CSO Update on the 33rd Green Climate Fund Board Meeting – Day 3

Full transcript of GCF Observer Network interventions here: https://bit.ly/GCFB33CSoInterventions

Update prepared by The Asian Peoples’ Movement on Debt and Development (APMDD).

DAY 3: 19 July 2022

  1. Day 3 opened with the Board discussion on the Report on the activities of the Secretariat – Matters Related to Risk Management. It can be recalled that on Day 2, developed country BMs raised concerns about why the Board’s Risk Management Committee (RMC) has not yet been constituted, which caused delays in securing accreditation master agreements (AMAs) and projects pending approval. Several approved FPs also remain unimplemented as their Funding Activity Agreements (FAAs) have not been  signed by the RMC. Issues around currency fluctuations, which is within the the concerns of the RMC, also remains unaddressed.

    Given these, the Secretariat provided clarifications and answers on the concerns raised by the Board.

    On the issue of AMAs, the Secretariat clarified that the substantial deviation from the AMA template is determined by the Executive Director (ED) and the RMC. Only upon determining whether or not an AMA substantially deviates from the AMA template can it be considered for Board signing. As of B33, 5 AEs, where 4 are DAEs, are pending the RMC and ED’s determination. The Secretariat also highlighted that there are more FPs that cannot be submitted for Board consideration due to the unsigned AMAs of their respective AEs.

    On the issue of currency fluctuation, the Secretariat proposed to increase the Fund’s foreign exchange risk buffer by USD 150 million, making the Fund’s commitment risk buffer at USD 320 million. The Secretariat also recommended hiring a hedging firm, which will require a budget of USD 650 thousand, to manage the GCF’s commitment authority and limit issues around allocation of commitment authority for currency fluctuations. In order to achieve all the proposed goals, the Secretariat requested developed country contributors to deliver their pledges in US Dollars to ensure smoother transactions and minimized risks.

    There were very few comments from the Board on this matter, particularly on the amount of foreign exchange loss reported at USD 1.2 billion. Bm from Switzerland sought clarity about the reason behind this, to which the Secretariat explained that the cost was not expected to reach this amount, if only the delivery of pledges came before the height of currency fluctuations.

    The co-chair decided to suspend the item to allow the Board to reflect on the points raised and propose a draft decision text for Board consideration.

 

  1. The Board then discussed the Consideration of Accreditation Proposals, which kicked off with the Secretariat presenting an overview of the accreditation pipeline, as well as the background of the AEs up for reaccreditation and upgrade of accreditation. The following are the highlights of the presentation:

 

  • The GCF is prioritizing reaccreditation to prevent instances of FPs not endorsed for Board approval due to the expiry of accreditation of the AEs

  • An average of 11 entities per year are being accredited based on the current capacity of the GCF

  • More DAEs will be considered at B34

  • A total of 138 institutions are seeking GCF accreditation at the moment, composed mostly of DAEs. Of the 138 applicants, 93 are in Stage 1 of the accreditation process.

    BMs from both developed and developing countries agreed that the current speed of the accreditation process, as well as the status quo of very little funding received by DAEs, is alarming and needed concrete solutions. Both constituencies also believe that IAEs should provide capacity-building support to DAEs and these efforts should be reflected in the respective annual performance reports (APRs). It is to be noted however, that not all APRs have been disclosed. Some of those accessible barely provide substantive reporting on the extent of support provided by IAEs to DAEs.

    The BM from Antigua and Barbuda also proposed text edits to the decision text in order to streamline and speed up the accreditation process. She suggested changes to the method of determining whether or not there has been a substantive deviation from the prescribed AMA template, as well as how the Board approves AMAs, in general.

    Private Sector Active Observer (AO) Margaret Splawn expressed disappointment regarding the requirement imposed on IAEs to support DAEs. She argued that not all IAEs are multilateral development banks (MDBs) or large public institutions, and that such requirements will make it more difficult for the private sector to work with the GCF. As a response, the BM from Kenya clarified that “support” does not always mean financial support and could be in the form of  capacity building in terms of working together on climate projects. She added that capacity building could potentially be beneficial to both the IAE and DAE as it increases the bankability of climate projects in developing countries.

    As there were proposed text edits from the Board, the co-chair decided to suspend the adoption of the overarching decision on accreditation.

    This was immediately followed by Board deliberations on individual reaccreditation and upgrade applications, as summarized in the table below:

 

INFORMATION

DISCUSSION

STATUS

RAPL005: Asian Development Bank (ADB)

Reaccreditation with no upgrades

Access Modality: IAE

Size: Large

ESS Risk: High (Category A/I-1)

The BM from Germany suggested text edits to the decision text recognizing the efforts done by the ADB to align its portfolio with the Paris Agreement. She added that similar to the reaccreditation of the Korean Development Bank (KDB), this will set a good example and encourage future AEs to shift away from fossil fuels.

Since there is a proposed edit to the decision text on ADB’s reaccreditation, the Co-Chair from France suspended the item to reflect the edits made.

SUSPENDED

RAPL017: European Bank for Reconstruction and Development (EBRD)

Reaccreditation with no upgrades

Access Modality: IAE

Size: Large

ESS Risk: High (Category A/I-1)

Similar to the proposed text edits made by the BM from Germany on ADB, the BM from Switzerland suggested adding language that will reflect EBRD’s efforts to align its portfolio with the Paris Agreement.

The co-chair suspended the approval to give way for textual edits needed.

SUSPENDED

RAPL019: United Nations Environment Program (UNEP)

Reaccreditation with upgrades

Access Modality: IAE

Size: Small (requesting an upgrade to medium)

ESS Risk: Medium (Category B/I-2)

The UNEP is requesting the GCF for reaccreditation and upgrade in order to submit medium-sized projects, as it was only allowed to submit small projects in the past.

The Co-Chair from France suspended the decision to upgrade UNEP’s accreditation despite no text edits proposed to its decision text. The Co-Chairs have decided to suspend the decisions on reaccreditation, to have all the suggested text edits compiled for voting.

SUSPENDED

World Food Programme (WFP)

Upgrade

Access Modality: IAE

Size: Micro (requesting an upgrade to medium)

ESS Risk: Low (requesting an upgrade to medium/Category B/I-2)

Aside from a maximum allowable project size upgrade and project category risk upgrade, the WFP requested the GCF to allow it to disburse grants.

Similar to the reason for the suspension of UNEP’s upgrade, the Co-Chair suspended the decision on the WFP’s upgrade.

SUSPENDED

 

  1. As the adoption of all applications for re-accreditation and upgrade were suspended, the Board then discussed the Selection of the GCF Executive Director. As the item was deemed confidential, active observers were asked to leave the Boardroom and the webcast was temporarily suspended.

 

  1. After the executive session, the Board looked at the 11th Report of the Green Climate Fund to the Conference of Parties (COP), which was to be adopted at this Board Meeting for submission by the GCF at COP27. Comments from the Board revolved around textual edits and additional iterations particularly on gender and to reflect the existing policy gaps that some BMs believe should be reported to the COP.

    The BM from Sweden argued the report needs to capture the recent Board discussions about gender considerations in GCF human resource and governance. A paragraph was then added to reflect this point and affirm GCF’s target to promote and improve geographical and gender balance in filling up open staff positions. He also raised the need to mention the outstanding policy gaps that the GCF has still not resolved and suggested referring to the iteration of the 10th Report and apply revisions in terms of the number of unresolved policies. The current version of the 11th Report highlighted the 6 policies that the Board has adopted in the past year but failed to mention other outstanding policies.

    The suggestion was then opposed by the BM from Pakistan who argued that issues on policy gaps need not be elaborated in the report as they will be discussed in a different agenda item. The BM from Sweden believes there should not be any problem adding the said language in the report since it has been adopted by the Board in the past.

    The co-chair tried to reconcile the opposing views and suggested the opposing BMs conduct consultations. He then called on our CSO Active Observer from developing country CSOs, Eileen Cunningham, to deliver our intervention that focused on straightening out facts and disclosing information that were excluded in the report. The CSOs urged the GCF to clarify the status of GCF-1 commitments in the report which says all contributions have been confirmed. This statement implies there are no issues and delays in the delivery of funds when in fact only USD 4 billion out of the USD 10 billion GCF-1 pledges have been received by the GCF so far. We also pointed out how the report emphasized the GCF’s efforts to strengthen AE partnership without disclosing the fact that majority of the AEs have not completed their AMAs and how 80% of GCF funds are concentrated with the IAEs. The CSOs also argued that the support for Loss and Damage mentioned in the report remains vague and L&D activities mostly fall under financing of readiness and preparatory activities of the NDAs. The intervention also raised how measures to see progress with the Gender and IP policies should be changed to reflect issues with regards to weak gender action plans and unverifiable compliance with FPIC of several GCF projects.

    The co-chair decided to suspend the item to facilitate further consultations with the BMs from Pakistan and Sweden.

  2. This was followed by the agenda item Steps to enhance climate rationale of GCF-supported activities, where the Secretariat presented a document that proposes a working definition of Climate Rationale and sets out principles-based guidance for both mitigation and adaptation to promote a transparent and consistent approach in the assessment of funding proposals.

    There were minor changes in the decision text, particularly noting that GCF-related activities must use the best available information and data, including from the IPCC and from traditional, local and indigenous knowledge and practices. This was proposed by the BM from Antigua and Barbuda, who also believe that these should be sufficient to serve as basis for the demonstration of impact-potential of GCF-supported activities. The proposed text furthered to include flexibility of considering the different capabilities of AEs, and country and regional circumstances.

    The BM from Pakistan raised questions about the Monitoring, Reporting and Verification (MRV) of projects and whether the AEs have to use their own methodologies or just follow what the GCF will prescribe. The Secretariat clarified and said that the proposed methodology in the document is not prescriptive, but it aims to provide guidance to projects for their chosen methodologies.

    After all the edits were reflected, the document was adopted by the Board.

  3. The Board then discussed the Guidance on the approach and scope for providing support to adaptation activities. Following Board discussions at B32 and subsequent consultations, the document aimed to elaborate the GCF’s vision, strategic approach, and scope for supporting adaptation programming, including the Fund’s vision for enhancing adaptation in line with the UNFCCC, Paris Agreement and Global Goal on Adaptation. It also presented how the GCF aims to deliver this through a range of modalities that support adaptation activities. This adaptation programming approach is also noted to evolve as part of strategic programming for the second replenishment of the GCF.

    The North-South divide among Board Members was evident under this agenda item, as developed countries, led by the US argued to delete the final 4 paragraphs in the decision text. He believes the paras lack the strategic content of the decision and having them will be prejudicial to the other processes of the Fund. The said paragraphs from the draft decision text are as follows:

 

Also requests the Secretariat, in the context of the revised RPSP and the accreditation  strategy under the Board’s consideration, as well as other relevant policy development processes, to identify additional actions that enhance GCF adaptation investments,  including those identified in country and regional adaptation planning processes;

Further requests the Secretariat to consider, as part of the accreditation strategy under  the Board’s consideration, the prioritization of accreditation applications from entities,  particularly direct access entities and private sector entities, with a focus on adaptation  projects/programmes;

Reiterates the need to enhance the private sector contribution towards developing and  implementing NAPs; and

Requests the Secretariat to further develop, for consideration by the Board as part of the  update to the GCF Strategic Plan, proposals on updating the GCF’s strategic objectives  and priorities, and requests for proposals or other programming initiatives, to further  implementation of the GCF’s strategic approach to adaptation programming, including  options for possible adaptation programming parameters and output-based goals for  adaptation support.

This point was echoed by BMs from Spain, Germany, as well as the BM from Switzerland who also raised an additional language to reflect paragraph 31 of the Governing Instrument that encourages the involvement of stakeholders and vulnerable groups, and addressing gender gaps.

Developing country from the African states had specific textual edits focusing on the use of best information and data available including those from the IPCC and traditional, local and indigenous knowledge as proposed by the BM from Antigua & Barbuda, and in requesting the Secretariat to incorporate actions that enhance GCF support to adaptation activities, as proposed by the BM from Ghana.

Other BMs introduced new concepts that the GCF can look further with regards to adaptation. This includes the concept of maladaptation as raised by the BM from Spain, and the concept of Nature-Based Solutions (NBS) as mentioned by the BM from Italy.

While there was a strong call to delete a significant portion of the decision text, the BM from Pakistan insisted that the Board adopt the draft decision with the additional paragraphs and not delete anything. The BM from the US disagreed and suggested to conduct further offline consultations so the Board can agree to a revised decision text in the morning of Day 4.

After hearing the opposing views of the BMs, the co-chair called Eileen Cunningham, the Active Observer from developing country CSOs, to deliver the CSO Intervention. The CSOs emphasized that the adaptation approach must focus on what makes adaptation successful and sustainable, not what makes it profitable. The document clearly ocuses primarily on leveraging the private sector for adaptation and financializing adaptation approaches. The CSOs also called for an increase in adaptation finance, and should be in full cost grants.

The item was then suspended to allow further consultations and revision of the draft decision text.

  1. The next agenda item discussed was the Review of the financial terms and conditions of the GCF financial instruments. The Secretariat briefly explained that the GCF’s compliance with its financial instruments policy is reviewed every 2 years. This review is aimed at looking whether or not the financial instruments approved by the board, as well as the level of concessionality approved in projects, are consistent with GCF policies. For this particular review, the need for the GCF to finance its projects using local currencies, as well as seeking credit ratings for greater use of guarantees were added on top of the review’s focus.

The key findings of the review are as follows:

  • The GCF and its actions remain consistent with its financial instruments policy aligned with a “fit-for-purpose” principle.

  • Use of local currency financing may be beneficial, especially within the context of fluctuating FX

  • GCF must get a credit rating to issue guarantees with less cost in the future. With a credit rating, the GCF may no longer need to support its guarantees on the available commitment authority since the credit rating will be the primary basis of the guarantee.

 

It can be recalled that on Day 2, the Board suspended the approval of FP190: Climate Investor Two due to its request to be financed through reimbursable grants despite being proposed by a private sector IAE. The BM from Ghana argued that grants for the private sector should only be for technical assistance and capacity building, and should be for those who need them the most.

Developed country BMs support the proposed use of local currency, and the GCF obtaining a credit rating. The BM from Switzerland suggested that the GCF partner with bilateral institutions so that the GCF can offer guarantees for free. According to developed country BMs, these findings, as well as innovations to the Fund’s variety of financial instruments, are crucial considerations for the upcoming second replenishment of the GCF (GCF-2).

The BMs from Pakistan proposed edits to the decision text as he wanted to ensure that the proposal to use local currency will only be implemented through the Fund’s project and programme functions. He also suggested that a policy that outlines the details of the pilot be presented for the Board’s approval in B36.

The co-chair then called the Alternate Active Observer (AO) for Developed Country CSOs, Tara Daniel, to deliver the intervention on behalf of the GCF Observer Network. While the CSOs welcome  the proposed local currency financing pilot, we strongly oppose the move for the GCF to obtain a credit rating. The intervention reminded the Board that the GCF is not a bank and its policies should not be towards further financialization of climate finance. As the aim of the review is to propose policies that will result in the efficient and effective use of GCF resources, the CSOs also reminded the Board that this should all be pursued alongside the urgent fulfillment of climate finance pledges, as well as the overall increase in the delivery of non-debt-creating, new, additional, adequate, and predictable climate finance obligations by developed countries. Lastly, the CSO intervention stressed the need to always engage active observers and stakeholders on policies concerning the GCF’s financial instruments.
After revisions to the decision text according to the suggestions by the BM from Pakistan, the review was adopted by the Board. In addition to the text edits, the Board adopted that the review of the GCF’s compliance with the terms and conditions of its financial instruments will now be conducted every 3rd year of the 4-year policy cycle, which is timed a year before every replenishment cycle.

 

  1. The discussion was followed by the agenda item Launching of the second replenishment of the GCF. The Board had no comments with the document and the draft decision text. But our CSO Intervention, delivered by Erika Lennon, the Active Observer of developed country CSOs, enumerated key points that the Board should take into consideration as they launch the second replenishment of the Fund. The intervention reminded the Board that the GCF was created not to be a bank bank or an institution designed to “assist” or give “aid” or “loans”, but a mechanism to deliver climate justice by providing much needed support to vulnerable developing countries to deal with the worsening impacts of the climate crisis they did not create and to develop in line with keeping global temperature rise below 1.5C. The CSOs also urged developed country governments to make up for the years of delay and non-delivery of their financial obligations and go beyond “doubling or tripling” their previous pledges and deliver climate finance based on the actual needs of the developing countries. The intervention also proposed to establish measures that will address the non-fulfillment of pledges from the IRM and GCF-1, especially those that were confirmed to be delivered within an agreed schedule.

    Given that there were no comments from the Board, the agenda item was adopted. This means the second replenishment period of the GCF (GCF-2) has officially commenced.

  1. The Dates and Venues of next Board Meetings was the last agenda item that the Board discussed in Day 3. Coming from the B32 decision, the next meeting of the Board B34 was decided to take place from 17-20 October 2022 as an in-person meeting in the Republic of Korea. The Paragraph 17 of the Rules of Procedure (RoP) provides that at each meeting, the Board will confirm the date and duration of the following meeting. At this meeting, the Board is requested to confirm the dates and venue of B34.

Developed country BMs, led by the BM from Spain believe the GCF must develop a clear annual calendar that will organize the schedule of the Board according to the agreed dates of the Board Meetings. She added that the Secretariat must also organize their affairs to fit the schedule of FP submissions and accreditation applications with the BM dates. This was echoed by BMs Sweden, Italy and Germany. They also advocated for virtual meetings to which many developing country BMs opposed due to connectivity and logistical issues.

While not explicitly expressing support to the proposal of virtual meetings, the BM from the US sought clarity with the secretariat about the costs of in-person meetings within and outside Korea, and the preparation required if in-person meetings are done. The Secretariat responded and gave estimates of meetings done in Korea to be around USD 500-600 thousand, and outside Korea to be around USD 800 thousand. In terms of preparation time needed if meetings are done outside Korea, the GCF would need at least 3 months.

To counter the proposal of shifting to virtual meetings, BMs from Bhutan and Fiji laid down the benefits of having in-person meetings, especially if these are done outside the GCF headquarters in developing countries. They argued that it will be an opportunity for the Board to see the realities of the people and communities in the host country and understand why climate finance is very crucial to these countries.

The co-chair clarified that the draft decision text came from a B32 decision, which has already outlined the number of meetings penciled until B37. There is no question whether these will be done virtually or whether the number of meetings per year must be reduced. The BM from Sweden believed the necessity to confirm the dates at every Board Meeting still brings uncertainty, to which the co-chairs promised the Board at B32 to propose a way forward towards greater certainty.

After a few back and forths, the proposed dates and venue of B34 was adopted, and the co-chairs adjourned Day 3 of the meeting.

You can watch the live webcast and proceedings of B33 from 9:00 AM to 6:00 PM South Korea time here: https://www.greenclimate.fund/boardroom/meeting/b33#videos

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