Hela Cheikhrouhou has a tough job. As the first-ever executive director of the Green Climate Fund she is tasked with establishing a new institution for climate finance amid considerable fatigue with concept of new climate finance bureaucracy; raising billions of dollars at a time when many promising donor countries face fiscal austerity; and devising implementation processes that satisfy the interests of developing and developed countries, as well as appeal to ministries of environment (critical GCF sponsors) and ministries of finance (funding managers). These are daunting demands, it’s too bad there’s no off-the-shelf example she could draw upon.
Oh wait, there is.
The Climate Investment Funds was set up as an interim financing mechanism aimed at understanding the benefits of scaled-up financing for climate change mitigation and adaptation in developing countries. Established during a period in international negotiations when the prospects for creation of a global climate fund were highly uncertain, the CIF’s four key programs were designed to bridge the gap. In the five years since, the CIF has channeled $7.6 billion in donor funding (and leveraged approximately $50 billion in co-finance) to mitigation, adaptation, forests and low carbon energy access in 48 developing countries. 62 additional countries have expressed interest in drawing on CIF funding.
So where are the lessons for the GCF?
For one, the CIF has sought to integrate sharing and learning into investment activities. After five years, the CIF is the source of considerable knowledge on effective project design, stakeholder engagement, and strategic programmatic frameworks for climate-smart investments, particularly as it has extended the reach of its climate financing models and expanded its public and private sector partners. Since the Multilateral Development Banks are responsible for dispersing CIF funds, the CIF was able to benefit from in-place procurement, legal, fiduciary and safeguards procedures. Ok. What else?
The CIF is also, quietly, a potential pot of gold for the GCF. Since the CIF was intended as a transitional financing mechanism, it has a sunset clause that requires “necessary steps to conclude its operations once a new financial architecture is effective.” This all means that unless further UNFCCC negotiations suggest the need to extend the life of the CIF, its four programs will be shut down.
Rather than starting from scratch, it seems sensible for the GCF to work to broker an arrangement that would move the CIF into to the GCF. Not only could the GCF utilize the CIF’s well-established processes for decision-making, reporting, knowledge sharing, partnering and financial leverage, it would have an avenue to continue to pursue programs through the MDBs, which is consistent with the requirement that in the first phase of the GCF it work through intermediaries. More importantly, the GCF could benefit from the substantial financial reflows that are scheduled to come back to the CIF in the coming years. The $5.2 billion that has been committed through the CIF’s Clean Technology Fund and much of the funding under the Strategic Climate Fund was provided to recipient countries in the form of highly concessional loans. These loans will be repaid, with (modest) interest. And in fact, the groundwork for such a transfer may already have been laid. The founding documents the CIF programs, promise that “the Trustee, on behalf of donors, will endeavour to transfer donors’ pro-rata shares to another fund which has a similar objective.” This seems like an open invitation to the GCF: acquire the CIFs and they will bring a potential funding stream of over $5 billion as loans are repaid in the years ahead.
Funding for the CIF was provided by a group of donors anxious to jumpstart climate action in developing countries. The United States pledged $2 billion of the $7.6 billion in total initial commitments. To date, the United States still owes the CIF $800 million of that early pledge, making it the only donor that has not fully paid up. There is talk around Washington that all or some of the unpaid balance might be reallocated to the Green Climate Fund. Such a move would erode confidence in US commitments. An alternative is that the United States supports the wholesale transfer of the CIF to the GCF. The CIF’s small administrative unit, housed at the World Bank, could go along. In addition to the financial benefit, this would afford the GCF the opportunity to learn from leading experts in managing a large-scale climate finance program managed through experienced intermediaries.. As an added bonus, each donor would have a chance to count its share of the CIF reflows as a financial contribution to the GCF. (If the US did not complete its financial contribution to the CIF, its share of the funding from reflows to the GCF would be reduced accordingly.)
If I were Ms. Cheikhrouhou I would make early phone calls to World Bank President Jim Yong Kim and Vice President for Sustainable Development Rachel Kyte, as well as the other MDB Presidents and CIF donors. First on my agenda, discuss the terms of a possible transfer or merger of the CIF with the GCF. This is a critical opportunity for the GCF and just the help it needs to get off the ground.
Edited for style and republished with permission from the Center for Global Development. Read the original article.