When the Board meets from June 28-30 in Songdo, South Korea, for its 13th Board meeting the 24-member body will focus on working towards closing Fund structural and policy gaps in order to ramp up finance delivery to developing countries. But don’t expect quick one-step fixes. Rather, the Songdo meeting is expected to deliver a number of additional stepping stones for building a solid path that allows the GCF to fulfill its ambitious mission of supporting the paradigm shift in its partner countries toward low-carbon and climate-resilient development, including by serving as a financial cornerstone for the implementation of the Paris Agreement. For the first time, the proceedings will be made available through live stream.
The Board will attempt to tackle a lot in just a few days, knowing full well that the eyes of the world are on them expectantly after Paris – now literally, since the passage of a comprehensive information disclosure policy for the Fund at the last meeting gave a boost to overall GCF transparency and has opened the Board proceedings for telecast, even if it is not likely to make for telegenic viewing….
Most of the issues the Board will focus on at the upcoming Songdo meeting can be clustered into a couple of core themes that will determine the long-term success of the GCF.
The GCF the UNFCCC and the Paris Agreement
At COP 21, the Paris Agreement confirmed that the GCF will serve the post-2020 agreement as an operating entity of its financial mechanism. In Songdo, the Board is discussing a proposal on how the Fund can best support the implementation of the new global climate treaty, such as through financing for the preparation and implementation of intended nationally determined contributions and by channeling new, additional, adequate and predictable resources mobilized through successful GCF replenishment processes, such as the one expected to begin in mid-2017 ahead of the end of the initial resource mobilization period of the GCF in 2018. For better accessibility and predictability of GCF resources, a proposed decision asks for the compilation of GCF country and accredited entity programs as a Fund-level compendium of GCF recipient country funding priorities by the end of the year.
The GCF is accountable to and functions under the guidance of the COP and the new meeting of the parties under the Paris Agreement (CMA). For that reason , it has to detail in a yearly report how it addressed the COP guidance it received. In Songdo, the Board will consider the GCF’s fifth report to the COP. Other matters relating to COP guidance are addressed in several technical papers. One on GCF adaptation planning processes discusses how the GCF can better support the Cancun Adaptation Framework pre-2020, as well as relevant adaptation implementation mandates under Article 7 of the Paris Agreement. Within the GCF, adaptation is considered equally important as mitigation efforts, including through a 50:50 allocation approach which safeguards a quarter of all GCF resources for adaptation in the most vulnerable countries. Improved support for National Adaptation Plan (NAP) processes and better cooperation with other adaptation focused funds are both measures the Board plans to approve. The complementarity and coherence with other climate funds, both within and outside of the UNFCCC (for example through a proposed annual dialogue with other climate finance delivery channels which could be held during the 15th GCF Board meeting in December) is on the Songdo agenda, as are approaches to improve the GCF relationship with UNFCCC thematic bodies, such as the Standing Committee on Finance, the Convention’s Technology Mechanism or its Least Developed Countries Expert Group via a proposed annual forum during the COP initiated by the GCF Board.
The Board will have to discuss whether the proposed actions are sufficient and ambitious enough, while mindful of trying to avoid pre-judging future decisions (and guidance) by the COP and the CMA.
Strengthening the Structure
With the Fund’s Executive Director Hela Cheikhrouhou leaving at the end of her current three-year term in September, the Board needs to ramp up the appointment process for the selection of a successor. In contrast to the UNFCCC which seemed to have found a replacement for the departing Christiana Figueres within weeks, it will take quite a bit longer to find and select the new GCF ED, a person who will have to possess a unique skill-set including the right mixture of technical expertise, outgoing personality and diplomatic finesse. At the same time, the staff at the Secretariat will have to expand significantly to deal with internal bottle-necks in GCF procedures and operations, such as accreditation and country and readiness support, and building a GCF pipeline of transformational projects and programs. While the Board has already approved adding another 80 full-time staff by the end of 2017, getting from the current staff of 56 (with 33 long-term consultants) to 100 by the end of 2016 is easier said than done. Location, compensation, and the challenging environment for family and spouses have made it difficult to attract the needed talent – or to retain those already in Songo (a number of whom are also nearing the end of their first three-year contracts). The Board will have to think of how to improve incentives for staff hire and retention.
A fundamental set of building blocks for the GCF, which are currently still not in place, are the three independent accountability mechanisms for the Fund: an evaluation unit, an integrity unit and a redress mechanism. In Songdo, Board members are scheduled to select the heads of all three units – interviewing and short-listing has been going on since March. As Board appointed Fund principals, these three important officials are subject to strict policies on ethics and conflicts of interest up for Board consideration in Songdo such as restraining personal financial actions with possible links to Fund projects or involving Fund partners or the acceptance of gifts or honors. In the case of the independent redress mechanism (IRM) the Board is also considering approving interim-measures to ensure same immediate functionality even before the new IRM head can fully operationalize the unit. Specifically, with the IRM tasked with the dual function of serving as a review mechanism for GCF Board funding decisions as well as a grievance mechanism for people directly impacted by GCF projects and programs, the Board feels that interim measures need to be in place allowing for the review of funding decisions that GCF country counterparts in National Designated Authorities want to challenge.
Consolidating the GCF Partner Network
With the GCF implementing exclusively through accredited partners, the quality and diversity of its implementing entities, in terms of balanced geographical reach, areas of expertise and ability to deploy a variety of instruments and approaches is crucial. So is progress and increased capacity of regional,national and sub-national entities to directly access GCF resources. Currently, afterseveral rounds of accreditation at prior Board meetings, the GCF has 33 accredited partners, with 19 accredited for international access and 14 for direct access (9 national and 5 regional). Another 73 are in the pipeline (30 direct access, 25 international access and 18 private sector applicants), with 12 under Stage II review (among them 7 direct access applicants). Unfortunately there is no transparency about which applicant is at which stage in the fit-for-purpose accreditation process. Their identity becomes known only once their accreditation proposal has been forwarded for Board approval by the Fund’s Accreditation Panel.
In Songdo, the Board has been asked to decide about the accreditation applications of five additional entities (four of them national). Expect some controversy. It wouldn’t be the first Board meeting with contentious accreditation proposals, as civil society fought against bringing large private-sector fossil-fuel supporting financiers Deutsche Bank, HSBC and Credit Agricole into the GCF implementation partner network. The Board will consider the accreditation of the Export-Import Bank of Korea, the first export credit agency (ECA) to seek access to GCF funding, with a heavy history in coal financing. Some Board members question whether ECAs are appropriate partners for the Fund (and some developed country representatives might have a hard time explaining to their public at home why their GCF contribution should support the exports of other contributing countries). Direct access regional and national development banks from West-Africa, the Caribbean and Mongolia will likely face little to no objection. Lastly, the proposed accreditation of GIZ as the third German entity could raise some eyebrows, especially since GIZ’ focus on technical assistance is seen by some observers as bringing limited additional value to the pool of implementing entities.
While essentially the consideration of accreditation proposals so far has followed – with some tweaking – a first-come-first-serve approach, the intransparency of the application pipeline does not support balance, nor a targeted prioritization of both public and private direct access entities. More discussion about and some decision on an accreditation strategy for the GCF as an important corollary to the Fund’s approved overall strategic plan is expected at the 13th meeting. The Board will have to tackle questions of how many accredited entities the GCF can deal with. Which number is enough? Should they cap the number of international access partners, while encouraging further applications for direct access entities? For many national, regional and sub-national applicants going through a tough accreditation procedure, while time-consuming, can also serve an important capacity and institution-building process for developing country partners and an important requirement for plans to devolve funding decision-making in the future to the national level, for example under an Enhanced Direct Access (EDA) approach. A strategy could also look for gaps in terms of coverage (regional, expertise, instruments) to be filled by expanding the GCF partner network in a controlled way further.
Resource Availability, Project Pipeline and Project Proposals
At its 11th Board meeting in Zambia in November of last year, the Board approved the GCF’s first eight projects with US$168 million in GCF funding. The Board then also set the ambitious goal of supporting GCF projects and programs worth US$ 2.5 billion in 2016. This ambition is linked to the start of the GCF’s first replenishment originally expected in mid-2017, which is to be triggered once cumulative GCF funding approvals exceed 60% of the total funding received during the initial resource mobilization efforts (which has netted US$ 10.26 billion in pledges from 46 countries with US$ 9.9 billion in signed contribution agreements).
So far, the GCF Secretariat has received 41 proposals (31 public, 10 private) worth US$ 6.6 billion and asking for US$2.4 billion in GCF support, but not all of them can be approved by year’s end. Of these, 24 funding proposals are considered somewhat likely to be presented to the Board for decision within the next year, with another 17 proposals deemed less advanced. Strikingly, though, of the 24 proposals asking for US$ 1.4 billion in GCF support for a cumulative total project volume of US$ 4.1 billion only two are proposals from direct access entities (just 8.3 % of the more advanced project proposals in the GCF pipeline). Among the 17 less advanced funding proposals, seven are from direct access entities.
More help is clearly needed through GCF readiness support funding, which targets project pipeline development as one of its priority areas, in order to address the lack of capacity among direct access entities to submit quality proposals. A new project preparation facility whose operational procedures the Board hopes to define further in Songdo can also support developing countries in getting better proposals into the pipeline. In Songdo, the Board will also discuss simplifying processes for approval of micro- and small-scale low-risk funding proposals to make accessing GCF financing easier by for example modifying the template for project proposals or lowering the threshold for required feasibility studies. This comes at the request of Board representatives from the most vulnerable states who fear that they will be left out because of severe capacity constraints in their countries.
Eight public sector proposals asking for GCF funding support of US$207.6 million (90% of it in form of grants) and with a total cost of US$ 320 million are up for approval by the Board in Songdo. All eight are presented by international public organizations. Among the eight are five adaptation projects, addressing large-scale ecosystem-based adaptation in Gambia (UNEP); supporting climate resilience for the Aral Sea Basin in Tajikstan and Uzbekisan (World Bank); strengthening the resilience of small-holder farmers in conflict-ridden dry zones in Sri Lanka (UNDP); piloting a country project in Mali for a Sub-Saharan Africa hydromet weather-data gathering program (World Bank); or focusing on coastal adaptation in Tuvalu (UNDP). Two mitigation projects propose the development of energy savings insurance for SME energy efficiency investments (IDB) and the de-risking and scaling up of investment in energy-efficient building retrofits in Armenia (UNDP). Lastly, one crosscutting proposal addresses both mitigation and adaptation priority areas by aiming to improve the resilience of vulnerable coastal communities in Vietnam (UNDP).
Besides the detailed project proposals, the GCF Secretariat in has also made the evaluation of the eight project proposals by the Technical Advisory Panel (TAP) against the GCF’s investment criteria public. The TAP is showing some doubts in its assessment about approving all eight projects at this time, at least not without some adjustments, questioning in particular some of the proposed projects’ ability to have a wider paradigm-shifting impact in the countries and regions where they are to be implemented. Some observers agree who deem the batch up for consideration in Songdo inoffensive, but also unexciting and “plain vanilla.” They concede, however, that this is just the start and accredited entities might be still reluctant to bring their best thinking forward until the Board has sets a high risk appetite for the Fund showing that it encourages and supports thinking outside of the box. The Board in Songdo will also discuss programmatic approaches to funding proposals that would allow for much larger-scale funding decisions.
A closer look at the project proposal pipeline shows, for example, that international private sector entities have submitted four proposals for large-scale programs focusing on renewable energy access and energy efficiency in Africa, Asia-Pacific and with a global outreach. If these could advance to Board consideration by the end of the year (and the Board had agreed to a fourth Board meeting this year in mid-December to increase the possibility of meeting its ambitious approval target), they would add roughly US$ 1.1 bn in GCF funding support for programs with a combined worth of around US$3.5 billion.
Lastly, it is also important to remember that the GCF Board has already approved up to US$ 900 million for three pilot programs, for which the request for proposals will be discussed and approved in Songdo as well. These are two private sector programs, a US$200 million one supporting MSMEs and one for up to US$ 500 million supporting financing at scale, as well as a US$200 million program on Enhanced Direct Access. Depending on how fast the calls for proposals are answered, some of the first proposals under these pilots could be also discussed already later this year.