Finance finally on horizon for UN’s Green Climate Fund

COMMENT: Civil society observer says latest meeting of flagship green fund has left her cautiously optimistic

The UN hopes the GCF will boost clean energy investments in developing countries (Pic: Masdar/Flickr)

The UN hopes the GCF will boost clean energy investments in developing countries (Pic: Masdar/Flickr)

By Meena Raman

Many interested contributors from developed and some developing countries have indicated that they will be making financial pledges to the Green Climate Fund (GCF).

These pledges will be made either on 23 September in New York (at the United Nations Secretary-General’s Climate Summit) or latest by November 2014, when the first formal pledging conference is scheduled to take place.

These indications were made at a second meeting to mobilise resources for the GCF – termed ‘Initial Resource Mobilisation’ (IRM) – which was held in Bonn, Germany fon 8-9 September. However, no target was set on the scale or size of the funds for the GCF’s initial capitalisation.

Board members from developing countries at the meeting expressed concerns if these pledges will be conditioned on: (i) whether decision-making procedures in the GCF Board (in the event of a lack of consensus) will be by voting linked to contributions, and (ii) if the World Bank will continue as the interim trustee for the IRM period (proposed by the IRM meeting to be from 2015 to 2018.)

The issue of voting and the interim trustee arrangements were among two very contentious issues at the IRM meeting between mainly developed country contributors and the developing country Board members. Another issue of controversy was whether the earmarking of funds or targeting of contributions by funders to specific areas of preference should be prohibited or be limited.

More than 20 governments, represented by their senior officials, attended the IRM meeting. Also in attendance as observers were the Co-chair of the Board of the GCF from Germany and four representatives of the Board (two developed and two developing countries), the Fund’s Executive Director and two active observers of the Board (one civil society/one private sector), with the Third World Network representing civil society organisations (CSO).

While the German government reaffirmed its pledge of up to US$1 billion (Euros 750 million) to the GCF which would be in the form of grants and that are not earmarked, other countries, including the United States, France, Sweden, Switzerland, Finland, the Netherlands, Denmark, Norway, the United Kingdom and Italy confirmed their intention to make pledges by this year without indicating a definitive figure.

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Many of the potential contributors also said that their pledges will be in the form of multi-year grants for multi-years (perhaps for 4 years from 2015-2018), and will be un-earmarked.

Germany also clarified that its pledge was for 4 years, while “concrete encashment” will be in accordance with “normal programme development within 9 years.”  France did indicate that while a majority of its pledge will be in grants, there will be a share as loans as well.

The US expressed hope that its pledge would be “significant” and that it will make this known in November, “with a high degree of probability that it would all be grant contribution”.  It added that it was “important to develop a Fund that has all the characteristics to make that investment.”

Other countries from the OECD such as Mexico and South Korea as well as developing countries (Peru and Colombia) also indicated their intention to make contributions to the Fund.

While expressing acknowledgement for the significant efforts being made by developed countries, developing country Board members from Zambia and Cuba emphasised the need to have an idea of the scale of the resources needed for the Fund.

David Kaluba of Zambia said that it was important to have an idea of the scale of resources needed for the GCF to undertake the paradigm shift required. He said that billions of dollars are needed and the challenge is to reach significant resources.

Echoing the sentiments of Kauba was Jorge Ferrer of Cuba, who said the GCF needed clarity on the scale of resources required and the need for urgency to have pledges by November this year. He added that there is need to set a floor or minimum amount on the scale of resources to the GCF for the sake of predictability and clarity.

As the lone CSO representative and representing Third World Network, I expressed encouragement over the signals by interested countries to make pledges to the GCF, also voiced disappointment that there was no effort to reflect an ambition level or scale of the target of resources for the Fund. I stressed that high ambition was needed on the scale of resources for the Fund for the required transformation in developing countries.

The delegate from Norway, in response, said that while all developed countries are committed to meeting the US100 billion target as climate finance (by 2020), it was not clear what share of this goes to the GCF. He added that this depends on the Fund’s “efficiency” and expressed hope that the pledges to the GCF will lead to significant amounts.

The meeting was facilitated by Ambassador Lennart Bage of Sweden (who was former President of the International Fund for Agricultural Development).

Christiana Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC), in her opening remarks to the participants said “the defining issue for the meeting of Parties in Lima, Peru (end of this year) is the effective and timely initial capitalisation of the Fund”.

She added that this will “set the tone”, including “for the emergence of a draft text for Paris”, referring to the new 2015 climate change agreement to be concluded. It is the “bellwether of trust” for Parties, stressed Figueres, who recalled the agreement since the Copenhagen meeting 5 years ago to mobilise the US100 billion per year by 2020 in climate finance for developing countries.

Decision-making 

Several contributors, including from the UK, US, Norway, Sweden, Switzerland, Germany, the Netherlands, France, Spain and Japan, wanted to recommend to the GCF Board to develop procedures for adopting decisions in the event that all efforts at reaching consensus have been exhausted.

While stressing the importance of consensus being the best form of decision-making, several of them expressed the view that voting should be linked to contributions and they wanted this issue resolved before the pledging conference in November.

(The current rule that has been agreed to by the GCF Board is to arrive at decisions through a consensus. The Board has not reached agreement in developing procedures for the adoption of decisions in the event all efforts at reaching consensus have been exhausted.)

The US said that there is “an expectation by those who contribute that they will have a say in decision-making.”  Switzerland also said that the issue of voting needs to be sorted out by the Board as to whether voting should be linked to contributions or not. Norway said that decision-making linked to contributions was important and was an incentive for contributions.

Kaluba from Zambia in response to the proposals said that he had no problem sending a recommendation to the Board for having a decision on voting in relation to decision-making but what he had problems with is that this becomes “a condition for pledging”. He said that he “was hearing that the Board has to take a decision on voting in October (at the Board’s next meeting) or no resources will come.” He said that the “goal posts are shifting”, referring to more conditions being imposed before resources are mobilised for the Fund.

(The GCF Board had last year agreed to 8 essential requirements to receive, manage, programme and disburse financial resources. These requirements had been completed in May this year, paving the way for the commencement of the initial resource mobilisation for the Fund.)

Ferrer of Cuba remarked that insisting on a Board decision on voting procedures as a pre-condition for pledging amounts is “imposing a 9th condition” for the mobilization of resources. He also strongly objected to any decision-making procedures in the Board that is linked to the contributions of countries. He said that voting should not be linked to monetary concerns but must respond to the principle of equality.

The CSO representative also expressed opposition to allowing for voting on the Board which is linked to the contributions of countries, saying that this would lead to undue influence in decision-making by those who contribute to the Fund.

Following the exchanges, the potential contributors agreed to the following which was reflected in a document called ‘Proposal for the policies for contributions to the GCF’:

“Decision-making is seen by interested contributors – developed and developing countries – as key to the ability to mobilize resources. Against this background, interested contributors recommend to the Board that the Fund develops procedures for adopting decisions in the event that all efforts at reaching consensus have been exhausted consistent with paragraph 14 of the Governing Instrument.

Consensus should remain the preferred principle for decision-making. Formal decision-making in the event that all efforts at reaching consensus have been exhausted can only be a measure of last resort. Interested contributors recommend to the Board to ensure that any decision-making procedure reflects a balanced partnership between developing and developed countries taking into account the following principles:

(i) Each Board Member will participate in voting;

(ii) Link with contributions; and

(iii) Qualified majorities depending on the type of decision.

(g) Interested contributors recommend that the Board should decide the principles of decision-making in the absence of consensus at its eighth Board meeting in October 2014.”

Interim trustee

The interested contributors also wanted clarity on the trustee arrangements. The World Bank has been serving as the interim trustee of the GCF. (The Governing Instrument of the GCF states that the World Bank will serve as interim trustee for the Fund, subject to a review three years after the operationalization of the Fund.)

In issue at the meeting was when the Fund was operational.

Germany wanted reassurance that there is no disruption of trustee services and the need for its continuity. This sentiment was shared by many interested contributors and they wanted a recommendation to be made to the Board for its consideration.

Both the Board members from Zambia and Cuba stressed that the Board was handling the issue of the interim trustee, as this matter was on the agenda of its next meeting and that there has to be confidence that it will ensure a credible decision. Ferrer (Cuba) said that the IRM process should refrain from micro-managing the Board.

The Co-chair of the Board, Manfred Konukiewitz (Germany) said that the date of operationalization of the Fund is for the Board to decide and not for the World Bank.

The US delegate said that it was important to ensure that the World Bank’s status is extended to cover the period of the IRM and not just the pledging period, as there needs to be assurance that the existing trustee is there for the first disbursement. This view was also shared by the Netherlands.

In response, the Zambian Board member Kaluba asked what the period of the IRM was. The facilitator, Bage, replied that it was from 2015 to 2018. Kaluba then questioned if this means that the World Bank would serve as interim trustee till 2018.

Ferrer (Cuba) also cautioned the meeting against getting into the details of the issue as it is for the Board to address and not for the meeting to decide on any interpretation.

Following further exchanges on the matter, the contributors agreed to the following proposal:

“(i) Interested contributors have an urgent and critical need for clarity and certainty on the continuity in the provision of current trustee services to the Fund during the IRM period. Interested contributors therefore recommend the Board to decide at its eighth meeting: (i) To extend the current interim trustee arrangements; and (ii) To define when the Fund is deemed to be operational.”

Targeting contributions

Several interested contributors from developed countries led by the UK, US and Norway expressed the view that some targeting of funds should be allowed as this would enable more resources to come into the Fund. The US in particular was interested in having some of its resources channelled to the Private Sector Facility.

Several other contributors from developed countries including Sweden, Finland, the Netherlands, Denmark and Germany expressed caution against the targeting of contributions or earmarking.

Many stressed the importance of ensuring that most of the contributions to the GCF are not targeted or earmarked. They were however willing to consider allowing a limited amount of resources to be targeted.

The Board members from Zambia and Cuba, as well as the CSO representative voiced their objections to this, saying that this was a matter that was previously discussed by the Board and there was no agreement on allowing the earmarking of funds. They also stressed the importance for the GCF to learn from the mistakes of other funds and avoid the targeting or earmarking of contributions.

Following exchanges on the issue, the following proposal was agreed to:

“As a part of the IRM collective engagement process, contributors may request that their contributions be targeted to the Fund’s two windows (mitigation and adaption) and the Private Sector Facility. The aggregate volume of targeted contributions to the Fund will not exceed 20% of the total confirmed contributions to the Fund. This will not prejudice future replenishments. The implementation of such targeting will be monitored and reported by the Secretariat.”

Other issues

Among other matters which were also addressed by the meeting included policies for grants, loans and capital contributions, liquidity risk management, managing of non-payment of contributions and foreign exchange risk management.

In his concluding remarks, Bage said that the meeting had agreed to ‘proposals for policies for contributions to the GCF’ which contains recommendations to the Board. There will also be a chair’s summary from the meeting.

The formal pledging conference will take place on 20-21 November. The venue for this session is yet to be finalised. However, South Korea and Zambia have offered to host this event if needed.

Meena Raman is from Third World Network, an NGO focused on development in the global south based in Geneva

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