The wrong signal: Deutsche Bank as the first private partner of the Green Climate Fund (GCF)

According to Banktrack with its $15 bio Deutsche Bank is no 10 in financing coal worldwide. Photograph: Michael Probst/AP

At its Board meeting in Songdo, South Korea, from the 13th to the 16th of July, the Green Climate Fund (GCF) accredited 13 implementing entities. Among them was Deutsche Bank as the first accredited private company. This decision sends a strong signal – unfortunately, not a good one.

The role of the implementing entities

The Green Climate Fund (GCF) is set to become the central multilateral climate finance institution that will distribute the bulk of the $100 billion that industrialized countries intend to mobilize every year for climate protection and adaptation in developing countries as of 2020. The Fund, which was launched at the climate conference in Cancun in 2010 and which received its initial capitalization last year with pledges of more than $10 billion – including $1 billion from Germany –, is expected to start financing the first projects and programs before the year is out. The Fund’s ambitious goal is to support a paradigm shift to low-emission and climate-resilient development.

The GCF is not going to fund individual projects directly, however, but will work through implementing entities and intermediaries. These can include national ministries, climate funds from developing countries and international development banks. Private institutions may also apply for accreditation as an implementing entity or intermediary. In doing so, they need to document their compliance with environmental and social norms as well as fiduciary standards to ensure that they would serve as reliable custodians of the fund’s resources. The GCF’s criteria actually require that institutions not only meet these standards on paper and in procedures, but that the institutions have acted in keeping with these norms and standards in the past. The accreditation process thus reviews the entity’s track record, not only with regard to sound business practices, but also its contribution toward climate protection.

The accredited institutions can then submit applications for GCF funding. The funding decision is made by the Board once the relevant national government has given its consent and the application has been reviewed by the Secretariat and an independent panel of experts. The accredited entities nevertheless have a decisive influence on which projects are proposed for funding in the first place. Their influence can be even greater in “programmatic approaches” – programs in which the Board approves a comprehensive approach and the implementing entities select the individual projects under the program. It is likely that Deutsche Bank will mainly act as an intermediary, i.e. blending the Fund’s financial resources with other funds to create new financial products designed to promote climate-friendly investment. That is a lot of influence over the deployment of public climate funds – especially for a bank that is still investing billions into the dirtiest fuel of all and has had repeated brushes with the law.

Deutsche Bank as a climate bank?

It is highly questionable as to whether Deutsche Bank is an appropriate partner for the GCF. While other financial institutions are divesting from fossil fuels, Deutsche Bank remains one of the largest global financiers of the coal industry. According to figures published by the NGO BankTrack, Deutsche Bank invested more than $15 billion in companies that mine coal or burn it to generate electricity between 2005 and April 2014. This puts it in 10th place among the banks that finance coal worldwide. Deutsche Bank finances coal mines in countries such as Australia, South Africa, Indonesia and Turkey and invests in natural resources companies such as Glencore Xstrata, Anglo American and BHP Billiton. As recently as early 2015, Deutsche Bank was part of the consortium that managed a share offering for Coal India, the largest coal mining company in the world. Coal India stands accused of destroying forests and the habitats of tigers, elephants and leopards, as well as serious human rights violations, child labor and unsafe working conditions.

Deutsche Bank’s human rights record overall is less than stellar. It finances a number of companies that have faced criticism for their human rights violations. The Guiding Principles on Business and Human Rights unanimously adopted by the UN Human Rights Council in 2011 established global minimum standards of behavior that can be expected from all businesses in this sector today. BankTrack produced a study evaluating the degree to which major international banks implement the UN Guiding Principles. Deutsche Bank’s score? 1.5 of 12 possible points, which the authors deem “wholly inadequate”. The various scandals in which Deutsche Bank has been embroiled of late – from LIBOR rigging to various cases of money laundering and violations of regulations to combat the funding of terrorism – also gave rise to discussion at the GCF Board meeting and prompted critical questions from Board members.

Deutsche Bank does profess to be committed to numerous international environmental and social standards, including those of the International Labour Organization (ILO), core labor standards, the UN Guiding Principles and the OECD Guidelines for Multinational Enterprises. The bank states that it intends to take ecological and social criteria for good corporate governance into account with even greater thoroughness in future. Deutsche Bank has put its own framework in place for dealing with environmental and social risks. The only problem is that the framework’s principles rarely have any impact on its core business.

Deutsche Bank has some good initiatives in the energy sector – a number of committed employees are pushing for innovative financing models for renewable energy and energy efficiency. Using investments in renewable energy and efficiency improvements as its primary benchmark, Bloomberg put Deutsche Bank in twelfth place on its list of the greenest banks in the world (down five places from the previous year, by the way). Here again, the problem is that little has changed in the bank’s core business and that it continues to finance coal. Sustainability thus remains a fig leaf for a climate-damaging overall strategy. In its official coal policy, the bank still states: “Given the increasing energy demand, we have to admit that in some regions of the world coal cannot be avoided.”  This cannot be reconciled with either the internationally recognized 2°C limit for global warming, nor the paradigm shift that the Green Climate Fund wants to promote.

The wrong decision, made in an opaque process

So how did Deutsche Bank – of all institutions – become accredited by the Green Climate Fund? Two factors came together here:

Firstly, influential members of the GCF Secretariat and representatives of the industrialized countries on the Board are eager to strengthen the role of the private sector in the Fund. They hope that the Fund will cooperate with major financial institutions and thus mobilize additional funding for climate protection. Choosing a major bank in one of its first accreditation rounds to signal that the Fund is to be taken seriously and that it cooperates with the big players was therefore seen as a priority. But even this perspective still begs the question: Wouldn’t an institution that sees climate protection as its core business or a bank with a credible approach to aligning its entire investment strategy with the 2°C limit and human rights considerations have been a better choice for the first accreditation of a private company?

Secondly, the accreditation of Deutsche Bank was favored by the way in which the GCF makes accreditation decisions: as a bundle, behind closed doors and without opportunities for timely civil society intervention. The names of the applicants are not announced prior to the decision, making it impossible for NGOs to draw attention to potential issues. Civil society observers were only able to present detailed criticism to the public after the decision had been made and the names already announced. The Board made the accreditation decision in a closed session to which no observers were allowed. Furthermore, the 13 institutions were approved in a single block. Many Board members were personally interested in the accreditation of one institution or another (including multilateral banks and regional institutions in developing countries), which reduced their incentive to examine the remaining contents of the bundle.

The secrecy surrounding the Green Climate Fund’s accreditation process makes it difficult to influence problematic accreditations such as Deutsche Bank. In the long run, this can endanger the GCF’s reputation. The GCF’s information disclosure policy is on the agenda of the next Board meeting – it is crucial that the Board take that opportunity to ensure greater transparency ahead of future accreditation decisions.

Lutz Weischer, Germanwatch