Green Climate Fund 2.0 – Moving to the Next Phase
30 November 2019
When climate negotiators come together for COP 25 in Madrid from December 2- 13, the year 2020 looms large. It is in many ways a fateful year, both for the Paris Agreement and for the Green Climate Fund (GCF) serving as the main multilateral financing mechanism for its implementation.
At the same time that the Parties under the Paris Agreement in 2020 are asked to ratchet up their ambition in combating the climate crisis by submitting their upgraded nationally determined contributions (NDCs) for their mitigation and adaptation efforts, the GCF – just having secured USD 9.78 billion in a pledging conference in Paris while expecting further contributions to come in until the end of its first replenishment period in December 2023 – enters its next operating phase. 2020 is also the year in which developing countries will scrutinize whether the 2009 Copenhagen promise by developed countries to jointly mobilize USD 100 billion annually by that date is being fulfilled, including whether the share that is flowing through the GCF is adequate and commensurate with the expectations that developing countries are placing on the GCF and the accessibility of its funding.
Thus, the signals that the Fund will send to developing countries eligible to receive its support regarding the quantity, quality and predictability of GCF climate financing available are inextricably linked with the level of ambition developing countries feel comfortable pursuing in their updated NDCs. This is the background for ongoing efforts to streamline, sharpen and rationalize existing GCF operating policies and procedures and address persistent governance and procedural challenges at the start of the Fund’s first replenishment period. A lot is at stake in moving the GCF from its operational beginnings during the initial resource mobilization period that formally ends with the year 2019 to its next operational phase. It remains to be seen to what extent the “Green Climate Fund 2.0” will be a true revamp. Strongly worded guidance by the COP in Madrid might serve to push the GCF along, as could a planned informal meeting of the GCF Board in February to discuss the components and ambition of a new strategic plan for the GCF for the period 2020-2023.
The developments of the GCF’s operations and portfolio, its programming pipeline, pending policy updates and policy reviews and updates accomplished over the course of 2019 as well as the continued challenges the Fund is facing are detailed in an information brief on the GCF that the Overseas Development Institute (ODI) and the Heinrich Böll Stiftung Washington, DC have released as part of an annual update of their Climate Finance Fundamentals (CFF) briefing series on the eve of COP 25. Two additional briefings, one exploring more in-depth the normative principles that should guide public climate finance mobilization, governance and delivery (CFF1) and one that looks at the gender dimensions of climate finance (CFF10) are also available in English, French and Spanish as PDFs here:
In 2019, the GCF Board approved another 31 project and program proposals worth USD 987 million in GCF funding, including 13 proposals worth USD 407.8 million at its last Board meeting in mid-November. Its portfolio of approved projects is now 124 projects worth USD 5,592 million. The list of approved projects saw some firsts this year, such as four projects focusing on REDD+ results-based finance and a first private sector equity investment under the Fund’s mobilizing funding for scale pilot program. The steady growth in approvals was accompanied by accelerating progress in disbursements: As of September 2019, projects and programs worth USD 2.7 billion were under implementation, with USD 661 million disbursed. Disbursement is expected to grow to up to USD 988 million by the end of 2019. Added to this are now a total of USD 312.5 million made available by the GCF Board for readiness and preparatory support to strengthen the institutional capacities of its 147 National Designated Authorities (NDAs) and focal points, such as their ability to designate successful direct access entities or spearhead the country coordination efforts leading to the development of GCF country programs with national investment priorities, of which there are now 23 finalized and 33 more in various drafting stages. With 200 readiness proposals approved for USD 114 million in 114 countries and almost USD 63 million disbursed, the GCF’s readiness program is now the largest climate finance capacity building support program globally.
In some aspects this steady support has already proved enormously successful: with 56 direct access entities, the majority of the ever-growing family of 95 GCF implementing partners are now this type. 20 new implementing partners were accredited just this year, with 15 of these direct access entities, including seven private sector ones. In other aspects that support has not yet resulted in the desired outcomes: project approval in 2019 further cemented the imbalance between projects and programs implemented by international agencies (which are now receiving 86 percent of the approved GCF funding) and direct access partners (with only 14 percent of approved funding).
As the GCF Board in 2020 will strive to provide further clarity on the criteria under which financial resources will be provided in order to increase the overall quality and impact of GCF projects and programs, it will need to do so carefully in order to not undermine the implementation capacity of direct access entities, many of which are not capable of or accredited for the sophisticated financial structuring that the “Green Climate Fund 2.0” is looking for in order to increase the overall impact of its operations, such as shifting from loan provision to equity investments. Discourses about the clearer elaboration of the climate rationale of proposals, incremental cost methodologies, co-financing ratios targeted or the concessionality of financing made available, while important, should not serve as a deterrent to accessing GCF financing. After all, providing financial support for developing countries, all of which are eligible to receive funding through the GCF, is an obligation of developed countries clearly elaborated under the UNFCCC, not a privilege to be earned by developing countries. Thus, while the GCF Board in 2020 will continue to struggle with efforts to define paradigm shift as an investment criteria and evaluate the capacity of project proposals to support transformational change, this should not turn the GCF away from facilitating financing for proven, low-risk and highly successful approaches such as ecosystem-based adaptation, agroforestry or distributed renewable energy solutions that through replication, scaling up and streamlining can benefit local communities most affected by climate change quickly and directly. This is why the success of approaches such as the GCF’s Simplified Approval Process (SAP), which saw a surge in submissions in 2019 and had eight more approved proposals for a total of twelve, is so important. This is also why it is distressing that the Enhanced Direct Access (EDA) pilot allowing for the distribution of GCF funding in smaller tranches through (sub-)national funding decision-making seems to have stalled, with not with not a single EDA proposal considered in 2019.
At the same time efforts are moving forward to further facilitate private sector access to GCF financing, such as through the development of a project specific assessment approach (PSAA). It would allow potential GCF implementation partners to skip the lengthy accreditation process, and thus the longer-term partnership approach, for a one-time collaboration for a specific investment opportunity. While this might allow the GCF to test its risk appetite and try out novel technologies and approaches, it misses the opportunity to help improve overall implementation standards of its partners in a lasting way – beyond a fig leaf green project that might be more greenwashing than a harbinger of lasting change. This is especially relevant as in 2020 the GCF looks to start the re-accreditation procedure for its first eight accredited entities, including as part of this procedure at the way their overall portfolio beyond the collaboration with the GCF has shifted toward low-carbon and climate resilient pathways. This potential of the GCF to influence and shift the “business as usual” of its implementing partners cannot be fulfilled through an approach like the PSAA.
With the GCF Board turning its efforts in early 2020 to updating the GCF’s strategic plan by sharpening and revising the Fund’s business model, it must make clear that facilitating access to GCF funding and increasing the Fund’s willingness to take risk cannot come at the price of undermining the normative foundations that should guide all public climate finance investments. Thus, a new strategic plan for the GCF must anchor a human-rights based approach to its funding centrally to ensure not only that harmful consequences of its investments are avoided, but that benefits of GCF funding are equitably shared and existing inequalities and exclusions – of women, local communities or Indigenous Peoples – are proactively addressed in the way projects and programs are conceptualized and implemented. While the Board at its November 2019 meeting approved an updated gender policy and a new gender action plan after an 18 months delay and with considerable weakening of hoped-for strengthened gender mainstreaming ambition – thus backing away from the Fund’s prior leadership position as the first climate fund starting operations with a gender-aware approach – much more than a policy update is needed to make gender-responsive, human-rights based implementation of GCF funding a reality. Thus, the Board in setting the direction for the Fund for its next implementation phase has to be very mindful that some of the investment priorities it seeks to further – for more private sector equity investment approaches for example – could very well be at cross purposes with the mandate to uphold and protect human rights and the benefits for local communities that must remain at the heart of GCF funding commitments.
It is thus essential that the Board at the start of the Fund’s first replenishment period, and thus at the start of implementing “Green Climate Fund 2.0”, focuses its attention on strengthening safeguards – including by developing the GCF’s own environmental and social safeguards in a way that acknowledges the Fund’s global leadership role – and by improving and increasing the participation and engagement of local communities, women and Indigenous Peoples as core stakeholders throughout GCF policy development and project design and implementation processes. Only then is the GCF really moving to the next phase in fulfilling is ambitious mandate.
Note: This article is re-posted from the Heinrich Böll Stiftung website.