TWN Info Service on Climate Change (Mar18/04)
7 March 2018
Third World Network

Proposal by GCF Secretariat on seeking funding proposals put on hold

Kuala Lumpur, 7 Mar (Hilary Chiew) – A proposal prepared by the Green Climate Fund (GCF) Secretariat to launch a pilot on ‘project-specific assessment approach’ (PSAA) in seeking funding proposals, did not gain full support from its Board during its 19th meeting that concluded at Songdo, South Korea on 1 March.

Several board members from both developed and developing countries registered their concerns over the merits of the proposal while a review of the existing accreditation framework is on-going, and preferred to “wait for the full review” of the accreditation framework.

The proposal was presented by the Secretariat as a complementary modality to accreditation in order to accelerate proposals submitted under the Simplified Approval Process (SAP) and Request for Proposals (RFPs) approved by the Board.

It was in response to the 18th Board meeting request for the Secretariat to present a proposal for the revision of the accreditation framework that includes other modalities for institutions to work with the GCF as early as the 19th Board meeting.

In the document titled ‘Further development of the accreditation framework’ for consideration of the Board, the Secretariat explained that the PSAA entails assessing a project and the entity (or entities) submitting a funding proposal for its ability to effectively undertake the proposed project. The approach could be applied to entities that have responded to the SAP pilot scheme and the entities that respond to and are selected for the RFPs issued by the GCF, for example including a pilot phase for enhancing direct access (EDA); a pilot scheme to support micro-, small-, and medium-sized enterprises (MSMEs); and a pilot programme to mobilise resources at scale (MFS) in order to address adaptation and mitigation.

In the draft decision attached to the document for the Board’s consideration, the Secretariat proposed that the Board implement the PSAA on a pilot basis and operationalise the pilot within three months with the objective of submitting funding proposals which are within the scope of the PSAA for the Board’s consideration as early as possible.

During its oral presentation at the meeting, the Secretariat said 109 organisations have sought to engage with the GCF specifically on the RFPs and SAP. The Secretariat said that to enable the GCF to meet the fit-for-purpose aim, the it was proposing to work with entities to undertake a single project, rather than through the accreditation process where the entity may engage over a long term with GCF on multiple projects. The Secretariat further proposed that each entity be limited to a maximum of three proposals for both non-accredited entities and accredited entities (AEs), where their funding proposals go beyond their accreditation scope.

After considerable exchanges, the Board decided to take note of “the project-specific assessment approach that combines assessments undertaken during the existing accreditation and proposal approval processes in a fit-for-purpose manner” and requested the Secretariat “to further develop the approach ... taking into account the views of Board members and as part of the proposals from the full review of the accreditation framework, for the Board’s consideration at its 20th meeting.”

The decision also took note of “the progress report on the review of the accreditation framework”. It also noted “that the full report of the review of the accreditation framework with further recommendations will be presented to the Board as early as its 20th meeting” and also decided “to extend the prioritisation of entities applying for accreditation ... until the end of the 20th meeting of the Board’.

The Board also adopted a decision revising the management fee structure for AEs for public sector grants for projects/programmes as follows:  For micro projects that are not more than US $10 million, the fee cap is up to 8.5%; for small projects that are between US$ 10-50 million, the fee cap is up to 7%; while for medium projects between US$ 50-250 million, it is 8% and for large projects above US$ 250 million, the fee cap is 7 %. Fees for private sector projects/programmes and fees for non-grant public sector projects/programmes will be negotiated on a case-by-case basis, as required.

Highlights of intervention on the PSAA approach

Jorge Ferrer (Cuba) said that the idea of the pilot PSAA was good but he was not sure if it was appropriate when the Board had yet to carry out an independent review of the accreditation framework.

“We need the full picture and not adding further layers without being sure what is the most appropriate way to address the problem,” he cautioned. He added that despite the fact that there are a good number of direct access entities, they were only getting the small and micro projects, pointing out that international AEs accounted for 74% of the projects approved. “So the pilot should focus on direct access entities ... if it goes to international AEs, the imbalance will be further deepened,” Ferrer added.

Omar El-Arini (Egypt) expressed surprise over the proposal of the Secretariat, and said that some Board members were not convinced yet that the present accreditation process is working well and having the PSAA “will not make it better”.

Karma Tshering (Bhutan) cautioned that the introduction of the PSAA signalled a departure from the approach prescribed by the Governing Instrument of the GCF which explicitly states that access will be through the National Designated Authority and the AEs. He added that the review of the accreditation framework is not yet finalised and that it was premature to approve this PSAA at this meeting and preferred deferring a decision until the next meeting pending the full review of the accreditation framework.

Ignacio Lorenzo (Uruguay ) also expressed concerns with the proposed PSAA “as it is a major change to our policy that comes at this time in the middle of the review (of the accreditation framework). There are implications for staff, budget and diverting the resources of staff that have to deal with existing AEs in the pipeline.’

May Gicquel (France) found the proposal interesting but agreed with others that “it might be better to wait for the full review before changing the way we do things here as this is a rather substantial change.”

Karsten Sach (Germany) was grateful for the proposal but reckoned that it should be taken up in the realm of the overall review (of the accreditation framework). He noted that going to full-fledged implementation of the pilot proposal was immature given that other entities had been waiting for a long time.

Sally Truong (Australia) recognised the need to be flexible to accommodate the private sector which operates in a speedier timeframe but stressed the need to do it in a way that safeguards the integrity of the Fund and the investments being made.

Tosi Mpanu Mpanu (Democratic Republic of Congo) supported the proposal with the need for assurance that the projects meet the fiduciary standards and safeguards and apply to SAP and RFPs, noting that the review of the accreditation framework should explore all options and modalities to streamline the accreditation process.

Esther Gonzalez (Spain) felt it was time for the Board to find solution to the bottleneck and agreed with the proposed pilot for the PSAA that is limited to the entities that respond to the SAP and RFP.

Lars Roth (Sweden) supported the proposed PSAA but said that the decision should include the timeframe. He said the review of the accreditation framework should look into the number of AEs that the Fund is able to deal with and if there is need to set a time limit for aspiring AEs to produce a funding proposal.

Feturi Elisaia (Samoa) viewed the PSAA as a pilot scheme “so we can learn from challenges and can respond more effectively.”.

Roelof Buffinga (Netherlands) saw merit with the proposed PSAA but cautioned against approving projects by entities that have yet to shift their portfolio in support of low carbon and climate resilience activities.

Satu Santala (Finland) also supported the proposal and would like the pilot phase to report back to the Board on an annual basis. On the review of the accreditation framework, she said the fundamental question was whether there should be a limit on the numbers of AEs and whether the number of AEs per country should also be looked at.

The Board also adopted a number of other decisions: Risk Management Framework and Private Sector outreach plan and modalities to support activities enabling private sector involvement in least developed countries (LDCs) and small island developing states (SIDS).

The Board considered the RMF proposed by the Risk Management Committee of the Board and adopted the second set of the RMF components in three annexes dealing with policies on investment risk, non-financial risk and on funding risk.

During the discussion, Zaheer Fakir (South Africa) expressed concerns that the RMF was more concerned with protecting the money of the Fund rather than spending it and questioned if this was in line with the Fund’s high risk appetite.

He also pointed out that there is an overreach on the risk management as “everything in the Fund is subjected to risk management including the readiness programme which is supposed to have limited risk.” “It is fine to say in your mission statement that you want a high risk appetite but the devil is in the details. We are saying one thing (on one side) but extremely conservative on the other side,” lamented Fakir.

“You aspire to be a trapeze artist but suffer from a fear of height” cautioned Fakir and said that this was being “schizophrenic.”  He said further that he fully understood the need for the GCF to manage risks but “felt that the document lost the essence of the GCF and it would sit well within a financial or commercial institution.”

Ayman Shasly (Saudi Arabia) raised the inclusion of the World Bank’s definition of income level in one of the footnotes in the annex of the document on funding risk policy and wanted the sentence deleted as he could not approve a document that differentiate countries based on income level.

The footnote reads: “It should be noted that extent of solvency risk exposure arising from investment commitments in non-holding currencies is limited by the diverse set of currencies the GCF may invest in, which provides a natural hedge to the GCF against investment currency appreciation. An equally-weighted currency basket from low-income and lower-middle income countries (as defined by the World Bank) depreciated by 49% against the SDR basket from 1995 to 2016.”

The decision was adopted after the reference to the World Bank income definition was removed from the footnote.

Private sector matters

The Board adopted two decisions pertaining to the private sector.

On the development of the private sector outreach plan, the Board requested the Secretariat “to incorporate the recommendations from the Private Sector Advisory Group (PSAG) into the strategic road map of the Secretariat for leveraging, mobilising and engaging domestic and international private sector actors, the communications strategy of the GCF, and other relevant policies, processes and programmes”. It also requested the Secretariat to consider including a private sector outreach focus as part of the regional GCF structured dialogues.

On the PSAG recommendations on the development of modalities to support activities enabling private sector involvement in LDCs and SIDS, the Board requested the Secretariat to develop modalities, to support activities to enable domestic and international private sector actors to engage in GCF activities in LDCs and SIDS for consideration by the Board at its 20th meeting.

It also requested the Secretariat, in cooperation with private and public sector entities, AEs, NDAs and focal points, to identify and facilitate the development of funding proposals targeting LDCs and SIDS, which involve innovative financing structures or modalities, such as project and small-scale solution aggregation, public-private insurance structures, and on-lending and risk capital investments through climate-oriented financial intermediaries.

Edited by Meena Raman