TWN Info Service on Climate Change (May14/03)
25 May 2014
Third World Network

Green Climate Fund completes major steps for resource mobilization to begin

Songdo, 26 May (Indrajit Bose and Meena Raman) - The seventh Green Climate Fund (GCF) Board Meeting concluded in Songdo, South Korea, on 21 May 2014 with key  decisions taken, necessary to begin mobilizing significant funds to tackle global climate change.

The Board successfully reached agreement on the essential steps or requirements for the GCF to move towards commencing its initial resource mobilization. Now, that all the processes are completed, the world is waiting to see if resources actually materialize into the Fund.

Resource mobilization was a subject of intense exchanges at the meeting, and there was considerable push from the developing country Board members to at least get the developed countries to indicate a number regarding the scale of resources that the Fund would begin with, but to no avail.

All that was possible to do was a reference in a decision “to commence the process to mobilize resources commensurate with the Fund’s ambition to promote the paradigm shift towards low-emission and climate-resilient development pathways by providing support to developing countries to limit or reduce their greenhouse gas emissions and to adapt to the impacts of climate change.”

Even a reference to “a very significant scale” of resources in an earlier draft of the decision was removed at the insistence of developed countries.   

Of the eight essential requirements, the Songdo meeting tackled six of these requirements, with the other two requirements completed at an earlier meeting in Bali this year (viz. on policies for initial allocation of the Fund’s resources and the terms of reference of its Independent Evaluation Unit, Integrity Unit and redress mechanism).

The six requirements agreed to in South Korea were: rules on accreditation; the Fund’s initial approval processes for funding; a results management framework; financial risk management and investment frameworks; the structure of the Fund; and initial modalities for the Fund’s mitigation and adaptation windows.

Agreement on these issues was reached after considerable exchanges and negotiations, often intense, as there were several divergent views among the Board members. The Songdo meeting which began on 18 May saw Board members working till late night from the first day.

The GCF is a new multilateral Fund that was agreed to by Parties at the 2010 United Nations Framework Convention on Climate Change (UNFCCC) Conference held in Cancun, Mexico, and is designated as an operating entity of the Convention’s financial mechanism. Its purpose is to promote, within the context of sustainable development, a paradigm shift towards low-emission and climate-resilient development pathways by providing support to developing countries to help limit or reduce their greenhouse gas emissions and to adapt to the unavoidable impacts of climate change.

On the issue of accreditation, the Board agreed to adopt the initial guiding framework for the Fund’s accreditation process that will also apply to private sector entities. It also agreed to adopt initial fiduciary principles and standards and will conduct a review of these standards within three years. On an interim basis, the Board decided to adopt the Performance Standards of the International Finance Corporation (IFC). It also decided to aim to complete the process of developing the Fund’s own environmental and social safeguards (ESS), which will build on evolving best practices, within a period of three years after the Fund becomes operational.

Several developing country Board members wanted to ensure that national and sub national entities should not face difficulties for accreditation, including in getting direct access to the Fund and that international entities such as the multilateral development banks should not be privileged over national and sub-national entities. They also said that efforts must be made for capacity building for strong national entities in developing countries. Developed country Board members on the other hand wanted to fast track accreditation for the MDBs. Finally, it was agreed that a “fit-for-purpose” accreditation approach would be adopted “that matches the nature, scale and risks of proposed activities to the application of the initial fiduciary standards and interim ESS.”

On the issue of approval processes for funding, developing countries wanted a strengthened role for the nationally designated authorities (NDA) in the larger scheme of things. In relation to the draft decision which was initially proposed, some members were of the view that the NDAs were only mentioned as a formality in the process without being given any real role. The other point that several developing country Board members raised was that the approval process was a cumbersome one with too many steps. They also emphasized the need for funding proposals to be aligned with a developing country’s national plan and strategy, not just that of the Fund’s policies.

There was also a big push by some developed countries, especially from the United States, for a “competitive” approval process, which was strongly resisted by developing countries. Eventually, following the exchanges, an initial proposal approval process was greed to for mitigation and adaptation projects and programmes, involving both the public and private sector. A stronger role for the NDAs was recognized in forwarding a country’s work programme, and for the NDAs to signal who their preferred accredited agencies or intermediaries will be in accessing the Fund’s resources.

On the Fund’s investment framework, the Board agreed on the initial investment framework which will consist of the Fund’s investment policies, investment strategy and portfolio targets and investment guidelines. A major area of contention among Board members was over the initial criteria for assessing programme and project proposals. The general criteria agreed to covered impact potential both for adaptation and mitigation, the paradigm shift potential, sustainable development potential, the needs of the recipients, country ownership and efficiency and effectiveness. 

As for the Fund’s financial risk management framework, the Board agreed that it will consist of financial risk policies, risk monitoring and reporting and risk governance.

On the results management framework, a major tussle was over designing a logical framework for results management, and the development of indicators to measure the impact of the Fund on strategic improvements at a country level. Developing countries were against the setting up of indicators that would encompass sector-wide or economy wide baseline targets for mitigation. In relation to adaptation, developing country Board members were against having any indicator relating to the volume of funds leveraged or co-financed, arguing that this was inappropriate to do for adaptation.    

In relation to the Fund’s structure and the initial modalities for the adaptation and mitigation windows, a point stressed by developed countries was the need to spell out clearly the private sector facility (PSF), given that this component was missing in the earlier documents presented to the Board. The final documents in this regard, addressed the PSF, thus facilitating the adoption of decisions in this regard.

Towards the end of the meeting, compromises were struck as Board members met in small groups to resolve differences. It was eventually agreed that the decisions would be revisited and the processes would be reviewed in the near future. The premise was since the Board is working on a lot of ‘initial elements’, it would be fit to agree to something for now, and make things more robust along the way.

“We are not looking for the perfect and we don’t want the perfect to be the enemy of the good,” said Cochair Manfred Konukiewitz (Germany), on a number of occasions as he along with his other co-chair, Jose Salceda (Philippines) tried to steer the Board members into achieving some kind of consensus towards the six essential requirements. Ayman Shasly (Saudi Arabia) took Salceda’s place in co-chairing when the latter had to attend to an urgent meeting in the Philippines but returned on the final day of the Board meeting.

For several developed country Board members, the Songdo meeting was strictly about completing processes that would lead to the mobilization, and any mobilization number, even an indicative one, was left to political processes in their countries back home.

However, it was agreed that an initial resource mobilization process will commence and a first meeting of contributors will take place end of June 2014, probably in Geneva, Switzerland.

As remarked by co-chair Salceda, the Songdo meeting “was historic”, with the essential requirements to receive the funds having been completed.  What resources will flow to the GCF remains to be seen.