Green Climate Fund: with new momentum into a decisive year

The GCF building in Songdo
© Brandon Wu, ActionAID

Long nights are nothing unusual for Board meetings of the Green Climate Fund (GCF) anymore. In the recent past, meetings of the largest multilateral climate fund were all too often marked by political battles that went on into the wee hours of the morning.

The twelfth meeting, which was held from the 8th to the 10th of March, 2016 in Songdo, South Korea, was therefore a welcome change for Board members, observers and the GCF Secretariat. Under the strict guidance of the new co-chairs Zaheer Fakir (South Africa) and Ewen McDonald (Australia), the Board spent three days efficiently closing several loopholes in the GCF’s rules without getting sidetracked in unnecessary discussions. On the positive side, a Strategic Plan was developed with which the GCF can facilitate the necessary implementation steps over the coming years, as well as rules for improving transparency. At the same time, however, the accreditation of two further private institutions, HSBC and Crédit Agricole, was a move that had been heavily criticized in advance by civil society. And among the projects in the pipeline for approval this year, hardly any of the applications were submitted by national implementing entities under direct access.

New dynamics in the GCF Board

In addition to the firm management by the co-chairs, two further factors were decisive for the remarkable headway made in decision-making at the GCF meeting:

The twelfth meeting was preceded by an informal get-together of the Board in Cape Town from the 2nd to the 4th of February, 2016.  The Board members took this opportunity to discuss several important items on the agenda of the twelfth meeting, most notably the GCF Strategic Plan, staffing of the Secretariat, the accreditation strategy, and information and disclosure policies of the Fund. The Board thus addressed potential sticking points early on, which greatly facilitated the work of the various specialized working groups and committees. Furthermore, the Board chose not to discuss new project proposals at the twelfth meeting and focused on outstanding decisions regarding operational guidelines and frameworks instead. Pursuing its intention to achieve the ambitious goal of approving projects and programs for a total of $2.5 billion by the end of the year, the Board now aims to meet for a fourth time in December 2016, following the COP in Marrakech. The informal gathering in Cape Town thus set the course for a successful twelfth meeting well in advance and defined clear targets for it.

The effect of the run-up to the Paris climate summit on the political dynamics within the Board at the time should not be underestimated. This influence often paralyzed the work, and above all progress within the Board. This was especially apparent at the last meeting of the GCF in November 2015 – just weeks before COP21. At the time, the Board spent two days arguing about the approval of the first eight projects. Such political bickering often resulted in decisions made after midnight that tended to be ill-considered, complex and above all, ambivalently worded. These decisions frequently did not offer the Secretariat the necessary guidance and consequently led to conflicts and misunderstandings between the Board and Secretariat.

It must be hoped that in the wake of the successfully negotiated Paris Agreement and under the direction of the new co-chairs, the Board will continue to focus above all on progress within the GCF.

A shift of power from the Secretariat toward the co-chairs can already be made out at this point, which was often not the case during the term of the previous co-chairs. The strong influence of the co-chairs on the decision-making process of the Board is quite tangible. However, this shift in power also has its drawbacks and may become an issue in future debates. The preparation of background documents took an unusually long time, and some documents were published only during the twelfth meeting. Normally, they should be available at least three weeks in advance to give the Board members sufficient preparation time. This is surely due in part to the still-inadequate staffing of the Secretariat. However, rumor also has it that the documents were not released by the co-chairs until they had been coordinated within their respective groups. Moreover, politically rather less sensitive topics were covered at the twelfth meeting. More controversial issues such as the approval of project proposals or the development of the investment framework will not return to the agenda until the next meeting this June. It therefore remains to be seen how the Board will respond if the co-chairs set the course of decision-making on contentious issues too firmly.

Overview of the decisions of the twelfth meeting

The Board made a total of 38 decisions. In light of previous experience and the packed agenda, it was a remarkable result for just three days. The most controversial issues of the meeting were already apparent in advance, as they had all led to lengthy discussions at the informal run-up gathering. The following is a summary of the main points and key issues.

A dynamic and extendable Strategic Plan

The time had finally come at the twelfth meeting: the Board approved the GCF Strategic Plan, which had been hotly debated in previous meetings. The Plan is designed to communicate the vision and operational priorities of the GCF and thus make them more accessible for countries. An associated action plan, which will be implemented over the entire phase of the initial resource mobilization from 2016 to 2018, is designed to help implement the operational priorities and address existing gaps in the GCF rules. It also lists strategic measures that the Board would like to promote: (i) prioritizing the development of project pipelines, (ii) strengthening the proactive and strategic approach of the GCF with regard to the programming of funds, (iii) increasing accessibility and predictability, (iv) maximizing the involvement of the private sector and (v) building institutional capacity.

Many Board members stressed the importance of seeing the Strategic Plan as a dynamic document that can be updated and extended at any time. Some Board members once again pointed out the important role of the GCF as a knowledge platform, while others reaffirmed the relevance of aspects such as gender and indigenous groups.

Overall, the development of such a plan is surely helpful for illustrating the direction the GCF intends to take. The decisive factor, however, will be how well the fund can actually implement its own ambitious goals.

More staff for the Secretariat

The inadequate staffing of the Secretariat has long been a problem for the GCF. The numerous assignments the Board gives the Secretariat at every meeting have frequently led to delays in the publication of background documents in the past. This in turn makes it difficult for Board members – particularly those with a small team of advisers – to prepare adequately for the meetings. In addition, the overall workload for the Secretariat is steadily increasing as the GCF becomes fully operational. Adequate staffing is thus a crucial consideration for a fund that aims to disburse an annual $2.5 billion in project financing.

The strong increase from 60 to 100 Secretariat employees by the end of 2016 should ensure timely and improved support for the needs of the Board in future. It remains to be seen whether the Fund will actually be able to hire suitable staff in the relatively short time, however. It has been frequently noted that the location, Songdo, represents an additional hurdle in this regard. A second increase to a total of 140 employees, which is to be accompanied by a suitable budget increase, is slated for the end of 2017. The administrative budget for this year has already been increased to $35.8 million, also with an eye toward an additional fourth Board meeting.

Controversial accreditation of new implementing entities

Following heated debates, the Board decided to accredit 13 further implementing entities. This brings the total up to 33 national, regional, multinational and private institutions that can submit project proposals for financing. Of the 13 newly accredited organizations, however, only five national and regional units allow developing countries direct access to project financing. The objective of the direct access is to strengthen the principle of ownership in the recipient countries. A greater share of institutions with direct access to finance would thus be desirable for future decisions. In addition, the accreditation of two major banks – Hongkong & Shanghai Banking Corporation (HSBC) and Crédit Agricole – was also cause for controversy. The decision sparked massive civil society protests, as had already been the case the previous year with the accreditation of Deutsche Bank. Numerous NGOs came together prior to the decision and issued a joint statement explicitly rejecting the accreditation of the two banks. Not only are all of these banks deeply involved in coal projects, they also have a poor reputation with regard to human rights and social standards. Furthermore, HSBC has been accused of money laundering and is the main source of finance for Indonesia’s palm oil industry.

The Board has at least not entirely ignored civil society’s concerns regarding HSBC, which were shared by a number of Board members. For the first time, the accreditation of an implementing entity now includes a clause that allows the Board to withdraw accreditation temporarily or permanently if information or circumstances come to light that would warrant such a move. In addition, the accreditation panel will now be monitoring the extent to which HSBC is putting stronger anti-money laundering mechanisms into place.

Greater transparency through new information and disclosure principles

Progress has been made with regard to information and disclosure policy to increase transparency in the decision-making process. Upcoming official meetings will be recorded and made available to the public as webcasts. The comprehensive disclosure principles provide that all key GCF documents will be published on the Fund’s website in future. Exceptions will be made only for strictly confidential information.

Project pipeline highlights shortcomings

A look at the existing project pipeline – the list of projects that have been submitted to the GCF and are currently being evaluated by the Secretariat and the relevant review committee – gives cause for gloom. According to estimates by the Secretariat, 22 of the 34 projects in the pipeline have a better than 50% chance of being approved still within this year. The fact that only two of these 22 projects originate from national implementing entities with direct access to finance put a damper on the mood of the Board – particularly among members from developing countries. If the fund is to remain faithful to its principle of strengthening ownership by recipient countries, the share of approved projects with direct access – i.e. from sub-national, national and regional organizations – must increase significantly.

Who will become the new Executive Director?

Executive Director Héla Cheikhrouhou made headlines even before the meeting by announcing that she would not seek a second term this September. The discussions on Cheikhrouhou’s possible successor took place behind closed doors, however. A newly created Executive Director Selection Committee has now been tasked with managing and supervising the selection process.

David Eckstein and Julia Grimm, Germanwatch