Not many people have heard of it, but the Green Climate Fund is one of the key planks in a new UN deal to tackle global warming agreed last December.
For the planet to tackle dangerous temperature rises, developing countries need help in financing expensive clean energy systems and also preparing for projected extreme weather events.
Boosted by $10.3 billion of funds from the likes of the US, UK, France and Germany, the Korea-based body announced an initial set of 8 projects worth $168 million in late 2015.
Through 2016 the board – split equally between developed and developing country government officials – wants to back projects valued at $2.5 billion. The hope is this will leverage far greater sums from private and public coffers.
But pressure is mounting. Investors seem unsure what the GCF’s goals are. Green groups worry it’s watering down its environmental standards. Developing countries have been slow to put forward viable bids.
Ahead of the board meeting 28-30 June, we’ve picked 8 questions they need to answer.
1. How will the GCF complement the Paris climate deal?
Paris was a seismic moment in climate diplomacy, but the deal relies on more than 180 countries delivering on the low carbon plans they submitted in 2015.
The 2015 pact specifically mandated the GCF to support developing nations “towards low-emission and climate-resilient development pathways”.
But what does that response look like? Should, for instance, the GCF agree to support every national plan or focus on thematic areas like transport, efficiency or agriculture?
It’s up for discussion (GCF/B.13/06) but time is running out for a clear strategy here, says Yvo de Boer, former UN climate chief and outgoing head of the Global Green Growth Institute.
“The thing that keeps me awake all night is the promises made in Paris that in 2018 the level of ambition would have to be increased, and I just don’t see the kind of support being mobilised to help deliver that,” he says.
“We are in a way reaching the end of the honeymoon of the GCF which really needs to get its act together and show it can work.
“If it doesn’t, both donors that have allocated significant money and developing countries that desperately want to access it are going to look for different ways to find each other.”
2. Is it ready to starting taking risks?
It’s hard to win a game of football unless you head into the opposition’s half. If the GCF is to deliver on its ‘paradigm shift’ mandate, it needs to quit taking the easy option.
“The GCF needs to take risks in terms of innovating. In the next 5 years, where is real innovation and transformation going to happen? Which are the hotspot sectors?” asks Athena Ballesteros, head of climate finance at the World Resources Institute.
“In next 5-10 years energy investments in the Philippines and Vietnam can either lock the countries into fossil fuels or leapfrog to geothermal, wind and solar.”
Many of the multilateral development banking agencies submitting proposals are essentially risk averse, points out Neha Rai from the IIED, a London-based think tank. They have a credit rating to protect.
Rai suggests the GCF could focus on community based projects or climate smart agriculture. The problem is these initiatives are often small with limited returns, so will likely need to be ‘bundled’ together with other, similar schemes to make them more of a viable financial proposition.
Risk management guidelines (GCF/B.13/27) are on the agenda, but don’t expect immediate results, warns Andrea Ledward, GCF board member and head of climate and the environment at the UK department for international development (DfID).
“There will be some teething problems as we try and work out what the level of risk appetite is for the GCF… really the nub of the problem,” she told a meeting at the Royal Society on 6 June.
3. Will it deliver on its $2.5 billion project promise?
Betting large at the start of 2016, the board said they would commission initiatives worth $2.5 billion this year, so triggering a round of replenishment from donors.
So far, 41 proposals valued at $2.4bn have been filed, but not all of these will be approved this year.
Eight worth $207 million will be considered at the upcoming meeting, including an adaptation project in Tuvalu, assistance for farmers in Sri Lanka and an energy efficiency roll-out in Armenia.
“We don’t have a strong pipeline at the moment… we need others to have confidence the GCF can mobilise at scale,” says Dfid’s Ledward.
A critical problem is lack of capacity in developing countries to submit attractive proposals, says the GGGI’s de Boer. The GCF is helping poor nations with ‘readiness’ funding but that needs to be accelerated.
“We need to help countries develop a pipeline that reduces risks… we need to help countries understand how they can access a bewildering array of finance and blend it, and third help develop a change in policy environment if they are going to attract investment.”
4. How can it ensure poorer countries get direct access?
A major problem with previous development finance regimes was (and is) that banks and funding bodies dictate what projects should be deployed and – critically – take a cut.
Of the GCF’s 33 newly accredited partners by March 2016, more than 60% are international organisations and multilateral banks. Senegal, Ethiopia and Rwanda are the sole national representatives so far.
That’s a problem, writes the IIED’s Rai in a recently published blog.
Big banks prioritise “business-as-usual, large-scale investments because of perceived lower transaction costs compared to small-scale projects, and perhaps because this kind of investment fits comfortably within their operational model,” she says.
Rai and other board members are pushing for ‘direct access’ to become a priority. Offering cash direct to developing countries was supposed to be the GCF’s ‘USP’.
“I don’t think there is a single direct access project funded by GCF… all financed so far coming from accredited institutions… in that sense the GCF is not yet delivering on its great hope,” says de Boer.
That’s a view that Ledward appears to support.
“In five year’s time if you are judging success, it would be the GCF having built national capabilities, with national organisations having ownership of strongly embedded national plans that are able to access funds directly,” she says.
5. What does it want from a new leader?
The process to appoint a replacement to executive director Héla Cheikhrouhou is under way (although I’ve yet to see the mandatory advert in The Economist).
The new chief has to deliver, and fast, says the WRI’s Ballesteros.
“They have to be someone who can be trusted by developing countries. The leader has to be trusted. Someone who is entrepreneurial. Breaking new ground. Innovate, creative, test the waters,” she says.
Trouble is, it’s a hard sell. Other comments on the GCF range from “lethargic” to “institutional inertia”. Then there’s the location. Songdo isn’t even Seoul, far less Paris, New York, Shanghai or London.
6. Does it really need more multinational banks as partners?
New partners are expected to be discussed at the board meeting (GCF/B.13/16), notably the Export-Import Bank of Korea (KEXIM), which has a history of financing coal power projects in developing countries.
Earlier this week, GCF partners HSBC and Deutsche Bank were listed by five NGOs as major funders of fossil fuels, a stance “deeply at odds with the global climate agreement reached at COP21,” said the environmental groups.
The case for linking with big banks is that they offer vast technical experience, access to markets and already have a supply of potential projects the GCF can work with.
But green groups remain unconvinced. A most suitable strategy in the short term would be to “put a cap on international organisations and focus on preparing national agencies,” argues the IIED’s Rai.
7. Should major donors really be ‘earmarking’ funds?
A quick scan of the funds so far deposited with the GCF suggests some of its major funders are attaching conditions to their offers.
The UK, for example, has £720 million banked with the GCF in the form of promissory notes – effectively an IOU.
— Edward King (@edking_CH) June 14, 2016
These, Climate Home now understands, are ‘earmarked’ for initiatives the UK government believes fit in with foreign aid objectives centred around strengthening global security, resilience promoting prosperity and tackling poverty.
From a UK politics perspective, it makes sense holding control over its funds. But shouldn’t the GCF be free to invest where it sees best?
8. What to wear?
You’re on camera boys and girls. After intense lobbying from civil society, the GCF will webcast meetings from now onwards, in an effort to boost transparency.
— Abyd Karmali (@AbydKarmali1967) June 14, 2016
Why not ditch the grey suits and take a lead from South African GCF co-chair Zaheer Fakir and wear something colourful? And would you check those shoes…
— Ewen McDonald (@EwenMcDonald_) March 11, 2016