GCF Replenishment Sends Some Signals – Just Not the Right Ones

Only 25 countries pledged in Bonn, for a total of US$ 9.33 billion so far (see figure 1) – less than what was collected during the first replenishment (GCF-1) four years ago (when 32 countries and two regions ultimately pledged US$10 billion) and during the GCF’s initial resource mobilization (IRM) effort in 2014 (when 45 countries and four regions and cities pledged US$10.3 billion). Important contributor countries like Sweden, Switzerland, Italy, Australia and the United States, which gave in prior resource mobilization rounds, have yet to make a commitment to GCF-2.  Other countries, including Norway and Japan, gave less than four years ago, either reducing their contribution outright or by staying flat, given inflation over the last years and exchange rate variations, which in the case of the Japanese contribution means a 19% reduction in US dollar terms. France, which is one of only two countries so far (the other being Canada) that will give a not yet disclosed share of its pledge in the form of loans (as both did during the IRM and GCF-1), increased its contribution only minimally in Euros, but given the exchange rate will contribute slightly less in US dollars than four years ago.

Figure 1

Lack of collective ambition

Thus, the status of GCF-2 is even less ambitious than the numbers seem to indicate. If the scale of pledges for GCF-2 stagnates, it essentially only allows the GCF to continue at the status quo level of current annual commitments of around US$2.5 in funding decisions, and thus would leave many already submitted funding plans unfulfilled at a time when financing needs are rapidly increasing. This is also disappointing for civil society advocates who had called for at least a doubling of the GCF’s resources for GCF-2.  And it might mean a crawl instead of the sprint to the resource mobilization trajectory that the new Executive Director for the GCF, Mafalda Duarte, has outlined by calling for US$50 billion in aggregate capitalization for the GCF by 2030 during the UN’s Climate Ambition Summit in September. With only US$17 billion in paid in capital so far, and even if all current GCF-2 pledges are converted into fully paid-in contributions, this would leave more than US$23 billion to be secured and paid in for by the third replenishment (GCF-3) in 2027. This makes it even more important to receive further significant commitments for GCF-2.  

Money talks; so does the lack of scaled up financial commitments by developed countries collectively. This is even though some countries individually raised their contributions – such as Germany with the single largest pledge to GCF-2 with EUR2 billion (or US$2.16 billion). Countries like Denmark and Ireland also doubled their pledges to the GCF compared to four years ago (to now 1,600 million Danish Krone, or US$232 million in the Danish case and to EUR 40 million or US$43.2 million in the Irish case). As a reminder: rich nations under the Convention and the Paris Agreement are tasked to support the climate efforts of developing countries, which have historically contributed less to the climate crisis but are disproportionately and worst affected by escalating impacts, including through compounding losses and damages beyond the ability of communities and people to adapt. This is both a moral and legal obligation.  

In terms of cumulative pledges over the three resource mobilization rounds (see figure 2), the United Kingdom (with a pledge of GBP of 1.62 billion or US$2 billion, 13% more than for GCF-1) leads with US$5,062 million before Germany (US$4,854 million), France (US$4,611, but less in grant equivalent terms as it includes loans), Japan (US$4,224 million), the United States (US$3,000 million, which sat out GCF-1 and has not yet pledged for GCF-2), Sweden (US$1,434 million, which has yet to pledge for GCF-2), and Norway (US$1,023 million).

Figure 2

However, a sole focus on pledges is deceptive, as pledging does not have to equal finance delivery, as the case of the United States vividly illustrates. Having pledged U$3 billion under the Obama Administration in 2014, only US$2 billion have been delivered so far (with US$1billion just recently paid in by the Biden Administration), leaving the USA still US$1 billion in arrears. 

The absolute pledge numbers also obscure the burden sharing effort among developed countries when taking the countries’ respective economic strength or its population size into account. For example, for GCF-2 on a per capita basis, the US$3.6 million GCF-2 pledge of tiny Monaco (with US$97.77) and the US$54 million committed by Luxembourg (with US$82.53) is a multitude of the US$25.70 that Germany as so far largest contributor promised. And if compared with the gross national income (GNI), the pledges by Luxembourg, Norway and even the United Kingdom are more generous than Germany’s.

During the Bonn pledging conference, Sweden, Switzerland, Italy, and Australia brought no money to the table, but only vague promises of some commitments to be made before the end of the year – caveated in the case of Australia (which would come back after having failed to contribute during GCF-1) already with the qualifier that it would be a ‘modest’ contribution (during the IRM, they paid in AUD 200 million or US$ 187 million). The United States was even less forthcoming in Bonn, indicating that they were not in a condition to pledge due to uncertainty in their budget process. A failure to secure an American pledge still this year would not only be embarrassing given that the United States is currently co-chairing the GCF Board with Pakistan until year’s end, but also potentially the last and best opportunity for the historically largest greenhouse gas emitter to contribute a fair share to GCF-2 efforts in light of the real danger of an administration change in next year’s US presidential election.

Bad signal for ongoing climate finance negotiations

The current status of GCF-2 sends not overly encouraging signals to the international climate process and could further complicate ongoing contentious climate finance deliberations as developing countries are still waiting for the long overdue finance goal from 2009 for developed countries to provide US$100 billion per year by 2020 to be fulfilled (by some counts, in 2020 only US$ 83 billon was delivered, the majority in the form of loans). The Bonn result comes also more than half way through the three-year negotiation effort to determine a significantly higher, more needs-based new collective climate finance goal (NCQG) to supersede the – not yet reached – US$100 billion target from 2025 onward. Developing countries are also looking for COP28 to signal the rapid operationalization of a new Loss and Damage Fund with significant non-debt creating resources, although the hoped for consensus  recommendations by the Transitional Committee negotiating funding arrangements to address loss and damage still seem out of reach. At the same time, COP28 will see the political conclusion to the Global Stocktake (GST), the first ever overarching assessment effort on progress towards fulfilling the Paris Agreement mandates, which the technical synthesis report reveals has falling substantively short, including in providing developing countries with the necessary means of implementation, namely technology transfer, capacity building and yes, financial support. Many developing countries have made their Paris commitments under their national determined contributions (NDCs) conditional on receiving international financial support, even as developed countries are pushing them to raise the ambitions of their mitigation efforts further through an upward revision of their NDCs.

In this context, the scale of commitments to the GCF matter, for a number of reasons, not the least related to questions of governance, eligibility, access, or concessionality of finance provided – all issues of contention in ongoing climate finance discourses in the UNFCCC, where developed countries seek to widen the contributor base from a core obligation of developed countries to provide public resources to  one  suggesting that ‘all countries in a position to do so’ should pay (thus doing away with the UNFCCC’s differentiation between developed and developing countries) and where they seek to restrict access to concessional public climate finance to a subset of developing countries only, while pushing for giving the majority decision-making power for funding climate actions, for example in the new Loss and Damage Fund, to those that pay in the most.

GCF as climate finance signal giver

The GCF is both the largest dedicated multilateral climate fund as well as the flagship institution of the financial mechanism of the UN Framework Convention on Climate Change (UNFCCC) and serves the implementation of the Paris Agreement. Developing countries expect correctly for the GCF to channel a significant share of multilateral climate finance, especially – as was mandated when set up – in providing adaptation finance. So far, the GCF has committed US$12.7 billion for 228 projects and programs since it began approving funding proposal in 2015, including by delivering 42% of its funding in nominal terms (US$ 5.41 billion) and 52% in grant equivalent terms (US$4.15 billion) for adaptation, a priority for most developing countries, which remains chronically underfunded in the global climate finance architecture. Climate finance delivered through the GCF is more concessional (with 41% as grants and 41% as highly concessional loans) than money channeled through the MDBs (where by some accounts close to 90% during 2019-2020 was delivered as loans, including on substantially less concessional terms for developing countries the banks classify as middle income, among them many climate vulnerable countries). GCF finance is also more equitably distributed than for example money delivered through the Climate Investment Funds (where more than 70% of resources are channeled through the Clean Technology Fund for mitigation, just benefitting a limited number of emerging market economies. This is thanks to a GCF allocation framework that theoretically means half of its adaptation commitments must benefit SIDS, LDCs and African states. 

With the GCF accountable to the UNFCCC, Paris Agreement, and its parties, and receiving annual guidance from them, all developing country parties are eligible for funding and have more choice in working through an implementation partner network of 118 accredited entities that includes 75 direct access regional, national, and subnational entities from developing countries. But much more needs to be done in scaling up direct access to break the implementation dominance of multilateral development banks (MDBs), UN agencies, and development finance institutions from developed countries in the GCF as well – although such international access in most other climate funding contexts is the only delivery channel. Funding decisions in the GCF are made by a Board with balanced regional representation and an equal number of seats for developed  and developing countries, in contrast to the shareholder governance of MDBs, where those with the most financial inputs call the shots, or bilateral climate finance provision, where geopolitical considerations or ‘donor preferences’ might override climate vulnerability and developing countries needs and priorities, including by earmarking funding.

Read in this context, the support for the replenishment of the GCF is thus also a signal – and not an overly optimistic one – for the continued willingness (or lack thereof) of developed countries to provide financing in alignment with UNFCCC and Paris Agreement principles, and a possible indication of what to expect with the resource mobilization efforts for the Loss and Damage Fund in 2024 and the NCQG in 2025 respectively.

Room to raise hopes and GCF-2 contributions

The good news: there is still plenty of time and opportunity – including in the lead up to and during a COP28 in Dubai – to raise hopes and GCF-2 contributions, by securing commitments from those countries that have yet to pledge, first and foremost the United States, and urging others with low pledges to further top up existing commitments. The disappointing outcome of the pledging conference must be understood as an appeal to double advocacy efforts for a climate just finance delivery, as contributions can be received throughout the four years of GCF-2 programming period (until the end of 2027). In the United States, more than 100 environmental, developmental, and climate justice nongovernmental organizations in a joint letter push the Biden Administration to commit to the GCF by COP28. Ultimately, securing more public climate finance for the GCF is also the best way to defend and safeguard the importance of the UNFCCC financial mechanism and of climate finance delivery in line with UNFCCC and Paris Agreement commitments and principles.