Green Climate Fund (GCF)

Towards an ambitious second replenishment of the Green Climate Fund: keeping the momentum built by Germany

Donor countries need to make ambitious pledges for a successful 2nd replenishment of the GCF. Photo: C.Krackhardt, Brot für die Welt

The Petersberg Climate Dialogue traditionally sets the scene and lays the groundwork for the year-end UN climate negotiations by helping create the political momentum necessary to elevate climate change action as a high priority on the political agenda. In its most recent iteration – held from May 2-3 in Bonn – Germany used the opportunity to announce its contribution to the second replenishment of the Green Climate Fund (GCF-2).

GCF replenishment in a packed climate finance agenda for 2023

The process for GCF-2, launched in mid-2022 and aimed at securing the Fund’s financial foundation for the period 2024-2027, is now well on its way, with two contributing countries having announced their pledges prior to the Petersberg Climate Dialogue. Austria announced its pledge of EUR 160 million in early April 2023; a 23% increase from the amount pledged for GCF-1 (2020-2023). The Czech Republic was the first country to announce a contribution to GCF-2, with a EUR 4 million pledge, in 2022. Though this was lower than the pledge made for the Initial Resource Mobilisation of the GCF in 2014, it meant the country became a contributor again, after not pledging any funding for GCF-1. Now Germany, historically one of the largest contributors to the GCF, used the stage of the Petersberg Climate Dialogue to announce a EUR 2 billion pledge for GCF-2. This represents an increase of around 33% from their GCF-1 pledge. These early announcements are welcome, as they strengthen trust in the replenishment process and start building momentum to set the stage for further pledges.

The GCF replenishment comes in the context of an important year for the climate finance agenda and the international climate finance architecture more generally. With discussions on the reform of the international financial system focusing at least partly on the governance of many international financial organisations, as well as their ability to provide climate finance that is adequate and responds to the needs of developing countries and the goals of the Paris Agreement.

GCF’s key role in the international climate finance architecture

In this context, the GCF’s role as a cornerstone of the climate finance architecture is even more evident. With a mandate to support climate action, governance arrangements that include equal representation of contributing and recipient countries and equitable access to finance, as well as a strong focus on ensuring country ownership, the GCF is well placed to respond to many of the challenges raised in the reform discussions. Additionally, its partnership approach allows it to accelerate climate action through its engagement with its large network of accredited entities, at the national, regional and international levels. Furthermore, the GCF remains one of the most important sources of adaptation finance for the most vulnerable communities.

This highlights the importance of an ambitious replenishment that allows the GCF to continue providing finance to accelerate climate action, considering the urgency of the climate crisis and the importance of this decade for the achievement of the goals of the Paris Agreement. The GCF has recently indicated, through scenarios included in the update of its Strategic Plan, that an ambitious replenishment will be essential to the achievement of the Fund’s many strategic goals, especially many that are fundamental for adaptation, including locally led approaches. More available funds will also allow the GCF to respond to the rising needs of developing countries, which are evident in the Fund’s portfolio (209 projects in 128 countries) and pipeline growth during GCF-1 (currently worth approx. US$ 20 billion, including concept notes and funding proposals).

The initial pledges by Germany and Austria outline a trajectory for GCF-2 that, if no new big contributors come forward, would likely result in a GCF-2 with around US$ 13 billion available for 2024-2027. This is in line with the mid scenario outlined in the GCF’s updated planning and would leave the Fund facing several trade-offs between different strategic climate goals. Therefore, a 30% increase in pledges from traditional contributors should be the minimum for GCF-2. More importantly, developed countries that did not contribute to the last replenishment should fulfil their climate finance commitments by pledging funding for the GCF.

More funding also needs to be available to provide grant finance, especially for adaptation. To ensure this, pledges from major contributors need to be in the form of grants, that can be then used to fund projects and programmes using grants as well as the whole range of concessional financial instruments available to the GCF. Pledges in the form of loans and, potentially, capital contributions, limit the range of instruments available by excluding grants, and diminish their concessionality.

Road to COP28

A successful second replenishment of the GCF would provide the necessary positive dynamic to the negotiations on climate finance and give momentum to a packed climate finance agenda en route to COP28. This already includes politically delicate issues such as the deliberations on operationalizing a fund and discussing funding arrangements for Loss and Damage, finally concluding the achievement of jointly mobilising US$ 100 billion per year for mitigation and adaptation action; as well as making meaningful progress towards determining a new collective quantified goal for climate finance after 2025.

Success of the replenishment process will ultimately and inevitably be measured based on the total amount pledged by contributor countries. Anything in the range of the amount collected for GCF-1 will be considered a failure. Civil society organisations working on the GCF have already issued a statement asking for at least doubling pledges for GCF-2. The momentum for the GCF replenishment now built by Germany has to be kept high in order to secure an ambitious replenishment. In order to keep it, other wealthy nations need to step forward and announce ambitious contributions early, ideally before the replenishment conference in October in Bonn. They could use other milestones on the road to COP, including the Macron Summit in June or the UN’s General Assembly in September 2023. Countries that have already announced their pledges, especially Germany, could also further increase them in response to increased ambition from other contributors.

Bertha Argueta and David Eckstein, Germanwatch