Can the Green Climate Fund lead to a more democratic climate finance governance?

Divya Singh

  • 20 October 2017

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Green Climate Fund (GCF) is the new international fund established by the United Nations Framework Convention on Climate Change (UNFCCC) to mobilize and channel concessional climate finance for developing countries. GCF’s mandate is to support transformative climate action in developing countries, helping them achieve low – carbon, climate resilient development. It particularly seeks to support clean energy, low carbon cities, low emission agriculture, forestry and adaptation.

The provision of financial assistance from the developed to the developing countries has been enshrined in article 4.4 of the UNFCCC, which states that the developed countries would transfer “new and additional resources” to developing countries, which are less resource endowed and more vulnerable. This article (article 4.4 of the UNFCCC) is based on the UNFCCC principle of “common but differentiated responsibilities”, which argues for a greater role of developed countries in the fight against climate change owing to their significantly greater role in creating the problem historically. The developing countries find it difficult to invest scarce national resources in addressing a nebulous problem they have had little role in creating.

With these considerations in mind, the UNFCCC through Article 11 established a financial mechanism to facilitate provision of concessional climate finance from the developed to the developing countries. The operating entities help the UNFCCC realize these objectives. In the beginning, the Global Environment Facility (GEF) fulfilled this responsibility and administered climate finance; however, over the years, the GEF has come under severe criticism from the developing countries as it was seen to be dominated by the priorities and interests of the developed countries.

Dissatisfaction with the functioning of GEF led to extensive discussions internationally around the design of more equitable and effective institutional arrangements for administering climate finance. After the Copenhagen, where industrialised countries committed to giving $100 billion annually as additional climate finance from 2020 onwards, the need for an effective institutional arrangement was felt even more acutely. The search for a new institutional mechanism led to the creation of the Green Climate Fund (GCF). The GCF has its headquarters in Songdo, South Korea. Till September, 2017, around US$ 10.2 billion has been pledged to the GCF, out of which $5.8 bill have been contributed.  A total of 34 governments have made pledges to the Fund, including 8 developing countries such as Vietnam and Mongolia.

Essential Features of the GCF

GCF’s stated objective is to support climate action in societies particularly vulnerable to the impacts of climate change, such as the Small Island Developing States (SIDS), African States and the Least Developed Countries (LDCs). GCF unlike GEF, which had a broader mandate, focuses exclusively on climate change and aims at alleviating its impact on the developing nations. Additionally, unlike the GEF, which was more focussed on mitigation, the GCF gives equal importance to both adaptation and mitigation. Equal emphasis on adaptation investments is particularly crucial for developing countries, which are already highly vulnerable to the impacts of climate events.

Another important feature of the GCF is that it endorses a country – driven approach, wherein the funding will be aligned to the identified priorities of the recipient developing country through the principle of ‘country ownership’. To ensure this, the GCF requires the recipient countries to appoint a National Designated Authority (NDA), which acts as an interface between the Fund and the developing country and helps ensure that the GCF activities in the country are aligned to the national priorities. Over 120 countries have already established an NDA.

The NDA is further responsible for selecting and nominating public, private and non – government organizations working in the country for accreditation by the GCF. These organizations / agencies are called the National Implementing Entities (NIEs) and, once accredited, are responsible for proposing and implementing GCF projects in that country. They are usually organizations with experience in climate action. The non-accredited agencies can also participate in GCF projects by collaborating with the accredited agencies in implementing or co-financing its approved projects. The NDA communicates the national development and environmental priorities to the accredited agencies, guiding them in formulating proposals, and participating in the appraisal and monitoring of the projects. Funding proposals are assessed by the GCF Board. The concept of country ownership, if implemented properly, will go a long way in devolution of financial power to the developing nations, allowing them to devise projects best suited to their needs.

Importantly, the accredited organisations of the various countries can directly seek funding from the GCF without the support of intermediary institutions such as the World Bank and without going through their additional sets of rules and regulations. This principle is called the Direct Access Modality. Such direct access was not made available by the GEF. The GCF is now working on “Enhanced Direct Access” to make it even more easy for the LDCs and other developing countries to access GCF funding, especially for smaller projects. To help developing countries access GCF funding, the GCF has also established a programme to provide support for strengthening institutional capacities of developing country institutions and agencies (NDAs and NIEs) to engage more effectively with the GCF.

Some Concerns:

GCF has begun its operation and its functioning has raised several concerns. These concerns need to be addressed if the potential of GCF is to be realized. Environmental activists say that the GCF needs to do more to devolve power to those it is designed to help. The local communities, they argue, aren’t being sufficiently involved in decision-making.

There is also significant concern regarding involvement of the private sector, and what it would mean for the direction of GCF funding. There is also considerable controversy around the accredited entities the fund relies to develop and manage projects. GCF Board’s decision to accredit private-sector banks, including HSBC and Deutsche Bank, has come under criticism. It has been argued that HSBC is tainted by investigations of money laundering and Deutsche Bank has invested heavily in coal.

Additionally, the sheer number of projects pending approval by GCF indicates that most developing countries lack the capacity to develop sound proposals for GCF funding, preventing their effective engagement with the GCF.

The GCF has also come under significant scrutiny in its financial management. Initially, it was unwilling to open up about its financial operations but has since relented and agreed to provide as much information as possible under its new disclosure policy. This is particularly important since the Paris Agreement greatly emphasised the need for greater transparency and accountability in all matters of climate governance.

Institutionally, then, the GCF offers promise of greater assistance to developing nations in combating climate change vulnerability. How far is it able to deliver on this promise is yet to be seen. There are concerns that need to be addressed before it can fully realize its potential.

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