As members of the global diplomatic community begin to set their sights on the third big international summit this year — the Paris climate change conference in December — they can be forgiven if they resort to the oft-quoted line from the movie “Jerry Maguire”: Show me the money.
In the climate change realm alone, an estimated 100 billion euros ($112 billion) will be needed each year to help poor countries pay for investments in mitigation and adaptation.
“If we are to succeed in Paris it will require not only political commitment, but also financing,” President François Hollande told French ambassadors assembled in the country’s capital as the city prepares to host the 21st edition of the Conference of the Parties to the U.N. Framework Convention on Climate Change.
Meanwhile, straight out of South Korea, where a popular rap television competition is named after Jerry Maguire’s emblematic line, comes a new $10 billion international climate change fund. From its headquarters in the “smart city” Songdo, the Green Climate Fund is setting the stage for the pre-COP21 announcement of its first big ticket disbursements.
The GCF will offer a full range of funding options, including loans, concessional loans, grants, and structural insurance, Pierre Forestier, head of the climate division of the French development agency, told Devex during at the recent Convergences conference in Paris. “Usually it will involve co-financing,” he added.
Since the $10 billion is slated to cover four years of disbursements, the GCF might seem like a drop in the proverbial bucket. Proponents nevertheless consider it a landmark.
“GCF is the only international financing institution set up with the sole goal of supporting the UNFCCC’s objective of keeping global warming below 2 degrees Celsius,” said Héla Cheikhrouhou, GCF executive director, in a keynote speech last month at the World Water Week conference in Sweden.
“The main focus will be to see what kind of impact there will be on climate change, beyond business as usual,” said Forestier. “Whether [proposed projects] are transformational.”
The GCF was approved at the COP15 meeting in Copenhagen in 2009. Through Sept. 1, it had recorded signed commitments to cover 60 percent of its projected initial four-year endowment. Japan ($1.5 billion), the United Kingdom ($1.2 billion), and Germany ($1 billion) lead the way. The United States has pledged the largest amount ($3 billion), but has yet to come through with the actual contribution. All told, 36 counties have at least made pledges.
The GCF inked the contract for its first disbursement in mid-September — a $300,000 grant to Mali. Described as “readiness funds,” the cash will help the African country to establish a team in a governmental agency that works with the GCF on climate and development issues.
Over 70 governments have submitted similar requests for capacity-building support, and 10 have already been approved, according to Cheikhrouhou in her water week address. “We are also launching several pilot programs with a total budget of $900 million to increase country ownership, support small and medium-sized enterprises, and to mobilize funding at scale from the private sector,” she added.
Significant project deals are expected to emerge from the November GCF board meeting in Livingstone, Zambia, according to Forestier. Several proposals are in the pipeline, but they remain confidential. The board consists of representatives of 24 counties.
Funds will be channeled through accredited institutions that include nongovernmental organizations, national foreign development agencies, ministries, United Nations agencies, multilateral banks, and so far one private bank — Deutsche Bank. To date 20 partners have been approved, but the number is expected to rise.
“Close to 100 well-established institutions from around the world are working towards becoming GCF accredited entities,” said Cheikhrouhou, quoted in a fund press release.
“It is the first time that a large-scale multilateral fund has promoted, to such an extent, the direct implementation of international financing by national institutions and private actors,” said Forestier adding that different institutions are “accredited at different levels of risk and capital.”
As a prerequisite to be eligible for funding, developing countries must identify a national designated authority to act as the local GCF contact. More than 120 nations have already done so, and according to Forestier, most countries have tabbed their finance, environmental or other relevant ministry. Both accredited partners and NDAs can submit funding proposals; NDAs have veto power over investments in their respective territories.
One objective, as Forestier explained, is to establish what he called a “green price signal.” For example, GCF financing might be used to tip the balance to convince an energy company to invest in clean generation instead of old, less environmentally-friendly methods that conventional creditors might consider less risky and therefore deserving of better terms from a pure loan-evaluation perspective.
Bill Hinchberger is Devex's Paris correspondent. In his spare time, he's a freelance writer, communications consultant and educator. A native of California, he lived in Latin America for over two decades, reporting for media such as The Financial Times and Business Week. He also served as president of the São Paulo Foreign Press Club and founded the online travel guide BrazilMax.com. Assignments have taken him to over 30 countries, from Cuba to Egypt, India, Kenya, Turkey, and beyond.
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