “target its investments for transformational impact,” largely by attracting private sector actors and catalyzing complementary investments. However, given the hefty responsibility implementing entities will have for ensuring the principled governance of projects under the auspices of the GCF, accreditation also requires careful consideration and oversight.

During its work to operationalize the GCF, the Board has been developing the institutional framework aimed at ensuring the integrity of projects funded by the GCF and implemented by accredited entities, often drawing on the lessons learned from older IFIs. For instance, as noted by a Board member at GCFB 9, the GCF is the first institution of this nature to have a gender policy and action plan in place before it began operation. Among the other institutional documents devised with a view toward good governance are the: guiding framework for accrediting implementing entities and intermediaries, including fiduciary principles and standards and environmental and social safeguards (approved at GCFB 8); monitoring and accountability framework for accredited entities (approved at GCFB 11); initial financial risk management and investment frameworks (approved at GCFB 7, but remaining under periodic review); and financial terms and conditions of grants and concessional loans (approved at GCFB 9; the Board will review the terms and conditions of the Fund’s instruments annually).

In a very limited timeframe, the GCF’s 24 Board members, supported by a Secretariat with limited resources, have had to discuss and agree on the technical details of these and many other documents, which will ultimately determine both how effective and how responsible the GCF is in its investments. As GCF Executive Director Héla Cheikhrouhou has said, the approval of the Fund’s first eight projects is a “game-changer” in climate finance. While the world is anxious to see the finance start flowing, the rules of the game are still being defined and will likely have to be refined along the way. Under great pressure from both the international community and climate change itself, the GCF is executing a challenging balancing act to deliver quickly, yet with integrity.

The author wishes to thank Beate Antonich and Rishikesh Ram Bhandry for their valuable contributions to this Policy Update.

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