Green Climate Fund (GCF): the ten-billion-dollar question

The GCF building
© Brandon Wu, ActionAID

The successful initial capitalization of the Green Climate Fund (GCF) at the donor conference in Berlin in November 2014 and the subsequent climate summit in Lima in December represents a major milestone in the fund’s brief history to date. With pledges of just over $10 billion, the fund is now in a position to finance projects and programs in developing countries for the first time.

At the same time, the promised money comes with major challenges and responsibilities: How and where can the fund invest effectively to support developing countries in their struggle against the effects of climate change while also backing ambitious programs to mitigate greenhouse gas emissions? How will project proposals be evaluated and on what basis will funding decisions be made? What expectations does the fund have of “good” projects?

Clarifying these and other basic questions was the objective of the ninth meeting of the GCF Board on the 24th to 26th of March, the first such gathering to take place at the GCF headquarters in Songdo, South Korea. The first meeting under the leadership of the two new co-chairs – Henrik Harboe of Norway and Gabriel Quijandria of Peru – therefore began with a reminder to the their fellow Board members: in Barbados, the GCF set the ambitious goal of approving its first projects and programs at its eleventh meeting in October. This would not only send a positive signal in view of the upcoming climate summit in Paris in December, it would also give the GCF additional momentum toward becoming established as the most important component of the international climate finance architecture.

However, achieving this will still require resolving a number of important and contentious issues between industrialized and developing countries that are partly founded on differing visions of the GCF. The Board did in fact succeed in making several key decisions over the course of 45 hours in three days that put the ambitious goal for the October meeting within reach.

The most important decisions of Songdo

Following a long discussion, the fund agreed on the accreditation of seven institutions that can now develop projects and programs that will be eligible for financial support from the GCF – a decisive first step. The seven institutions reflect a good mix of varying regional priorities, strengths and backgrounds. The accreditation of two national (the Centre de Suivi Écologique of Senegal and the Peruvian Trust Fund for National Parks and Protected Areas) and one regional organization (the Secretariat of the Pacific Regional Environment Programme) that have already completed the Adaptation Fund’s accreditation process is especially positive in this regard. The other accredited organizations include the development-oriented Acumen investment fund, the German Kreditanstalt für Wiederaufbau (KfW), as well as the Asian Development Bank (ADB) and the United Nations Development Programme (UNDP), both major multilateral institutions.

A lengthy discussion of the Board preceded the accreditation of KfW, as it had applied for international access despite being a national development bank and thus a bilateral actor not envisaged or authorized for the international access track as defined in Section 48 of the GCF Governing Instrument. Because of its international activities, it was nevertheless agreed to see KfW as an “international financial institution”, thus making it eligible for international access.

In addition to the above-mentioned institutions, numerous others are still undergoing accreditation and their assessments have not yet been finalized. Fortunately, these also include a number of national organizations from developing countries that are crucial to anchoring the desired transformation processes toward low-carbon development at the national level as well. These institutions will be supported both at the financial and technical levels in the accreditation process within the framework of the GCF Readiness Program.

The agreement on the further development of the investment framework had already been hailed as the key decision of Songdo in the run-up to the meeting. It not only establishes the type of projects and programs the fund will finance in principle, but also how submitted proposals are individually assessed and selected. Prior to the ninth meeting, the fundamentally opposing views of the industrialized and developing countries had become apparent: While industrialized countries advocated clear minimum requirements for eligible projects or programs in the six different investment criteria, the larger developing and emerging countries in particular wanted a more qualitative approach to permit greater flexibility and leeway without setting up artificial conditionality. After repeated revisions and lengthy discussions, the Board was able to reach a decision that takes the concerns of both camps into account: the fund will use guideline values to serve as a minimum requirement to generate ambitious project proposals while at the same time taking the different circumstances in developing countries into account in an adequate manner. The anticipated performance of a project in the six investment criteria will be evaluated on a scale (low, medium and high).

While the specific guidelines for projects are only scheduled to be developed by the thirteenth Board meeting, the scale will already provide a basis for evaluating upcoming project proposals. At the tenth meeting in July, the Board intends to decide whether this scale will apply to all projects or just a subset, e.g. only to mid-sized ($50-250 million) and large (over $250 million) projects.

Among the important matters to be decided by October are the terms and conditions by which the fund will use its financial instruments. The Board also managed to reach an agreement in this matter, although important details still need to be clarified at the next meeting. In addition to lending, the fund will also award grants that can take on different forms depending on whether they are intended for the public or private sector. “Smart grants” are an instrument that will be deployed for the private sector, for example. In the case of lending to the public sector, the fund will initially distinguish between two categories: financing with low and high concessionality. The Board was not able to reach an agreement in this regard. In particular, the question of the circumstances to be used as the basis for lending with high concessionality is to be clarified at the next meeting in July.

In addition to these key points, a number of other important decisions were made. The objectives for an independent technical advisory committee were adopted. The committee is entrusted with reviewing incoming project and program applications for compliance with GCF principles and making funding decisions using the investment framework. The committee will consist of six experts (three each from industrialized and developing countries) to be nominated by the Investment Committee with aid of the GCF Secretariat between now and the next meeting in July.

A policy on ethics and conflicts of interest was adopted to ensure that the actions of Board members are free of particularism and follow a set code of conduct. At the tenth meeting, a similar policy is slated to be adopted that would apply to all committees and boards, external experts and the GCF Executive Director.

Finally, the GCF is the first climate finance mechanism to have adopted a fund-wide gender policy before the actual programming of funds, albeit for a transitional period of one year. This decision had been postponed every time in recent meetings, even though it was seen by many Board members as a key element of GCF policy that should be reflected in all of the fund’s activities.

The path going forward

At its ninth meeting, the Board succeeded in putting a number of important prerequisites in place to prepare the fund for its goal of financing its first projects and programs before the year is out. Until then, however, it still has a long way to go and numerous political stumbling blocks to overcome when working out important details of already-adopted policies. In particular, decisions related to the investment framework and the terms for lending will remain controversial within the Board.

The GCF will be facing another important decision in July with regard to expanding the terms for enhanced direct access. Initial discussions within the Board on this topic were already held at the ninth meeting and resulted in a good draft decision. Due to time constraints, the final decision was postponed to the next meeting – which already has a packed agenda of four instead of the planned three days.

The tenth meeting will be held once again at the GCF headquarters in Songdo from the 6th to the 9th of July.

David Eckstein, Germanwatch