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Info Service on Climate Change (Oct24/03) New Delhi, 30 October (Radhika Chatterjee): The 40th meeting of the Green Climate Fund (GCF) Board approved 16 funding proposals amounting to USD 1.01 billion which spread across 37 countries and also accredited 5 new entities to access the GCF funds. Of the 16 projects approved, 5 applications were from direct access entities (DAE) and the remaining from international access entities (IAE). Among the first-time country projects that were approved were in Angola to empower women groups to build climate resilience; in Iraq and Somalia to build resilience in agricultural livelihoods; and in Azerbaijan to strengthen early warning systems. These projects were grant-based, recognising that such countries already operate in a constrained fiscal space. It was also the first time that the Board approved a ‘debt-for-climate conversion’ project in Barbados (titled ‘Barbados climate resilient south coast water reclamation project ’). The Board met in Songdo, in the Republic of Korea, from 21-24 October, 2024, and also adopted major decisions that included a policy for results based payment for REDD+ (reducing emissions from deforestation and forest degradation in developing countries plus), an updated risk appetite statement, and a decision to review the accreditation framework of the GCF. The meeting was Co-chaired by Milagros De Camps German (Dominican Republic) and Sarah Metcalf (United Kingdom). Though the updated risk appetite statement was adopted by consensus, developing country Board members cautioned the Board that the implementation of the statement should not lead to a situation where the Board becomes excessively risk averse as that would defeat the core purpose that the GCF is expected to serve which is supporting climate related projects in developing countries. FUNDING PROPOSALS In presenting the funding proposals to the Board, the Secretariat informed that the requested financial instruments in the proposals cover 49% in grants, followed by 46% in loans, 4.5% in equity, and 0.5% in reimbursable grants. Geographically, 44% of the funding were requested for Africa, 33% for Asia Pacific, 11% for Latin America and the Caribbean region, and 13% for Eastern Europe. The following 16 projects/funding proposals were approved:
During the discussions, several Board members raised matters. Some highlights are as below. Isatou Camara (Gambia) shared concerns regarding the low number of projects from DAEs. She drew attention of the Secretariat “to the use of the simplified approval process (SAP) modality because the SAP was introduced to encourage and facilitate DAEs to GCF resources, recognizing their capacity constraints and the unique challenges they face. She strongly urged the Secretariat to reassess and monitor the SAP portfolio and [ensure] that more DAEs are empowered to access these resources.” Seyni Nafo (Mali) lamented about the low amount of funds that was being directed towards DAEs and expressed that “Over time, I hope that we’ll see them also coming up with more ambitious projects and program at scale.” Appreciating the number of single country projects but also maintaining the need for caution, Wael Aboul-Magd (Egypt) said it should also be noted that those projects are worth only USD 470 million and expressed the need to persist with single country projects over multi-country ones. He also echoed concerns regarding the disbalance between DAEs and IAEs in the funding proposals. ACCREDITATION OF NEW ENTITIES The Board approved accreditation of 5 new entities, of which 3 are national entities as follows:
REDD+ RESULTS-BASED PAYMENT SYSTEM The policy for results-based payment system (RBPS) for REDD+ was adopted by the Board through consensus. During the meeting, the GCF Secretariat, in its presentation on the policy, shared with the Board details on key aspects of the policy. Adoption of this policy has led to a mainstreaming of REDD+ RBS projects by integrating them into the regular programme and project activity cycle of the Board. This implies that REDD+ projects would now be processed through the same rules as are applied to all other GCF projects. Further, instead of having a set timeframe (like in the pilot phase of REDD+), there will now be an open-ended timeframe. REDD+ projects would have to be aligned with the relevant programming period strategic plan, the investment strategy and portfolio targets set out in the investment framework. [This policy was drafted by the GCF Secretariat after the Board in its 39th meeting, had decided on the following elements: “a) A set of guiding principles to be applied for developing a proposal on mainstreaming REDD+ RBPs, …; (b) A request for the Secretariat to prepare for the Board’s consideration and approval of a proposal for mainstreaming REDD+ RBPs, consistent with the above-mentioned principles, and conduct open, transparent and inclusive consultations in this regard…; and (c) A decision to allow, on an exceptional basis, four pending REDD+ RBP concept notes submitted to GCF before the closure of the pilot programme in 2022 to be submitted as funding proposals under the Pilot Programme…”] According to the decision adopted by the Board, “for each GCF programming period, GCF will accept for consideration REDD+ results achieved within a 5-year period that commences six (6) years prior to the GCF programming period during which the relevant funding proposal is submitted.” It also provides that for the programming period 2024-2027 (GCF2), “a carbon price for REDD+ results paid under the Policy shall be set at USD 8.00 per tonne of carbon dioxide equivalent (CO2 eq) of reduced emissions or enhanced removals”. This policy would also be “subject to periodic reviews, allowing elements to be adjusted according to additional considerations such as lessons learned and GCF’s strategic plan, programming allocations, and priorities.” During the discussion session, the Secretariat shared that the carbon price too would be part of these periodic reviews. The policy also lays out the criteria for assessing funding proposals through REDD+ RBPS. Following the adoption of this decision, the Secretariat will be developing a detailed guidance note for the funding proposals under this policy. According to the policy document as presented in Annex II of this document, “the funding proposal will be assessed against the criteria for assessing proposals for REDD+ RBPs, including the scorecard included in Appendix I, and GCF policies and procedures.” The scorecard is a set of criteria like the Forest reference emission levels (FRELs), the manner in which historical data has been considered in the FREL, and so on, against which proposals will be assessed and scored. Any proposal that would have a “fail” score on any of the criteria to be assessed would not qualify. All Board members welcomed the policy presented by the Secretariat. Concerns related to the criteria for assessing funding proposals under REDD+ RBPS were also shared by developing country Board members and observer participants. Maria Luwalhati C. Dorotan Tiuseco (Philippines), shared that her “primary expectation for including RBPs under the regular programme cycle of the GCF is its contribution to greater transparency, accountability and predictability for future funding requests.” Camara (Gambia), highlighted the need for standardisation of FREL, calculation methodologies and access to reliable partners. She said, “Given that many Least Developed Countries (LDC) will need to recalculate or establish their FRELs, we strongly recommend the standardisation of these methodologies during the application of this policy because we believe a standardised approach would enhance clarity and reduce confusion, particularly for small countries with limited resources. We would also recommend or request to have reference lists of credible actors or institutions capable of conducting such assessments.” Sharing concerns about the scorecard aspect of the policy, she said, “as the scorecard plays a critical role in determining both eligibility and payment amounts for countries, we wish to request the Secretariat to prepare a concise case study demonstrating how a small country from LDC or seats with minimal forest and coverage would qualify. Because we believe this practical example would provide crucial insights into how the scorecard can be effectively applied in similar contexts”. Nafo (Mali), said the broader question about the policy that needs to be considered is about how more countries could progress into phase three of REDD+. [The third phase of REDD+ refers to results-based actions that are fully measured, reported and verified, allowing countries to seek and obtain results-based payments.] He said though discussions around REDD+ have been happening since the last decade, “the reality is that that ecosystem hasn’t really been doing a great job in progressing countries to where they would want to be for sure”. Another key challenge he shared was about the issue of revisiting and reworking FREL. He said, “this is extremely quantitative…[and] technical and many of our countries are having difficulties in either refining or updating their FREL…[we] really want the Secretariat to work with those countries and consider hands on technical assistance and capacity building around strengthening national forest monitoring systems. Enabling more accurate data collection and reporting and really offering tailored support to stick all around the engagement coordination and governance. This is going to be, extremely critical and the GCF really can play a pivotal role in ensuring more countries participate.” Gisela Berardi (Italy) said “we believe that the integration of REDD+ RBPS into the regular framework will foster predictability, transparency and accountability, ensuring that funds are allocated based on the highest possible impact. In this context, we also look forward for an operation which makes possible to completely assess the actual REDD+ proposal on the basis of the GCF investment framework criteria in order to understand how they can be shaped to the features of REDD+ financial proposals.” Kairos Dela Cruz, active civil society observer for developing countries said “we urge the GCF to scrutinize any submitted claims for payments under past performance and activities proposed for the use of proceeds thoroughly to ensure that they do not allow for human rights violations, including the rights of Indigenous Peoples, especially since under results-based payment, all funding support will be released upfront.” RISK APPETITE STATEMENT According to decision B.24/04, the Board had requested the GCF’s Risk Management Committee (RMC) to review the Fund’s risk management framework (RMF). [The RMF is a set of policies that the Board adopted in 2017 for risk management.] In 2023, the RMC began a phased review of the RMF, starting with the risk appetite statement (RAS). While presenting the updated RAS, the Secretariat said the updated RAS is a top-down and bottom-up guidance for risk management in alignment with the second updated strategic plan priorities of the Fund. The Secretariat said that the RAS is “a strategy document” and “its objective is to guide overall level risk taking and proactive risk management.” A few of the key changes that have been made in the updated RAS include the addition of a contract section in the statement; integrating reputational risk in many aspects of GCF’s work like speed, efficiency, compliance, and result delivery; replacement of the zero-risk tolerance by the zero-tolerance section according to Board approved policies and standards, and low risk tolerance for policy breaches; and the introduction of graduated risk tolerance levels. According to the new RAS, the GCF will now have three levels of risk tolerance, low, moderate and high as follows: “Low risk tolerance (are) risks accepted when unavoidable for which appropriate mitigants to minimize the likelihood and/or impact will be applied; moderate risk tolerance (are) risks to be carefully managed and mitigated to reduce the likelihood and/or impact; and considerable risk tolerance (are) risks required to be taken to deliver the GCF mandate, that will be managed, monitored and, where practicable, mitigated, and only accepted if compensated through impact.” The updated RAS classifies risk into two broad categories of institutional and programme risks. Institutional risk includes: funding contribution uncertainty risk and liquidity risk (low tolerance); funds held in trust risk (low tolerance); foreign exchange risk; operational risk (low to moderate tolerance); concentration risk (moderate level); and legal risk (moderate). Programme risk includes issues like policy breaches by partners (low tolerance); credit and equity investment risk (considerable tolerance); project and programme implementation risk (considerable tolerance). Foreign exchange risk has been further divided into programme (low tolerance) and funding risks (moderate tolerance). In the discussion followed by the Secretariat’s presentation, several developing country Board members shared concerns, though they too welcomed the adoption of the statement. Nafo (Mali) said that in the implementation of the policy “we must avoid being overly risk averse. Good judgment is going to be important in managing risk and at the same time, seizing opportunities. At the end of the day, the mission is to support high-impact climate projects in very challenging environment and vulnerable environments… So, the framework must not limit innovation, but enable innovation so that we remain a catalyst for transformative climate action.” Nauman Bhatti (Pakistan) said that on the programming side risks, he said, “there are risks which are before the implementation side, when it comes to the project development stage…. When the Fund is engaged with different entities, at the programming stage, there are certain risks …, and the accredited entities which are engaged in the development of those projects face certain challenges…this dimension appears to be missing.” Regarding risks relating to contribution uncertainty and liquidity risk, he said that “…one of the major risks continues to be the realisation of unfulfilled pledges,” wanted this considered. Tlou Emmanuel Ramaru (South Africa) said “in the implementation of this statement, we should not be risk-averse, particularly if you want to achieve paradigm shift. As far as the programmes and the projects are concerned, dealing with the most vulnerable communities particularly in the developing country” is important. Hideaki Chotoku (Japan) mentioned the aspect of credit and equity investments to be of particular importance. He hoped that the RAS would further help the GCF mobilize private finance and make significant contribution towards achieving the Paris Agreement. Annette Windmeisser (Germany) said “it will be crucial to develop specific guidelines for detailed risk assessment, monitoring and mitigation…. We would like to request a continued analysis regarding the GCF’s risk appetite to set up projects with a mix of different financial instruments, which could enable a strong engagement of multilateral development banks (MDBs) and international financial institutions.” Andrew Hurst/Canada said “we would also encourage the Secretariat to develop a more detailed process for reporting on risk in addition to the risk dashboard, as it’s helpful for us in particular to be able to report to our political masters on how we as a contributor are undertaking our own due diligence in managing the funds that we give to the GCF.” Anna Merrifield (Finland) said “we believe that the GCF should be able to take higher risk tolerance for funds held in trust. The RAS should not prevent the trustee (referring to the World Bank) from investing in longer-term portfolios” and called on “the GCF to explore with the trustee on how it could use model portfolios with longer time horizons than three years.” She also asked “whether the Secretariat has established contingency plans in order to avoid harm to GCF staff and to guarantee business continuity in a number of unexpected situations, for example, pandemics or natural disasters. And of course, if it has not yet done so, we would encourage the Secretariat to establish contingency plans.” NEW BOARD CO-CHAIRS The Board elected Seyni Nafo (Mali) and Lief Holmberg (Sweden) as the next Co-chairs for 2025. It also finalized the meeting dates and location for 2025: 17 to 20 February, 2025 (41st meeting); 30 June to 3 July, 2025 (42nd meeting); and 27-30 October, 2025 (43rd meeting). The 41st and 43rd meetings will be held in the Republic of Korea, while the 42nd meeting will be held in Papua New Guinea.
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