Green Climate Fund: Steady potential, but no firm pledges

Major aid donors refrained from making firm pledges to the Green Climate Fund during its board meeting in Paris, France. Photo by: Shubert Ciencia / CC BY-NC

The Green Climate Fund has failed to garner firm pledges from major aid donors — including the United States, United Kingdom and Japan — coming off its board meeting in Paris, France, last Thursday.

Conceived three years ago during climate change negotiations in Cancun, the touted GCF is designed to channel a significant share of climate finance from developed countries as soon as it becomes operational sometime next year.

The GCF board — composed of an equal number of developed and developing country representatives — could not reach agreement on setting a firm deadline for major aid donors to make financial commitments to the fund. The board did sign off on a work plan, which paves the way for pledges to be announced at the September 2014 climate summit convened by U.N. Secretary-General Ban Ki-moon. Representatives from developing countries such as Brazil, the Philippines and the Democratic Republic of Congo had pressed for a quicker timeframe.

According to civil society representatives who attended the board meeting, there is concern that without firm financial commitments, developing countries will have a difficult time preparing for GCF implementation. The fund’s $19 million budget for next year will only cover its administrative expenses.

“The question ‘where’s the money?’ has been a fairly constant refrain from developing countries and civil society ever since the board has started meeting,” Brandon Wu, a senior policy analyst at ActionAid USA, observed.

The widespread belief in the climate finance community is that that for as long as developed countries hold back on making firm pledges to GCF, developing countries will be reluctant to come to the table for negotiations on a new global climate change agreement slated for adoption in 2015.

An uncertain pipeline

The GCF plans to disburse both loans and grants to developing countries battling the effects of climate change, but there is no clear indication of how much money will actually be available.

At last week’s board meeting, Germany’s representative argued that next year’s pledges should run into several billions of dollars. In light of ongoing budget pressures on aid donors, however, some climate finance analysts fear that total pledges could be well below this estimate.

“If they were able to mobilize 2 billion dollars in the next year, then that would be good news,” said Michele de Nevers, senior associate at the Center for Global Development.

De Nevers added that she “wouldn’t be surprised” if China eventually pitched into the GCF, albeit on a relatively small scale. Generally, developing countries make the case that climate finance should remain the responsibility of developed countries and that any contributions on their part should be voluntary.

By comparison, the World Bank-administered Climate Investment Funds — currently the largest climate financing mechanism — was launched in 2008 with total pledges of $6.5 billion.

GCF was initially intended to replace the CIFs, but the lackluster resource mobilization effort to date could mean that CIFs remain active until the new fund gains a better foothold.

Adaptation vs. mitigation

There is also ongoing debate over how GCF spending will be structured and governed once donors begin to commit money.

GCF’s board reaffirmed the fund’s commitment to “balance” allocations for adaptation and mitigation activities. Despite calls from civil society groups to define that balance as a 50-50 split, developed and developing country representatives on the board have been largely reluctant to do so.

“The feedback that I hear in conversations is that they don’t regard it as appropriate or pragmatic enough to try to fix a specific figure,” said Sven Harmeling, CARE’s climate change advocacy coordinator.

The GCF board did sign off on funding criteria that would allocate resources on the basis of a proposed activity’s adaptation or mitigation potential. Further, the board decided that a portion of adaptation funding would focus on the most vulnerable countries, such as least developed countries, small island developing states, and African nations.

With the strong backing of the United States, the board also pressed ahead with GCF’s plans to earmark funding for a private sector facility that would finance adaptation and mitigation activities by private sector groups — particularly local actors — in developing countries.

Civil society groups warn that GCF’s private sector facility could only skew the fund’s resources toward mitigation activities. Mitigation activities are generally seen as more commercially viable by private sector groups than adaptation — which helps explains the bias for mitigation in climate finance over the past few years.

“We’re concerned that for all the rhetoric of balance, in practice, actually it will still be mitigation that dominates and it will only be lip service,” Oscar Reyes, associate fellow at the Institute for Policy Studies, lamented.

Consensus on in-country procurement

Civil society groups have welcomed the GCF plan to leverage local institutions in administering funding, programs and procurements based on joint consultations between the fund and national governments. In contrast, while CIF’s programs have also been informed by local input, the funds have typically relied on multilateral development banks to channel money to recipient countries.

“One of the reasons CSOs have been excited about the GCF has been that its governing instrument emphasizes in several places that GCF funding should be streamlined, with national and subnational entities able to directly access finance,” ActionAid’s Wu said.

The GCF board has set in motion preparatory steps for an accreditation program that will evaluate the capacity of partners, including local institutions, to handle GCF money. According to sources familiar with the process, accredited entities must meet the fund’s fiduciary, social and environmental standards and also enjoy the backing of the recipient government. The GCF board has decided to allocate a portion of its funding to strengthen the capacity of local entities.

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About the author

  • Lorenzo Piccio

    Lorenzo is a former contributing analyst for Devex. Previously Devex's senior analyst for development finance in Manila.