New alliance with HSBC and Credit Agricole takes flak from civil society, but GCF heads say finance giants are now part of transition away from fossil fuels
By Ed King
A controversial decision by the Green Climate Fund to partner with HSBC and Credit Agricole could reap dividends across the banking sector, the co-chairs of the UN-backed body say.
The GCF board approved the accreditation of the two vast banks on Wednesday, despite civil society groups arguing the pair’s fossil fuel-rich history made them inappropriate choices.
A 2014 study by the Banktrack NGO revealed HSBC had channelled nearly US$9 billion to coal projects from 2005 – 2014; Credit Agricole just under $8bn.
Last December the UN charged the $10.3 billion fund with helping developing countries prepare for future climate impacts and invest in wind, solar, geothermal and other clean energy sources.
Conditions attached to the partnership with the banks – which have combined assets just under US$3 trillion – mean they need to demonstrate they are committed to greening their portfolios.
South African board member Zaheer Fakir told Climate Home he hoped the partnership would help change perceptions of low carbon investments in the two EU-headquartered bodies.
“Part of our strategy is how do we change behaviours, and part of idea is a transformational paradigm shift- not merely in investments but also in our partners,” he said.
“We had discussion with representatives from HSBC and we made it clear this is how we see the fund and where we see you partnering.”
“We want to see those we accredit align with our standards, and I think this can work out as a real positive,” said Fakir’s Australian co-chair Ewen McDonald.
“There’s a great opportunity for major banks to help smaller countries. But like any organisation the GCF will be conscious of the behaviour of accredited entities.”
— Ewen McDonald (@EwenMcDonald_) March 11, 2016
Karen Orenstein from Friends of the Earth US expressed disappointment at the move, but welcomed the decision to track the low carbon share in the two bank’s portfolios.
“Civil society will be monitoring this process closely to ensure it is carried out in an effective way, with the results meaningfully applied in future accreditation fights,” she said.
Athena Ballesteros, head of climate finance at the World Resources Institute said she hoped the GCF would exert “significant influence in changing the investment behaviour and shifting the portfolio of major banks.”
Otherwise the South Korea-based fund would face “reputational risks” she warned. “We need transformational projects coming out of the fund in the immediate future, and implementation partners at national and global levels are key.”
This week’s board meeting marks the latest stage in the evolution of the UN’s flagship fund, which received its first $500m instalment from the US on Monday.
The board plans to allocate $2.5 billion of its resources over its next three meetings, the first at its HQ in Songdo in June, followed by Ecuador in October and Samoa in December.
A once-derided project pipeline now looks significantly healthier, with 22 projects costed near $1.5bn offering development potential in Africa, Latin America and Southeast Asia.
The board has met secretariat calls for greater staffing levels, with a promise to boost the numbers of risk experts, project managers and communication specialists to 140 by 2018.
Work has also started on finding a replacement for executive director Hela Cheikhrouhou, who leaves after three years in charge this September.
“We need to be conscious of where the fund is going,” said McDonald, the co-chair. “Good leadership and management will be essential.
“Staff levels could rise to 100 this year. We need a strong leader internally and one who can do outreach around the project pipeline.”
Still, questions persist around the GCF’s overall trajectory. With billions of dollars banked leading donors want to see returns in the form of new and effective projects that keep developing countries happy.
To assuage concerns voiced last December a new strategy document was agreed by the board this week, based on a proposal submitted at the start of March.
The document stresses the GCF’s commitment to “innovative” financial partnerships, the importance that countries feel they own a stake in the body, and that money to help communities cope with climate impacts is balanced with funds for clean energy.
It also underlines the fund’s resolve to work with small island states and climate vulnerable countries to help them gain access to monies, and develop more effective links with the private sector.
Not everyone is convinced.
“The #GCFund now has a strategic plan. It is not very strategic, but is a “living document” so maybe it could grow a strategy if fed well,” joked Oscar Reyes from the Institute for Policy Studies in a tweet.
But it is perhaps a sign the board is moving forward from a turbulent 2015 and Fakir – who has been involved with the fund virtually since its inception – describes this as a “living document” and one that will evolve over time.
“The document will give greater clarity in terms of aspirations…the kinds of portfolios and issues around country ownership and areas of we are focusing on,” he said.
“We’re wanting to finance innovative programmes and resources at scale. It’s about how we respond to challenges of smaller countries and ensuring there’s transparency.”
“Interest is quite high – there’s a lot of momentum… the strategic plan says to people there are opportunities here,” added McDonald.