Most international climate funds are interested in program proposals that will get them the most bang for their buck or result in the most emissions reduction for the least amount of spend. But that’s not what drives the Green Climate Fund. The world’s newest and largest dedicated international climate fund prefers to spend its roughly $10 billion dollar budget on adaptation and mitigation outcomes that are going to catalyze change in the broader context of sustainable development.
“We live in a society and a world today where we need to think of doing things in a nontraditional way if we’re going to achieve the 1.5 degree or 2 degree [Celsius] goal, but the GCF in itself is not going to do it,” says Zaheer Fakir, co-chair of the South Korea-based organization. “What the GCF is doing is creating that environment in which these things can happen.”
Still in its first full year of operation, the GCF aims to distinguish itself from other international climate funds by promoting a “paradigm shift” towards low-emission development pathways and effecting “transformational change” through soliciting programs with a “high-risk appetite” and spurring private sector investment.
Fakir refers to this as “business unusual” whereas his co-chair Ewen McDonald, interprets it as a fundamental change in the way the international development community works together to simultaneously achieve multiple climate and broader sustainable development objectives.
“There is an assumption that ‘paradigm shifting’ means ‘new’ and ‘on a large scale,’ but proven ideas and small-scale interventions can also be transformational,” McDonald said. “Context is everything.”
A project that isn’t paradigm shifting in one country or community could be paradigm shifting in another. For instance, a project based on tried-and-true technologies and approaches, but implemented in a new location where it previously wasn’t viable can transform that economy, society and environment, according to McDonald.
The world has set $100 billion a year to support global climate action but the degree to which donor countries are fulfilling financial commitments is a contentious and complex issue. Devex analyzed the largest multilateral and bilateral international climate funds that will help mobilize the money needed to confront climate change.
To date, the GCF has approved investments totalling almost $425 million for 17 projects, which are spread out across the world. But at the GCF’s latest board meeting in June, its own board members scrutinized the projects on the table. “On the whole I would call them plain vanilla,” Leonardo Martinez, deputy assistant secretary for energy and environment at the U.S. Treasury said at the meeting. “They’re quite fundable. They’re quite helpful, but we really need to think more about transformative.”
The GCF will be holding its 14th board meeting later this month, which will also be its last before the 22nd United Nations Conference of the Parties on climate change, or COP22, takes place in Marrakech in November. The board will consider 10 funding proposals requesting a total of $786 million. If all the projects are approved, which seems likely to happen, the GCF will have achieved over 40 percent of its “aspirational goal” to commit $2.5 billion this year alone.
As of Aug. 31, the GCF pipeline is comprised of 44 funding proposals, which request a total of $3.4 billion, but the fund is also struggling to attract quality program proposals from countries, according to Fakir.
It has an “aspirational goal” to commit $2.5 billion this year alone, but more than halfway through 2016, the South Korea-based fund has only achieved about 10 percent of its target. And although there are a sizable number of adaptation projects in the pipeline, the amount requested to fund them is significantly lower than for mitigation projects. That could be a concern given that over time the GCF is aiming for an equal balance between mitigation and adaptation investments, the fund’s two core areas of interest. Fakir urges countries to approach the fund even if their project proposals are not fully formed.
“There’s no need for one to hold back,” he said. “You’re never going to get the best project. We’re happy to work with the good rather than waiting for the best.”
Applicants to the fund need to be accredited before they can put forward project proposals. Since operationalization, the GCF board has accredited 33 entities with many more in the pipeline. Accreditation is open to a diverse range of entities, and fall under two broad categories.
International entities, which operate on a global scale and include U.N. agencies, multilateral development banks, international financial institutions and international environmental nonprofit organizations. The second is direct access entities, which are subnational, national and regional entities nominated by recipient countries and include government agencies, development banks and nongovernmental organizations.
Direct access is currently one of the biggest trends in climate finance and McDonald says the GCF is putting greater emphasis on it than climate funds have traditionally, especially since part of the fund’s mandate is to pursue a country-driven approach and promote and strengthen engagement at the country level. Thirteen (or over a third) of the fund’s accredited entities are direct access entities, and two direct access proposals and one proposal for enhanced direct access will be presented at the next board meeting.
“Seeing direct access proposals in this round is encouraging,” says Niranjali Amerasinghe, climate finance associate at the World Resources Institute. At the fund’s last board meeting this past June, which Amerasinghe attended, only one direct access proposal was put forward. “However, there is still much more support that developing countries and national institutions need to turn concepts into viable proposals for the board to consider.”
The fund has six investment criteria for assessing proposals: impact potential; paradigm shift potential; sustainable development potential; needs of recipient; country ownership; and efficiency and effectiveness, but GCF chairs admit there should be greater clarity on what it takes to pursue projects with the fund. Many governments and implementers are simply not aware of GCF’s operating model, priorities or open opportunities.
In order to increase awareness about the fund and enhance countries’ ability to reach into the GCF’s purse, the fund has a regional adviser appointed to each region — Asia, francophone Africa, Anglophone Africa, Latin America and the Pacific — as an initial contact point for countries on GCF matters. Regional advisers are part of the GCF Secretariat. To foster coordination, collaboration and sharing of ideas within regions, the GCF has also hosted several regional workshops. The most recent one was held for Pacific island states in Suva, Fiji, with South Africa hosting the next one in late October.
Some accredited entities have received heavy criticism from civil society groups. That includes major commercial banks such as Deutsche Bank, HSBC and Crédit Agricole, a French bank, which have all recently been mired in financial scandals and are notorious for their coal investments. Between 2013 and 2015, Deutsche Bank invested $6.73 billion in coal mining, coal-fired electricity, “extreme oil” operations and liquefied natural gas infrastructure, while HSBC invested $1.46 billion and Crédit Agricole spent $1.01 billion respectively, according to a June 2016 report released jointly by the Rainforest Action Network, BankTrack, the Sierra Club and Oil Change International environmental groups.
Liane Schalatek, associate director of the Heinrich Böll Foundation North America, admits that she “was not very much in favor” of accrediting those banks. But she perceives that the accreditation requirement to demonstrate a portfolio shift away from fossil fuels — or risk not being able to continue partnering with the fund — is “the best way of leveraging private sector engagement.”*
All entities that want to work with GCF, including banks, must demonstrate a shift in their portfolio towards energy efficient investments or risk not getting their accreditation renewed. Entities are only accredited for a maximum of five years then must reapply. In the past two years, Deutsche Bank and Crédit Agricole such as several large banks, have either demonstrated or made public declarations regarding their move away from coal mining as shareholders face increasing scrutiny from environmentalists and are concerned about huge financial losses from a troubled industry.
GCF leaders say their goal is to enhance complementarity and coherence with other international climate funds. This is written into the very foundation of the fund and exists informally at the secretariat and board level. For instance, Fakir served on the board of the Kyoto Protocol’s Adaptation Fund, was a member of the Global Environment Facility’s council and co-chaired the Clean Technology Fund Trust Fund Committee at the World Bank,** while McDonald serves as deputy secretary of Australia’s Department of Foreign Affairs and Trade.
But some have expressed concern that other international climate funds will be subsumed into the GCF and that would result in a reduction in the amount of finance available for climate change. Fakir says that it’s not something that’s in the cards for the GCF in any way. “Anything is possible in this environment, but each fund has a specific niche that it brings to the table,” he concluded.
* Update, Oct. 6, 2016: This article has been updated to provide more context on the accreditation requirement for banks to demonstrate a portfolio shift away from fossil fuels.
** Update, Oct. 20, 2016: this article has been updated to reflect Zaheer Fakir’s affiliation with the organizations.
Fatima Arkin is a Manila-based freelance journalist specializing in climate change, human rights and natural disasters. She has reported onsite at the 2015 Paris climate conference, the MERS outbreak in South Korea and Typhoon Haiyan in the Philippines for Foreign Policy, SciDev.net, Maclean’s and many others. She holds a B.A. in international development and history from McGill University and a graduate diploma in journalism from Concordia University, both located in Montreal, Canada.
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