Comment: UN must ensure Climate Fund decisions are transparent

UN’s GCF was designed to ensure civil society engagement in decisions, but some fear this is being forgotten

(Pic: UNFCCC/Flickr)

(Pic: UNFCCC/Flickr)

By Karen Orenstein

When the Green Climate Fund Board met in Paris earlier this month, they postponed making a decision on the “no-objection procedure.”

This procedure would require active endorsement of any GCF activity – conveyed through a “no-objection letter” – by a country’s national designated authority (i.e., the basic in-country unit of the GCF that is supposed to “recommend to the Board funding proposals in the context of national climate strategies and plans.”

Though it may deceptively seem like a minor bureaucratic procedure, in actuality, the no-objection procedure is a primary tool to ensure that — from the very beginning — both country ownership and meaningful civil society engagement are central to all of the GCF’s climate financing.

Institutional memory is short.

The text of the no-objection procedure evolved out of contentious debates over direct access by the private sector to the GCF that took place at meetings of the Transitional Committee (the pre-cursor to the GCF Board) and at the UN climate conference in Durban, South Africa in 2011 — with many developing countries concerned that such access could potentially allow private investors to bypass national governments’ priorities.

But all this was seemingly forgotten during the Board’s hurried discussion of the no-objection procedure in Paris (which was based on a document prepared by the GCF Secretariat).

The mandate for the no-objection procedure comes from the following decision text adopted in Durban:

The Conference of Parties….Also requests the Board to develop a transparent no-objection procedure to be conducted through national designated authorities referred to in paragraph 46 of the governing instrument, in order to ensure consistency with national climate strategies and plans and a country driven approach and to provide for effective direct and indirect public and private sector financing by the Green Climate Fund. Further requests the Board to determine this procedure prior to approval of funding proposals by the Fund.

Lost opportunity

Because the discussion on the no-objection procedure was inconclusive, the Secretariat has been tasked with providing a revised document for the next Board meeting (scheduled for February 2014 in Bali, Indonesia).

In the interim, it is critical that the Board provides guidance to the Secretariat resulting in new draft decision text that recognizes the two-fold purpose of the no-objection procedure:

-To allow developing country governments to shape and direct GCF-supported private sector activities. The no-objection procedure should be a tool that allows a host country to reject or halt any proposed activity within its borders that it determines is in conflict with its development plans and priorities, strategies for addressing climate change and/or national laws.

Thus, the no-objection procedure should apply to all funding proposals, regardless of their origin – whether proposed by public or private entities, including intermediaries.[1] Indeed, special care must be taken for any sub-projects undertaken through financial intermediaries. In such cases, compliance with safeguard implementation, transparency and fiduciary standards, and community consultation/consent – all of which are required for a meaningful no-objection procedure – will be very challenging.

Despite what the UK Board member might prefer, each sub-project should be subject to a no-objection procedure. (The UK member stated his preference for the no-objection process to apply to a “bundle” of financial intermediary sub-projects all at once, rather than to each sub-project individually. From experience with the World Bank’s International Finance Corporation, we know how badly this usually turns out.[2])

-To help ensure that relevant stakeholders — including affected communities, civil society and multiple government agencies (e.g. ministries of environment and development, national climate commissions and relevant local government bodies) — are actively engaged in developing national climate strategies and plans and have the right to reject or halt GCF activities that would harm their lives, livelihoods or environment.

This would require comprehensive in-country consultations, conducted according to international best practice, whereby the no-objection letter is only communicated to the GCF following a process in which the consent of relevant stakeholders is attained in a non-coercive, transparent process conducted according to the international right of free, prior and informed consent.

This second purpose, supported in part by France at the Paris Board meeting, was not adequately reflected in the Secretariat’s paper.

Private sector

Regrettably, the unease expressed about the adequacy of the Secretariat’s paper by the U.S. and Switzerland seemingly stemmed from interests other than protecting the rights of communities and ensuring that private investment aligns with country priorities.

Their concern, echoed by the private sector active observer (who represents Climate Markets and Investment Association and Bank of America Merrill Lynch), appeared to centre on making sure that the no-objection procedure not be an impediment to private investment.

But that’s the wrong approach to understanding the no-objection procedure’s purpose, which is precisely to protect community and national interests from potentially harmful projects, particularly from the private sector.

The U.S. and the private sector representative proposed a three-week period for objection.

But for robust stakeholder consultation and, consequently, a meaningful no-objection process to occur, there must be a defined, adequate time frame — at least 60 days — to ensure that the public is made aware of a funding proposal and is thus able to engage in informing the no-objection procedure and, subsequently, for a country to file a no-objection letter.

Moreover, for this to happen, the national designated authority must communicate with stakeholders in languages that local communities understand and with concerted outreach to marginalized groups.

Lost vote?

The U.S. and Switzerland also appeared to advocate for more of a “silence equals consent” approach – i.e. if a national designated authority does not voice objection within a certain period of time, then the funding proposal advances.

Clearly, this is not the intent of the Durban decision, which requires pro-active endorsement. During the Board discussion, questions were also raised about the no-objection procedures of other institutions.

In this context, it’s worth pointing out that Friends of the Earth U.S., Global Alliance for Incinerator Alternatives and the Institute for Policy Studies wrote a report about this exact topic last year – The Green Climate Fund’s “no-objection” procedure and private finance: Lessons learned from existing institutions.

We found that analogous no-objection procedures at institutions such as the IFC, Global Environment Facility and Clean Development Mechanism have been largely ineffective.

We hope, in preparing for the next Board meeting, the Secretariat takes our findings into consideration so that the GCF does not repeat such flawed processes.

For example, CDM designated national authorities issue letters of endorsement/no objection in a highly inconsistent manner.

It is thus critical that the Secretariat’s revised no-objection procedure paper calls for all GCF national designated authorities to carry out high-quality no-objection procedures according to clear, binding and uniform standards and criteria.

The development and implementation of the no-objection procedure must be closely coordinated with the development and implementation of the GCF’s safeguard and information disclosure policies, and its fiduciary and transparency standards.

For more detailed recommendations regarding the draft decision on the no-objection procedure considered by the GCF Board in Paris, please see Comments on BMF: Countries’ transparent no-objection procedure, GCF/B.05/06, by Friends of the Earth U.S., Institute for Policy Studies, Global Alliance for Incinerator Alternatives, Heinrich Boell Foundation North America, Interamerican Association for Environmental Defense and Both ENDS.

[1] It should be noted that there is a lot of confusion regarding what is meant by “intermediary.” I use the term here because the Secretariat referenced “intermediaries” in its paper on the no-objection procedure, though it is telling that the Board member from Brazil asked the Secretariat to clarify what “intermediary” meant. In its draft decision on the no-objection procedure, the Secretariat appears to suggest a separate no-objection procedure for “intermediaries.”

[2]A 2013 CAO audit carried out on the IFC’s large financial intermediary portfolio demonstrated that the IFC was unable to trace, understand or document the environmental and social impacts of its financial intermediary investments, presenting a dangerous risk to the environment and affected communities.

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