UN’s Green Climate Fund too scared of risk, finds official review

The UN’s flagship climate fund is struggling to clearly manage risks in its projects, an independent review has found, making it wary of taking on high-impact projects in developing countries

Green Climate Fund pledges put its ambition at risk

Lightning over the city of Songdo, South Korea, where the Green Climate Fund is headquartered (Photo: Soonye Yoon/World Meterological Organisation/Flickr)


The Green Climate Fund (GCF) has an “underdeveloped” approach to managing project risks because it misses key issues, lacks coherence and makes it difficult to know who is responsible, according to its latest performance review.

Archi Rastogi, lead author of the independent report, said there were clear risks in implementing climate-related projects such as new infrastructure. But projects could also result in maladaptation, where instead of helping communities adapt to climate change they actually make the effects worse, and may have more complex fiduciary risks.

Not recognising or properly managing these made the organisation too cautious, he said. 

Developing nations have long pushed the fund to take more risks and provide grants to smaller, more innovative schemes that other funds won’t back.

In 2016, the GCF board agreed that it should “take on risks that other funds/institutions are not able or are willing to take” and adopt a “high level of risk appetite”.

Projects gone wrong

The Green Climate Fund was set up in 2010 and formed part of a compact between poor and rich countries that was the basis for the Paris climate agreement in 2015. It has spent around $12bn so far funding climate projects around the world.

But although the latest review accused it of being overly cautious, some of the fund’s investments have been controversial and former employees have raised concerns about the GCF’s project vetting.

In 2021, concerns were raised about a $66 million flood management project financed by the GCF in Samoa, after river walls failed to protect a hotel from flash flooding. 

The fund was also recently in the spotlight for greenlighting a Nicaraguan project which Indigenous people have accused of exacerbating violence with settlers invading their land. At its latest meeting, the board deferred a decision on the complaint until July. 

Speaking at the board meeting, outgoing executive director Yannick Glemarec accepted that the GCF was responsible for projects that it was financing along with other organisations, saying that, when it comes to a violation of Indigenous people “it’s irrelevant where the money comes from”.  

But he said the GCF was a very large international financial institution with “maybe a third” the level of risk of a social impact investor, and suggested it could take on more. “It’s extremely important to ensure that your risk management system will keep pace with your ambitions,” he said.  

Notable progress

The review team analysed reams of documents, carried out case studies and interviewed more than 700 people around the world, and found the GCF had made “notable progress” in its governance procedures since 2020.  

It found no “insurmountable” challenges in the way the GCF is run, saying the organisation managed to effectively carry out its key roles of accrediting institutions to apply for funds and approving funding proposals. 

Andreas Reumann, head of the GCF’s independent evaluation unit, said it shows that the fund plays a “central and successful role in global efforts to combat climate change” and has responded positively to recommendations for improvement.  

This paints a more favourable picture than a 2021 staff survey which found that 40% of staff had a negative impression of senior management while just 24% had a good impression. Some people within the organisation have also been critical of the way the board responds to feedback.

The organisation has just appointed Mafalda Duarte as its new head.

Unrealistic expectations

The review helped counteract a “persistent false narrative” about the fund’s governance caused in part by unrealistically high expectations of what it would do, said Liane Schalatek, a civil society observer on the GCF board.

Developing countries had anticipated it would provide a large amount of readily available grant funding, while developed countries had wanted it to massively leverage private sector funding and thereby reduce their own financial liabilities. “Those have obviously not come to pass.”  

However, the review said the time had come to “clarify the GCF’s vision” over how it balances the urgency of the climate crisis and the long-term need to build climate finance capacity, and the extent to which it takes a direct and strategic role.  

It concluded the fund should do more to “catalyse” climate finance by, for example, investing in projects that have bigger impacts down the line even if the projects themselves run at a loss. 

But Schalatek warned that it should continue to be a core source of public climate funds, “with a focus on simplified and enhanced direct access and ensuring that affected communities and people through devolved financing have more of a say on how GCF funding support can better address their needs and priorities”.  

Efficiency compromised

A core principle of the GCF is to give developed and developing countries an equal say in board meetings, unlike donor-driven funds.  

The review says this novel governance structure “brings legitimacy but compromises efficiency”, especially given the fund’s proximity to UN climate change politics, posing challenges in setting a strategic vision and key policies.  

Rastogi suggested that more informal meetings between board members would help improve relationships and smooth negotiations.

The review also shows that less money went to adaptation projects than mitigation. With under 7% of global climate finance currently directed towards adaptation, it says the GCF’s impact on this topic is much more important than it is for mitigation, and hints that the board should reconsider how it balances these two key areas of climate action.  

Schalatek said civil society has pushed unsuccessfully for a more even split for some time. “In terms of adaptation it’s barely doing what’s under its mandate,” she said. 

GCF respond

In its formal response to the review, the GCF’s secretariat said the findings and recommendations “broadly resonate” with its experience and would incorporate most of them into its decision-making, management, operations, strategies, budgets and practices. It has, for example, already begun to update its risk register, which the review had found gaps in. 

However, it only “partially” agreed with the recommendation to reconsider civil society’s role in its work. Schalatek said it was difficult for observers to have a meaningful influence on GCF policies and the cost of travelling to board meetings was prohibitive for some developing country representatives. The secretariat countered that some of these issues had previously been considered. 

The review will inform the GCF’s next strategic plan, which is expected to be approved in the summer, and will also be part of negotiations over how much countries will commit to funding it over the next four years.

Going into the review, Rastogi said he was “a bit scared” of what he might find. But he was generally pleased with how the GCF was being governed and noted that all similar institutions go through a teething period in their first few years. “It’s going to get stronger,” he said, while its new executive director would bring in “new blood and a fresh perspective”. 

This article was amended on 3 May 2023 to correct the figure on how much the GCF has spent so far. It originally incorrectly said $20 billion but the real figure is $12 billion.

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