CSO Update on the 35th Green Climate Fund Board Meeting – Day 3 (15 March 2023)

From the The Asian Peoples’ Movement on Debt and Development (APMDD)

15 March 2023

B35 started Day 3 with the agenda item Consideration of Funding Proposals, where the Board was requested to consider the approval of 7 Funding Proposals (FPs) amounting to USD 587.7 million of GCF Financing. The said batch is requesting 80% funding for adaptation projects (USD 470 million) and 20% funding for mitigation (USD 117 million). A total of 6 FPs came from the public sector and 1 from the private sector. In terms of financial instruments, 45% are in the form of grants (USD 265.7 million), 41% in equity, 12% in loans and 2% in guarantees. While the Board was expected to see a total of 10 FPs for B35, 2 FPs were not endorsed by the iTAP and another Private Sector proposal was eventually withdrawn by the Accredited Entity for unanticipated commercial reasons.

The Secretariat was also asked to present the Fund’s progress towards increasing the number of FPs for Direct Access Entities (DAEs) via the Project Preparation Facility (PPF). Since its establishment in 2015, 34 DAEs have submitted PPF applications and 57 PPF applications in total have been approved, amounting to USD 37.6 million. Of these, 37 applications are from DAEs.

Many BMs raised concerns around the Fund’s efforts to increase DAE access, given that the batch of FPs for this Board Meeting had zero DAE proposals. Several developed country BMs thought tapping in the Private Sector for adaptation projects could not only help improve the Fund’s portfolio, but also boost progress in DAE access. However, several developing country BMs believe a number of Fund practices and mechanisms serve as hurdles for DAEs to access the Fund.

Such hurdles include the role of the Independent Technical Advisory Group (ITAP) in endorsing FPs for Board consideration. The BM from South Africa argued that a number of proposals especially from LDC countries have been in the Fund pipeline for more than 2 years because the ITAP thinks they have not met the Climate Rationale. This was echoed by the BM from Egypt, who added that while the role of ITAP as gatekeeper of projects remains valuable, the amount of discretion exercise that it imposes upon DAEs is unclear to the Board. This very concern has been repeatedly raised by the Africa Group of Nations (AGN) in previous Board Meetings.

The BM from Antigua and Barbuda also raised the issue around the No Objection Letters (NOLs) by the National Designated Authorities (NDAs). She explained that securing NOLs is not as simple as it looks and that power dynamics between the recipient countries and International Access Entities (IAEs) prevail that usually forces the former to sign NOLs without really knowing what the project is about nor its environmental and social impacts to local communities. She again brought up the concerns raised regarding Privileges and Immunities (P&Is), and reiterated the fact that should IAEs do something wrong during the project cycle, there is currently no space for local communities to seek justice. While there are existing arrangements for redress and grievance mechanisms, these require too much energy and resources from the affected communities themselves. She urged the Board to look into the revision of the NOLs as this has been a major problem of NDAs in developing countries. The alternate BMs from the Philippines and South Africa echoed this point and proposed to revise the NOL to an “Endorsement Letter” and to make sure that the role of NDAs will not be compromised.

To respond and clarify the issues around Privileges and Immunities (P&Is), the co-chair gave the GCF General Counsel the floor to read the provision about P&Is in the Fund’s Governing Instrument:

“The Fund will enjoy such privileges and immunities as are necessary for the fulfillment of its purposes. The officials of the Fund will similarly enjoy such privileges and immunities as are necessary for the independent exercise of their official functions in connection with the Fund.”

The general counsel also clarified that the functional immunity is not transferable and is accorded to officials and experts not for their personal benefit. The AEs also do not benefit from the P&Is from the GCF. They may however have their own P&Is.

The stark imbalance between mitigation and adaptation also came up in the discussion. Based on the Secretariat’s presentation, the Fund is showing progress towards increasing funding allocation for Adaptation. But it is important to note that the 50% allocation for adaptation uses the grant-equivalence. In nominal terms or the allocation of the actual value of funds for projects in the GCF, mitigation projects remain to receive the bulk of funding at 60%. Given that outside of the UNFCCC, the bulk of climate finance available are directed to mitigation projects, the BM from Egypt believes the GCF would be the institution that would provide most of its resources for adaptation, that should be grants-based and coursed through the public sector.

Erika Lennon, the Active Observer from Developed Country CSOs raised the CSO concerns around the assumptions inherent in some of the FPs considered – that enabling access to markets (for example to sell agricultural products) ensures that benefits will accrue to local populations. The said trickle-down theory of benefits is unproven and the assumption could negatively impact the project recipients. The CSOs also raised how some of the projects assumed consultations with civil society, Indigenous Peoples, and local communities should only start once a subproject is known, instead of involving them at the earliest stage of development, the design stage, and continuing throughout the program cycle. The CSOs also reiterated the lack of transparency initially encountered with FP205, emblematic of many large private sector programs, and the challenges of understanding a funding proposal without key program details due to lack of access to important FP documents.

The Board then proceeded to look into each of the Funding Proposals (FPs). All FPs received zero to very minimal comments from the Board, and were easily approved. The summary of discussions for each are as follows:

The Board also adopted requests for changes in FP198 and FP078 to include the following countries in the said projects:

Change requests in the other two projects, SAP 016 Fiji Agrophotovoltaic Project in Ovalau and FP152 Global Subnational Climate Fund (SnCF Global) – Equity, were deliberated in a closed-session.

As the GCF prepares for its second replenishment (GCF-2), the Board also discussed Matters Related to the Policy for Contributions to the GCF. The Secretariat presented the outcome of the first round of consultations, which was held in Paris, France before B35. Participants to the consultations discussed the minimum contribution, the timing when the GCF-2 will be effective, when contributors should cash in their contribution, and how the GCF’s commitment authority system may be further explored.

As the agenda item only reported the outcomes of the first round of consultations, there were no major debates on items that were initially recommended by the Secretariat from the GCF-1 policy. There was Board consensus on having a minimum contribution to narrow down the contributor base. The Board also agreed that the current 9-year encashment limit for pledges is too long and that it needs to be shortened to 4 years, which is within the replenishment period.

When the Board was asked for comments, the BM from South Africa, on behalf of the African Group of Negotiators (AGN), made strong points regarding the direction and content of the GCF-2 contribution policy. He stressed that the GCF Board and not the contributors should have the deciding power on the GCF-2 contribution policy, and expressed strong support for the encashment of the contributions within the 4-year period of GCF-2. He added that encashment should be made every 3rd quarter of each year in order for the Fund to have stable commitment authority.

On the issue of non-delivery of pledges and non-fulfillment of obligations, the BM from South Africa strongly urged the Board to include measures in the GCF-2’s contribution policy regarding contributor countries’ unfulfillment of pledges. He added that non-contribution, whether through refusal or failure to deliver pledges, is a major risk to the GCF’s commitment authority, and that the Board should make clear guidance regarding mitigating this matter.

It can be recalled that both Australia and the United States failed to contribute to the GCF-1, and that the United States has yet to fulfill USD 2 billion from its initial pledge of USD 3 billion during the Initial Resource Mobilization (IRM) of the GCF. As a response, the Secretariat explained that they have been reporting the amount and the name of contributor countries with remaining unfulfilled pledges, and furthered that they will explore ways to include the suggestions of the BM from South Africa in the GCF-2 draft contribution policy.

The CSO Intervention, delivered by Erika Lennon, developed country CSO active observer, echoed the points that there should be no minimum contribution and that the encashment period should be within the 4-year period of the GCF-2. The CSOs also called upon countries that have not yet delivered their pledged climate finance obligations and reiterated that climate finance should be in the form of grants, and that the Board must reconsider the existing policy on loan contributions. The intervention also noted that climate finance, as backed by the latest IPCC Reports, must be urgently and sufficiently delivered to save the people and planet against the climate crisis. Thus a more ambitious GCF-2 is not optional, but required.

Noting all the comments and the document presented, the co-chair requested the Secretariat to prepare a decision text by B36 and closed the session.

The Board then proceeded to discuss the Final Report of the IEU’s Second Performance Review (SPR). Below are findings and recommendations presented to the Board:

• The Board needs to provide more intentional guidance to the GCF, in terms of setting programming targets

• There needs to be clarification on the GCF’s role at the country level

• The GCF remains to have protracted and inefficient processes such as its accreditation and project proposal processes

• The GCF lacks vision and strategy on how to manage its network of 115 accredited entities toward a more efficient and effective delivery of projects

• Direct access to the GCF is a mere title, and there is no support to DAEs by IAEs and little support from the Secretariat

• There have been improvements in the GCF’s processes and effectivity, such as a higher quality of projects, as well as slightly faster processes

• The GCF’s Integrated Results Management Framework (IRMF) which is designed to manage and mitigate risks arising from GCF projects, remains to be underdeveloped as responsibility and delegation of risks remain unclear

• The GCF is unlikely to meet its targets for a balanced mitigation and adaptation portfolio, as well as its private sector programming targets.

Given these, the IEU recommended the Board to take the opportunity of the Replenishment Period and the drafting of the Updated Strategic Plan for years 2024-2027,  to clarify the GCF’s role at the country level. They also recommended that the GCF must review its accreditation priorities and to make sure that these are reflected in accreditation processes. According to the IEU, this may be achieved by exploring other ways on how to access GCF funds aside from accreditation. Lastly, the IEU also recommended that major improvements towards efficiency and predictability of GCF operations are needed. These improvements must clearly reflect policy priorities, strategic objectives, and responsiveness to the urgency of the climate emergency.

As a response, the Secretariat argued that they are doing their best to make GCF processes more efficient, effective, and faster. On top of doing their best to better implement existing policies, the Secretariat mentioned that there are upcoming policies in the pipeline to address the findings of the SPR. These include the country ownership policy, accreditations strategy, and the updated risk management statement, which required more resources to address the issues.

The BM from Ghana raised that the GCF, despite having an updated strategic plan for GCF-1, remains to have a lot of programming gaps such as the stark imbalance between adaptation and mitigation, and that more GCF funds go to IAEs rather than DAEs. As a member from LDC, he stressed that accreditation requirements and outcomes of applications vary from DAEs and IAEs. He urged the Secretariat to improve the process and provide more equitable support to DAEs, especially those from LDCs.

Erika Lennon, developed country CSO active observer, raised CSOs concerns around the Board’s leadership and guidance, and that it should be based on the GCF’s mandate to urgently provide climate finance to the most vulnerable, and should be pursued for the people and planet over profit. The CSOs also asked for transparency and accountability throughout the implementation of the accreditation and project proposal processes, as this has remained unpredictable and unevenly experienced by applicants and AEs with different capacities and resources. The CSOs also emphasized the important role of NDAs and DAEs in GCF processes and asked the Board to prioritize resources for the NDAs’ capacity building so that they could meaningfully engage in the GCF. Lastly, the CSO intervention highlighted the IEU recommendation to integrate active observers in Board processes and, in this respect, provide financial support to developing country active observers to be able to attend Board Meetings and other GCF activities and processes.

The co-chair noted all the points raised and asked the Board to adopt the decision text, which was to note the GCF’s Second Performance Review (SPR) of the IEU.

The Board also discussed its Second Updated Strategic Plan (USP-2) for years 2024-2027, which started with the Secretariat providing a brief presentation outlining the progress done by the Board around the development of the Strategic Plan and the processes involved to come up with the current Consultation Draft (DRF.01). The said draft reflects some areas of convergence, differences of perspectives and items that need further work. DRF.01 also presents the Board’s ambition to strengthen GCF’s role in meeting the Paris Agreement goals, focus on implementing developing countries’ NDCs, and to achieve the adaptation and mitigation balance.

When the floor was opened for comments, many Board members lauded the Secretariat for its efforts to further streamline the USP-2 and capture the diverse views raised by the Board since B32. The BM from China believes the USP-2 must be guided by the principles of equity and common but differentiated responsibility and respective capacity (CBDRRC) and that the Fund must take into consideration the establishment of the Loss and Damage Fund in stepping up its efforts. He added that ultimately the GCF must align its efforts with the developing countries’ needs and their respective national circumstances and realities.

Some BMs raised the need to reflect the Fund’s goal of achieving a balanced allocation for adaptation and mitigation, especially since the matter has been repeatedly raised over the last 2 days of B35. While there was an appetite to increase GCF’s role in adaptation, some developed country BMs argued the USP-2 must also prioritize mitigation given that the world is in the “critical decade” for emissions reductions. BMs from Sweden and Germany argued that the USP-2 must reflect the Fund’s increased support around decarbonization, while others believe adaptation and projects around Nature-Based Solutions should also be the priority of the Fund. BMs from Switzerland, Germany and Japan also mentioned the decarbonization potential of forest projects, and urged that the USP-2 reflect the Fund’s efforts to enhance its support for REDD+ Results-Based Payments.

The increased role of the Private Sector was also repeatedly raised by many developed country BMs. BMs from Spain, Denmark and Italy believe mobilizing public Funds for the GCF is not enough, and that private capital is inevitably necessary in order for the Fund to reach its full potential. The BM from Switzerland also highlighted the GCF’s need for complementarity and cooperation with multilateral development banks (MDBs) and other climate funds.

There were relatively few comments from developing country BMs, but their points were mainly about the increased accessibility of the Fund to developing countries, particularly the LDCs, SIDS and vulnerable nations. BMs from Gambia and Ghana strongly advocated for the USP-2 to reflect how the Fund will become more accessible to the communities, and how the GCF Readiness Program will become more effective in addressing the challenges experienced by the DAEs. The BM from Ghana also challenged the Board to include the recommendations presented by the IEU in the USP-2.

Titi Akosa, the alternate AO from developing country CSOs, also delivered the joint CSO intervention which raised CSO concerns around the USP-2’s failure to centre human rights in the DRF.01. The CSOs also argued against the vaguely defined private sector and the GCF’s potential role as a co-investor, in the context of promoting more private sector investments. While the CSOs support the prioritization of engagement with the local private sector, especially micro, small and medium-size enterprises (MSMEs) in developing countries, the USP-2 should reflect the Fund’s efforts to significantly expand the approach to direct access but without compromising the GCF safeguards standards, quality and sustainability of the projects.

The co-chair then explained the proposed way forward of the Board. The Secretariat is expected to release the second draft of the USP-2 (DRF.02) by first of May, in order to prepare the members of the Board for a proposed Informal Board Meeting (IBM) that will be dedicated to discuss the USP-2. The proposed decision text indicated the IBM to be held on May 16-17, 2023, to which the BM from Germany offered to host in Berlin. Hearing no further objections, the Board adopted the decision and the co-chair closed the session and the 3rd day of B35.

You can catch GCF B35 via webcast and on demand here: https://www.greenclimate.fund/boardroom/meeting/b35#videos.