Dear Board members, alternate Board members, and advisors:
We urge you to demand basic yet critical changes in the approach to the “Arrangements for the third replenishment of the Green Climate Fund” before adoption. This is a necessary procedural document to be considered and adopted at this Board meeting to launch the third replenishment process, and the standard practice has been to set out only procedures. However it cannot be approved as currently presented. The proposed approach to the policy on contributions in Annex III, which makes substantive proposals that pre-empt the policymaking process, is without precedent and unmerited. We demand the removal of Annex III from the package so that appropriate consultation on the policy on contributions and the policy on contributions from other sources, and separate sequenced deliberation by the Board of these policies at a later point, can proceed appropriately, without bias or suggestive preemption.
We fundamentally object to this Arrangements document including issues that should only be covered under a separately deliberated policy on contributions, or, to the extent that such a policy significantly undercuts the role of the GCF as a fund serving the UNFCCC and the Paris Agreement, considered by the Parties to both. It is highly inappropriate to simply drop suggestive language regarding a yet-to-be decided policy into a procedural paper without any detailing of legal considerations or any mention of a serious process for reflection. Annex III, the Approach to the Policy for Contributions, should not have any decided approach on types of contributions, and very specifically cannot and should not make reference to “contributor guarantees” as a “key priority”, thus prejudging the outcome of that policymaking process.
Annex III should be removed entirely from this decision suite and instead be circulated for Board consultation as what it truly is – an early draft of the policy for contributions to be presented at a future Board meeting (B.46) – while noting that larger legal and procedural considerations should be part of such a conversation. Indeed, for B.33, where the arrangements for the second replenishment were considered, such an annex was not needed; the procedural document simply noted a revised policy on contributions would need to “[reflect] any necessary update.” Even if the Board were simply to “take note” in the decision of Annex III, there is a significant risk that this implicit acknowledgement would be interpreted as a green light to move ahead with the approaches suggested, shortchanging the Board’s ability and responsibility to fully consider the ramifications of these or other approaches as part of its governance function, and to be accountable to the COP/CMA.
Para. 29 of the Governing Instrument of the Fund highlights the primacy of climate finance provision by developed countries, over the reception of other financial inputs indicated in para. 30. Further, as an operating entity of the UNFCCC Financial Mechanism, the GCF is guided by Article 9.1 of the Paris Agreement and Article 4.3 of the Convention, which stipulate that developed countries are legally obligated to provide climate finance to developing countries, with consideration of appropriate burden-sharing among developed countries. The GCF was established to channel new, additional, predictable and adequate climate finance to developing countries in support of mitigation and adaptation. Its role is to provide and mobilize resources for climate action, not to leverage contingent liabilities or expand its balance sheet through capital market instruments. Replacing or supplementing grant-based contributions with “contributor guarantees” risks weakening the predictability and availability of resources.
Opening up the GCF to “contributor guarantees” has potentially significant implications for the structure of the Fund. It is difficult to conceive of how “contributor guarantees” would operate in the absence of significant changes in the basic function of the GCF, such that it would seek a credit rating and would look to raise finance through issuance of bonds on capital markets. These changes would make the GCF more of a bank than a fund – indeed, contributor guarantees (callable capital) currently only exist as contributions to Multilateral Development Banks (MDBs), with no climate or environment fund allowing for this type of contribution. Similarly, increasing reliance on loans, such as by raising the debt ceiling or removing the individual loan caps, would reconstitute the GCF as a lending facility constraining developing countries’ fiscal space, rather than providing much-needed financial resources for climate action.
Many of the provisions outlined and suggested in Annex III threaten the GCF as a fund that operationalizes common but differentiated responsibilities and equity. This shifting composition of financial contributions will have clear impacts on how much the GCF during the GCF-3 implementation period (2028-2031) can allocate as grants as there would be greater reliance on reflows to enable the GCF’s continued funding.
Ultimately, some of these provisions need full consideration not only by the Board, but the
Parties of the UNFCCC, as the GCF serves as an operating entity of the Financial Mechanism of the UNFCCC and in the same capacity for the implementation of the Paris Agreement.
The mandate for MDBs to receive callable capital is generally written into MDBs’ founding documentation. Receiving callable capital is effectively changing the GCF’s mandate and thus should require an explicit change to its Governing Instrument, which should be guided by an explicit COP/CMA decision rather than suggestively enacted as a technical detail in a paper on replenishment.
In keeping with the precedent on the arrangements, the background and Annex II should also be stripped of any content that prejudges the policy for contributions, or may require governance changes. The background and Annex II must instead remain focused on the process for replenishment; the definition of alternate sources in para. 12(b) of the background – “(e.g., philanthropic foundations, capital market, carbon markets, etc.)” is new and inappropriate. Carbon markets are not climate finance. The headline, “potential non-traditional contributors (non-parties to UNFCCC, private entities and philanthropic foundations)” is in keeping with the previous replenishment process and enough to provide guidance on the policy development.
Furthermore, on the background para. 10(f) and Annex II’s para 2.(b), we find the inclusion of representatives from the Climate Investment Funds (CIFs) in the replenishment meetings inappropriate given the CIFs have no UNFCCC linkage. The NCQG para.16 gives a clear mandate regarding the scaling up of finance delivery through UNFCCC funds, which do not include the CIFs, who also do not face similar replenishment rounds or resource mobilization efforts as the UNFCCC funds. Their participation is thus not warranted here, as it was not warranted by the arrangements for the second replenishment.
The Green Climate Fund is an operating entity of the UNFCCC Financial Mechanism, and that fundamental role must inform all activities of the GCF as well as guide the Board members in their governance. The inclusion of Annex III in this draft, along with other key shifts from the second replenishment, undermines the GCF’s role and will preclude the Board from its proper and appropriate consideration of key issues that are relevant to the GCF’s direction in its next programming cycle. We urge the Board to respect precedent and safeguard proper processes so that appropriate Board deliberation rather than a procedural misstep dictates the Fund’s direction.
Best,
The GCF observer network of civil society organizations, Indigenous Peoples, and local communities
