Private sector backing could transform UN’s Green Climate Fund

Vital meeting of GCF board this week in Barbados could build on significant climate finance progress in last month

(Pic: Bright Source Energy/Flickr)

(Pic: Bright Source Energy/Flickr)

By Katie Sullivan

From a business perspective, the issues of climate finance and carbon pricing stole the show at last month’s UN Climate Summit in New York City.

The event’s centerpiece on climate finance was a formal session structured around the broad and inter-connected areas of green finance, green regulatory frameworks, and UN Green Climate Fund (GCF) pledges.

As the 23 September summit wrapped up, World Bank president Jim Kim summed it up best when he remarked: “The message is clear. Investor interest in a clean future is rising.”

This was evidenced by the remarkable number of wide-ranging climate finance declarations and commitments, which included:

-The launch of a new Portfolio Diversification Coalition by institutional investors, committed to decarbonising $100 billion-worth of investments by 2015.

-Some of the world’s largest pension funds committed to growing low-carbon investments to over $30 billion by 2020.

-Large insurance associations, managing one-third of the world’s investment capital, pledging a 10-fold increase in climate investments, to $420 billion, by 2020.

-Global investors’ coalition, representing $24 trillion of assets under management, voiced support for carbon pricing and other low-carbon policy and financing enabling frameworks.

-A group of major commercial banks’ collectively promised to issue green bonds – and other “green” finance instruments – worth $30 billion before 2016.

-The launch of Bank of America’s Catalytic Finance Initiative, aimed at stimulating at least $10 billion of new, high-impact clean energy investment worldwide.

New kid on the block

The summit also saw governments pledge around $1.3 billion to the new – and potentially cool – kid on the block, the GCF.

Pledges included relatively small sums from Norway, Sweden, Denmark, South Korea and Mexico, and an impressive $1 billion commitment, over 4 years, from CO21’s Host, France. These latest GCF government commitments are in addition to Germany’s existing pledge of $1 billion.

As it moves from conceptualisation to operationalisation, the GCF is attracting more attention – and it’s been a long time coming.

First proposed at the painful UN climate negotiations in Copenhagen in 2009, the GCF is supposed to be a cornerstone mechanism to help mobilise and deliver part of the promised $100 billion per year in climate finance by 2020.

Just how big a role this new Fund plays in realising this ambitious objective frankly remains uncertain.

But, for those keeping a pulse on its evolution, there’s excitement to see GCF’s potential blossom in the not-so-distant future – particularly as the Fund and its Private Sector Facility become staffed in Songdo, its business model framework decisions become crystallised, and the seeding of initial public pledges are used to smartly catalyse private capital and investments into mitigation and resilient development opportunities.

Barbados meeting

The GCF 24-Member Government Board will next meet in Barbados on 15-17 October.

In Bridgetown there are two particularly important items that private sector players and beyond will be monitoring, with a view to identifying how effectively the Fund might start attracting substantial sums of public and private capital over the coming weeks, months, and years.

First, the Board is expected to make final decisions on procedures to guide the GCF’s initial resource mobilisation activities – signing-off on these decisions will prove necessary ahead of the GCF’s first formal pledging conference in Berlin on 19-20 November.

Expectations are high for this inaugural “pledging conference” to result in significant public pledges, while building on New York City summit action and smoothing the path (and cooperative spirit) to Lima.

It’s no secret that UN-linked sources have thrown around $10-15 billion as a desired ballpark sum of initial GCF pledges before negotiators land in Lima on 1 December.

Second, Barbados will see Board Members consider recommendations from the GCF’s Private Sector Advisory Group (PSAG).

At its meeting in early September, PSAG members agreed that the fund’s Private Sector Facility (PSF) must embrace commercially-oriented instruments and strategies with predictable and outcomes.

These include the use of credit guarantees, insurance, concessional loans and equity investments. PSAG work and recommendations will hopefully be embraced by the Board in Barbados, in order for the group to swiftly and confidently adopt critical PSF and Fund investment decisions and management frameworks.

Private sector role

Some quarters have spoken harshly against the involvement of the private sector with the GCF.

However, it’s worth looking to the UN Clean Development Mechanism (CDM) experience for a reminder of what the private sector can do, with the right incentives and policy frameworks.

By the end of 2013, the CDM Executive Board estimated that the mechanism had mobilised $315 billion of investments in real and verifiable greenhouse emissions reduction projects across developing countries, primarily from private sector investors.

Given policy certainty and the right tools and frameworks, the GCF has the potential to unlock truly transformative levels of climate finance. Period.

And it’s not just about investing in decarbonisation and resilience: the success of a future climate change agreement depends on this finance coming and those investments being made.

November’s GCF pledging conference could help create the right political atmosphere ahead of December’s UN climate negotiations in Lima – talks that have to end with a skeleton negotiating text for the Paris 2015 climate agreement.

Meeting the target of raising billions in GCF pledges before Lima sessions get underway would go a long way to building confidence and trust for the ensuing negotiations, while placing the overall global effort for a 2015 climate deal on better footing.

Katie Sullivan is director of North America and Climate Finance at the International Emissions Trading Association (IETA)

Read more on: Comment & Analysis | Green Climate Fund