Dear Board members, alternates, and advisors:
Fundamentally changing the GCF’s approach to its commitment authority for the first time in the Fund’s history is a significant decision, with wide-ranging financial as well as governance and risk implications. As such, a policy framework underpinning this change, alongside a rationale for why this is considered necessary and any associated risks and implications and/or possible alternative approaches, should be presented to the Board for discussion before adoption.
There is, of course, nothing inappropriate about informing the Board of ongoing work through an information document. However, GCF/B.45/Inf.12, Report on the Activities of the Secretariat goes well beyond providing information. Annex III introduces a “Refined Commitment Authority Framework,” which establishes a new methodology for determining the Fund’s commitment authority and contains operative provisions intended to guide the Fund’s future financial management. It is not merely descriptive. It is procedurally suspect and limits the Board’s oversight and governance responsibilities.
We therefore urge the Board to request that the Secretariat remove this annex. If the Secretariat would like to present a refined Commitment Authority Framework, then it should do so following standard practices, which include explaining the rationale for the proposed revision, its operational implications, conducting a round of stakeholder consultation, drafting a revised policy, and providing a matrix of comments and responses – as has been the case with other suggested changes to financial procedures, such as the Policy on Fees, up for Board consideration at B.45.
We understand that the Secretariat engaged the Board in an ‘informal socialization’ process by reaching out to the Risk Management Committee (now the Risk and Finance Committee) in February and convening some technical sessions with the Board on this matter. While such sessions can support the Board’s understanding of complex financial issues, they cannot substitute for the Fund’s formal policy development, nor can they replace transparent engagement with stakeholders, including CSO active observers. Board socialization is not equal to and cannot substitute for formal Board consideration. Seeking implicit endorsement of a significant change through an information document, rather than through a formal Board decision, raises serious procedural concerns and risks circumventing the Board’s oversight function and established decision-making processes.
We cannot identify a financial decision in the Board’s history that was undertaken in such a manner, as mere acquiescence to a de facto decision reported by the Secretariat in an information document. Financial decisions, from the approval of funding proposals to the sustainability mix of the Trustee’s investment approach to local currency financing, are historically decisions taken up by the Board and subject to its usual procedures of consideration.
For example, the “Policy to minimize the effect of currency fluctuations on the commitment authority of GCF” (adopted at B.34) governs much smaller fluctuations in the commitment authority. Yet the change outlined in the Refined Commitment Authority Framework, which would more than quintuple the size of the GCF’s commitment authority, has not been developed in the context of an explicit policy decided by the Board, but is presented as a fait accompli and subsumed in an information document. The fact that this was reviewed by an (unnamed) “external agent”, reviewed by the Trustee (whose feedback is not shared), and discussed informally with Board members, does not fill the governance vacuum that would see the new Framework approved without a Board paper and associated decision. This approach is inherently inadequate. The adoption of the Risk Appetite Statement at B.40, enabling the Secretariat review of the net funding requirements and setting parameters for a liquidity reserve, is not carte blanche to change the calculations of the commitment authority without Board consideration.
We also recognize that the COP Guidance to the GCF “requests the Board to urgently consider ways to enhance the commitment authority of the Fund.” We fully acknowledge the importance of this guidance. However, the operative guidance is for the Board to “consider ways,” which can be in a number of approaches. The COP Guidance neither prescribes a single solution nor authorizes the Secretariat to introduce a revised framework outside the Board established decision-making processes. Rather, it reinforces the need for the Board itself to transparently evaluate the available options before determining the appropriate course of action.
Page 1 of the GCF governing instrument straightforwardly states: “the Fund will operate in a transparent and accountable manner”. These principles are foundational to the Fund’s legitimacy and governance. It follows that significant policy and financial decisions be presented transparently, deliberated openly, and adopted through formal Board decisions. These principles were not annexed but foregrounded, because they were important – keeping this framework as an annex to an information document and failing to pair its policy-approach with a decision is a betrayal of those principles.
This is far more than a procedural matter – if the GCF wishes to instill confidence in its governance practices and its authority to determine the future direction of the Fund in the lead-up to its third replenishment effort, a proper Board consideration of major financial and policy changes must be the norm. We therefore urge the Board to require that any proposed revisions to the Commitment Authority Framework be brought forward as a formal policy proposal, subject to the Board’s established procedures and explicit Board consideration.
Best,
The GCF observer network of civil society organizations, Indigenous Peoples, and local communities
