GCF ready to receive money, but donors push back on pledges

Early this year, the future of the Green Climate Fund seemed to hang in the balance. Not only were there doubts on meeting the $100 billion climate financing annual target until 2020, stakeholders also failed to make a decision on crucial areas such as procedures, policies and frameworks. Last month, at a meeting in Songdo, South Korea, the GCF board finally completed all eight operating procedures. Decisions on initial resource allocation policy and the terms of reference for the fund’s Independent Evaluation Unit, Independent Integrity Unit and the independent redress mechanism were made in the Bali, Indonesia, meeting held earlier this year. The remaining six requirements — from the initial fund and secretariat structure to the initial modalities for the operation of the fund’s mitigation and adaptation windows and the Private Sector Facility — were agreed on at the Songdo meeting. “This means the fund is indeed ready to receive money — though I would argue that there was never actually anything stopping developed countries from pledging money,” Brandon Wu, senior policy analyst at ActionAid USA, told Devex. Oscar Reyes, associate fellow of the climate policy program at the Institute of Policy Studies, told Devex that the Songdo meeting also established an initial resource mobilization process, which will begin with a meeting of potential donor countries in early July. “Significant advances in developing a policy for contributions would be a good outcome for the July meeting — but the real work is required in developed country finance ministries to make adequate and predictable resources for climate finance, including the GCF,” he said. US, Japan want pledges end date extended While the GCF board emphasized the need to garner enough pledges by November, it has acknowledged that the process could go well beyond this date. “The United States and Japan were the strongest to push back on the November end date for the initial resource mobilization process, which indicates that they may not be able to make pledges within this time frame,” Wu said. “But many others will — Germany, in particular, has been pretty open that they have a pot of money already set aside for the GCF.” A March 2014 report from GCF notes that South Korea, Sweden and France are also among the countries that have pledged amounts to the fund. Developed countries, however, have their own views on how pledges should work, according to Reyes. “For example, Germany has voiced the opinion on several occasions that the GCF should have a form of ‘burden-sharing’ between developed countries, but the U.S. and Japan, among others, object to such a notion,” he said. Meanwhile, Sweden has been hesitant about GCF’s future. Weeks before the Songdo meeting, it announced that it would postpone half of its $45 million pledge to 2015. These hiccups make the $10 billion to 15 billion that GCF Executive Director Hela Cheikhrouhou is looking to raise by the end of the year seem more challenging to achieve. Several details, Reyes pointed out, also still need to be worked out. “For example, it is likely that a number of countries, such as France and the United Kingdom, will make a significant share of whatever their pledges are in the form of loans,” he said. “The time scale for replenishments is also unclear, so it is uncertain over what period the pledged funds are meant to be disbursed.” Is there a need for an exclusion list? The guidelines on how GCF money should be spent have also been a cause for concern among GCF observers. There has been some apprehension about GCF safeguards, which will be based on the investment guidelines of the International Finance Corp., the World Bank’s private sector lending arm. Earlier this year, IFC was criticized for investing in Dinant, a palm oil company that has been linked to death squads in Honduras. “We want the GCF to aspire to truly best-practice safeguards or go beyond. The IFC performance standards are not best-practice, and adopting them comes with some serious reputational risk,” Wu said. “Luckily, this is just an interim solution, and there is a three-year timeframe for a process to design the GCF’s own environmental and social safeguards. It’s very important that this process be open, inclusive and transparent, with lots of consultation and points for input, to ensure that the resulting policy is actually best-practice.” An exclusion list, which would detail which projects are incompatible with the GCF’s objectives, could ensure that money will only go to low-carbon projects, but a decision on this was not reached at the Songdo meeting. “The World Bank, for example, excludes nuclear power investments — and we’d endorse the GCF to follow a similar path,” Reyes said. “But it is also worth noting that, to be as ‘transformative’ as its statutes suggest, the GCF should rule out fossil fuel financing. There is nothing in the terms of the fund’s initial ‘investment framework,’ on the basis of which financing decisions would be made, that does this at present — hence the need for an exclusion list.” Germany and France supported the need for an exclusion list, but the idea did not gain enough traction at the Songdo meeting. “We’re working to try to make it viable at future board meetings,” Wu said. Pledges not expected, but Bonn ‘a useful venue’ The ongoing U.N. climate change conference in Bonn, Germany, which will have sessions to discuss the need for increased adaptation and mitigation activities as well as the funding needed to support them, could give the momentum that climate finance needs. Still, Reyes believes that the Bonn conference is “unlikely to have much impact on the GCF.” “If developed countries fail to deliver substantial pledges to the GCF by the time [the U.N. Framework Convention on Climate Change Conference of the Parties in Lima, Peru, takes place in December, it] could sour the atmosphere at a conference that is intended to negotiate draft texts for a new international climate treaty,” he said. For Wu, the Bonn meeting is “a useful venue to put political pressure on developed countries to make contributions to the GCF.” “I wouldn’t necessarily expect pledges in Bonn since the initial resource mobilization meeting is not happening until after the session is over,” he said. “However, it’s never too early — and already long, long overdue — for developed countries to send the right signals about providing finance for developing country mitigation and adaptation.” Do you think the Green Climate Fund will reach its $10 billion to $15 billion target by the end of the year? What countries do you think are likely to make the largest pledges? Let us know by leaving a comment below. 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