Green Climate Fund (GCF): approval of nine new projects and heated debates about accreditation strategy

The GCF building in Songdo © Brandon Wu, ActionAID

From 28 to 30 June, 2016, The Board of the Green Climate Fund spent three solid days in Songdo, South Korea, discussing the future direction of the Fund. Containing no less than 26 items, the agenda was quite long. Not only did the Board intend to close further gaps in the Fund’s regulatory framework, the usual approval procedure for project applications and the accreditation of new implementing entities were also up for discussion.

The 24-member Board reached agreement in several key issues. These included the approval of nine new project applications, a decision on the terms for the new project preparation facility (including initial capital of $40 million), the provision of financial resources for the development of national adaptation plans (NAPs), a simplified procedure for the approval of projects with low financial volume, and the appointment of Javier Manzanares as interim Executive Director. However, there were also contentious issues on the agenda, such as the debate on the Fund’s future accreditation strategy. The decision on the accreditation of further implementing entities was postponed until the next Board meeting.

The 13th Board meeting also broke new ground with its live video webcast of the session. Not only is this a major improvement with regard to transparency, it also allowed numerous representatives of civil society and other stakeholders to follow the meeting from their respective countries. Previously, many civil society organizations and delegates from countries of the global South were unable to participate due to the high cost of travel. In addition to creating more transparency, the live webcast reduced the meeting’s environmental footprint. Time differences should not be an issue, as video recordings for the individual items on the agenda can be viewed at any time on the GCF website.

Overview of the decisions of the 13th meeting

Approval of project applications

At its 13th meeting, the Board approved the first projects for 2016. Following the Fund’s long-awaited approval of the first eight projects with a total volume of $168 million last November, the decision to finance further projects at this meeting was eagerly awaited.

The Board approved the following nine projects with a total value of $256.6 million:

• large-scale ecosystem-based adaptation in Gambia, conducted by UNEP ($20.5 million)
• an adaptation and mitigation program for the Aral Sea basin in Tajikistan and Uzbekistan, conducted by the World Bank ($19 million)
• energy savings insurance for private energy efficiency investments by SMEs in El Salvador, conducted by the Inter-American Development Bank ($21.7 million)
• de-risking and scaling up investment in energy-efficient building retrofits in Armenia, conducted by UNDP ($20 million)
• a pilot project in Mali for a program to collect hydrometric weather data in sub-Saharan Africa, conducted by the World Bank ($22.8 million)
• improving the resilience of vulnerable Vietnamese coastal communities to climate change, conducted by UNDP ($29.5 million)
• a coastal adaptation project in Tuvalu, conducted by UNDP ($36 million)
• strengthening the resilience of smallholder famers in Sri Lanka’s dry zone to extreme weather events, conducted by UNDP ($38.1 million)
• a program for climate action and solar energy development in the Tarapacá region in Chile, conducted by the Development Bank of Latin America (CAF) ($49 million)

Originally, only eight project applications, exclusively by international public organizations, were pending. The Secretariat added a project application from an accredited regional institution, the CAF, shortly before the meeting commenced. Civil society representatives noted with concern that of the nine projects under consideration, not one had been submitted by a national implementing entity.

Realizing the paradigm shift toward low-carbon and climate change-resilient development sought by the Fund will require projects with more ambition and innovation, and above all more projects from national organizations in developing countries. With the risk and investment guidelines adopted at this meeting, we can hope for the submission and approval of not only increasingly ambitious and innovative projects, but also project applications that go beyond business-as-usual, in which the Fund can demonstrate a certain willingness to take risks. In particular, these could include projects that are frequently not supported by other funds and international organizations.

For the first eight projects approved last November, accreditation master agreements have only been signed with two accredited institutions to date. A swift implementation of the approved projects will require a speedy signing of these agreements.

Shortcomings in the project pipeline

A look at the remaining projects in the pipeline clearly shows that most project applications come from international institutions. National institutions have a very weak presence in the pipeline. Similarly, the pipeline does not reflect the desired balance between mitigation and adaptation. The total volume of support for the 24 projects likely to be submitted to the Board this year (included the projects approved at the recent meeting) only amounts to $1.4 billion. The target for this year is $2.5 billion. It is thus unclear how the Fund intends to reach this goal.

The biggest shortcoming, however, is that only two of the total of 24 projects are from institutions with direct access to financing – i.e. national and regional organizations. The Readiness and Preparatory Support Programme and the project preparation facility will be playing a key role in countering this trend. At the most recent meeting, the Board decided to provide the project preparation facility with an initial $40 million, which is intended to particularly benefit national institutions in developing project proposals under $50 million.

Simplified procedure for approving projects with low financial volume

The Board repeatedly postponed the issue of a simplified procedure for approving projects with low financial volume (up to $50 million) in recent meetings. At the 13th meeting, the Board members finally decided to establish a simplified procedure. The Secretariat will now develop the precise arrangements. It is already clear that all accredited institutions will be able to use the procedure in future, provided the project is in the lowest risk category C. A special focus will be on projects of national and regional organizations from developing countries, however. The creation of such a process was particularly important to the group of least developed countries (LDCs) and the group of small island developing states (SIDS). Both groups have the hope that a simplified process (with regard to the submission of required documents, etc.) will lead to the approval of more projects from institutions with direct access. The agreement on this procedure, which is provided for in the Governing Instrument of the GCF, is therefore an important first step in the right direction.

Disagreement on accreditation strategy

The Board did not reach an agreement with regard to its accreditation strategy. Despite heated debates, it did not resolve the issue of whether to exclude certain types of institutions from accreditation in future. The accreditation strategy draft had contained a “blacklist” of sorts to this end. The question of whether the Fund should accredit export credit agencies as implementing entities was particularly contentious. While there was agreement that cooperation with export credit agencies is important, many Board members from industrialized countries believe that it should not be realized in the form of an accreditation.

Consensus emerged that the “first come, first served” principle needs rethinking. In addition, several Board members called for support of national institutions from developing countries in their accreditation process. Providing backing for national implementing entities is an important measure to realize the principle of direct access to financing and thus strengthen project ownership as well as national capacities.

New accreditations postponed to the next meeting

As can be imagined after the accreditation strategy debate, no consensus was reached on the pending accreditation of five new institutions. The German Association for International Cooperation (GIZ) was the only international institution – in addition to two regional and two national institutions – with an application up for approval by the Board. The regional institutions were development banks from West Africa and the Caribbean. The two national institutions under consideration were a Mongolian development bank and the Export-Import Bank of Korea (KEXIM). The latter institution in particular was controversial among the Board members because of its status as an export credit agency. Disagreement on the accreditation of KEXIM was largely responsible for the Board’s move to postpone the decision on all five applications until the next meeting.

Representatives of the industrialized countries and civil society spoke out against the accreditation of KEXIM and other export credit agencies, as they consider their primary areas of responsibility and interests to be inconsistent with the GCF mandate. A majority of Board members from developing countries were in favor of KEXIM’s accreditation, however. In their view, all institutions should be granted equal opportunities to prove themselves as GCF partners. Suddenly changing the rules for accreditation in mid-flight was seen as a lack of fairness that would particularly handicap the many institutions that are still in the accreditation process. If the Fund were to adopt new rules, then it ought to apply them retroactively to all institutions already accredited. Indeed, the Fund would be applying a double standard here, regardless of its assessment of the suitability of export credit agencies. Considering the accreditation of controversial international banks in the past, the Board has maneuvered itself into an uncomfortable situation in this regard. We can only hope that the Fund will reach a satisfactory solution at the next meeting with the support of a revised accreditation strategy.

New interim Executive Director named

The 13th Board meeting was the final one for Hela Cheikhrouhou as GCF Executive Director. After more than three years of hard work, commitment and dedication to the success of the Green Climate Fund, she announced that she would be stepping down from the position on September 9, 2016. The previous Chief Financial Officer and Director of Support Services, Javier Manzanares, will take over as interim Executive Director. At the 14th meeting in Ecuador in late October, a selection committee will present the members of the Board a list of possible successors.

David Eckstein & Julia Grimm, Germanwatch