Green Climate Fund (GCF)

Regaining Momentum – The Green Climate Fund is preparing for its first board meeting in 2012

The Green Climate Fund (GCF) is to become the primary multilateral channel for large-scale financing for adaptation and mitigation action in developing countries. When the newly selected 24 members – 12 from developing, 12 from developed countries – of the GCF Board will finally come together for their first Board Meeting in Geneva in from August 23-25 after an arduous nomination process created delays of several months, their most important first task will be to regain momentum lost since December. At that time, the 17th Conference of the Parties (COP17) of the UN Framework Convention on Climate Change (UNFCCC) had approved the Fund’s governing instrument and in an accompanying decision laid out some important deadlines and procedures.

There are just a few short months left until the 18th session of the Conference of Parties (COP18) in Doha/Qatar, when according to the deadline in the Durban document the UNFCCC Parties are to endorse several GCF Board decisions, namely on the selection of a host country for the Fund as well as on its working arrangements with the COP. The latter decision especially could prove to be contentious and difficult, continuing to polarize developed and developing country members, just as it did during the design process of the Transitional Committee (TC) last year. It could be an early test for the new board’s willingness and ability to address politically charged issues constructively and in a spirit of mutual trust. Both will be needed to drive forward an ambitious work mandate – already under extreme time pressure – of more than fifty distinct tasks for the Board detailed in the GCF decision and governing document. That mandate contains many more technical and political pitfalls that the GCF Board will have to navigate successfully if the Fund stands a realistic chance to be fully operational – and receive sufficient funding – by 2014.

A look at the draft agenda for the first Board meeting confirms that organizational issues will dominate the work of the GCF Board initially. In its tasks, the new GCF Board is aided by an Interim Secretariat with staff from the Secretariats of the UNFCCC and the Global Environment Facility (GEF), which has been set-up in Bonn and began its work in spring, including preparatory work for the convening the first Board meeting originally proposed for late April. As it had to be postponed three times due to the inability of several regional UNFCCC constituencies to select their Board members and their alternates by the end of March 2012 (as stipulated in the Durban GCF decision), the new Board can most likely only meet twice this year before Doha.

Five developed countries – expected to be the largest financial contributors to the new Fund, namely the United States, Japan, Germany, United Kingdom and France – will have a single-country seat with both a principal and alternate member. The rest of the countries represented, both developed and developing, will share a seat. The seven additional developed country seats are twinning arrangements; still unresolved is if the European Union can squeeze in with one of these chairs.

Before the COP 18 in Doha, the new GCF Board will have to make a decision on the host country for the Fund following an “open and transparent process” for its selection. The COP in Doha will have to endorse the selection made by the Board. Six countries – Germany, Switzerland, Namibia, Mexico, Poland and South Korea – have submitted applications to host the Fund. In considering the best future host country and venue for the GCF (choosing between cities as different as Bonn, Geneva, Mexico City, Windhoek, Warsaw or New Sangdo City), Board Members will have to consider a set of criteria laid out in the Durban. Such a decision will also have political and symbolic overtones in addition to logistical and practical considerations. The criteria laid out include the ability of the host country to confer juridicial personality and legal capacity to the Fund (something Germany has done as host country for the Kyoto Protocol Adaptation Fund); the country’s ability to provide privileges and immunities to the Fund and its officials (Germany and Switzerland as hosts of several UN entities and their secretariats have experience in that respect); as well as their ability to provide financial arrangements, administrative and logistical support for the Fund.

It certainly won’t hurt the application of Germany, Switzerland and South Korea that all three already in Durban had announced a financial contribution to the start-up costs of the Fund; Switzerland and South Korea are also the hosts for the first and second GCF Board Meeting respectively, while Germany has already asked an architectural firm to come up with plans for a new eco-friendly building for the Secretariat.

According to the governing document the World Bank is serving as interim trustee for the GCF, subject to review three years after the operationalization of the Fund. By 2015, the GCF “through an open, transparent and competitive bidding process” will have to select and appoint the permanent trustee of the GCF. It will therefore be the task of the Board at its first meeting to discuss and formally approve the arrangements with the World Bank as the Interim Trustee for the Green Climate Fund Trust Fund.

Many developing countries are deeply suspicious of the World Bank as a trustee, fearing a potential conflict of interest if the World Bank is not only to hold the GCF funds, but also implements GCF projects. In order to avoid that, the GCF Board in its agreement with the World Bank needs to spell out a clear firewall between the funding the Bank as trustee is holding for the GCF in a separate Trust Fund and the World Bank’s own funds and prevent any commingling of these funds.

The arrangement will also have to spell out the fee the World Bank as Interim Trustee will receive for its services. According to the tentative budget, if approved by the Board in Geneva, the World Bank would receive US$ 1.13 million or about 17 percent of the overall start-up budget for services rendered until July 2013. GCF Board members might want an explanation by the World Bank Office for Trusteeship about how these fees are calculated and whether they represent reasonable one-time expenditures related to the set-up of the Trust Fund or foreshadow recurring high management fees. The arrangements will also have to spell out how the GCF Board can hold the World Bank as Interim Trustee accountable through regular financial reports of the GCF Trust Fund, including on any financial gains made by investing money from the GCF Trust Fund.

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by Liane Schalatek, Heinrich Böll Foundation, North America