12th Green Climate Fund Meeting: What was decided?

by Kashmala Kakakhel

WEDO Climate Finance expert Kashmala Kakakhel provides a break-down of the issues/ decisions taken up at the latest Board Meeting of the Green Climate Fund, held from March 7-10, 2016.

Meeting Update and Key decisions

The 12th meeting of Green Climate Fund Board was held in Songdo, Republic of Korea, from 8 to 10 March 2016. Before the official meeting, the Board held a full-day informal meeting on Monday, 7 March. The objective of the informal meeting was to allow Board Members, Alternate Board Members and active observers to exchange views on some of the key issues that were scheduled for decision at the 12th Board Meeting.

The meeting came at the start of a defining year for the Fund, following the first approval of funding proposals at the end of 2015 and striving to make funding decisions worth USD 2.5 billion by the end of 2016. During the meeting, the Board approved close to 34 agenda items, while setting another 52 for its 13^th Board Meeting. This meeting did not consider any new funding proposals, but rather focused on addressing and closing remaining internal policy gaps that needed proper closure before the GCF continues to entertain funding proposals. The only ‘external’ agenda item was the accreditation carried forward from the last Board meeting.

Following are some of the highlights from the Meeting:

1. United States announced the formalization of its contribution; a first tranche of USD 500 million as part of their USD 3 billion pledge has now been signed.
2. The Board has approved its first Strategic Plan for the Fund. Now that the GCF has becoming fully functional by approving its first set of projects last year, this Plan, a living document, is designed to communicate clearly the vision the Board has for the Fund and, based on that, identify operational priorities and align its action plan that can guide the Fund over several years.
3. The Board has approved accreditation of 13 entities, including the controversial HSBC and Credit Agricole (money laundering charges). While some conditionality has been placed on HSBC, it is clear that the Board needs to plan better. Considering the issues that are continuously surfacing with the accreditation, the Board has decided to develop an Accreditation Strategy that will guide the Board’s future decisions on the matter. A draft will be shared at the next Board Meeting.
4. In order to reach its target of USD 2.5bn, the Fund has received 34 funding proposals and 90 concept notes worth USD 6.2 billion. 22 of these proposals have a greater than 50 percent chance of being ready for Board approval in 2016. Among the 22 projects there are two direct access private sector proposals and not a single one in the public sector.
5. The pipeline has also been divided theme-wise: Mitigation 18%, Adaptation 16%, and cross-cutting 66%. Since 66% of the 22 projects are classified as “cross-cutting” rather than mitigation or adaptation, Board Members also said that at one point this classification would need to be worked out in order to be able to ascertain that the targets for balanced allocation are being reached.
6. To improve the imbalance in the pipeline, GCF has set up a Project Preparation Facility (PPF) that will target small-scale activities and the direct access entities. Many questions on the design and operations are still open, as there are overlaps with the already existing Readiness Programme of the GCF.
7. After significant pushback from the US and UK, the Board finally managed to approve webcasting formal Board meetings until the end of 2017, with a qualitative and quantitative review of the webcast considered no later than March 2018.
8. The Board has approved expansion of the Secretariat. It has also initiated a process of selecting a new Executive Director, as Hela Cheikhrouhou the current ED has decided not to seek extension after the completion of her first term in September 2016
9. The following dates and venues of the next GCF Board meetings have been tentatively agreed: The 13th meeting will be held from 28 to 30 June in Songdo, Republic of Korea. The 14th meeting will be held from 18 to 20 October in Ecuador. The 15th meeting will be held from 13 to 15 December in Samoa.

The Strategic Plan

As was agreed at the 11th Board Meeting of the GCF in Zambia, a draft Strategic Plan was prepared by a group of six Board Members/Alternates through an informal Board dialogue held in Cape Town, South Africa, in early February.

Now that the GCF has becoming fully functional by approving its first set of projects last year, this Plan is designed to communicate clearly the vision the Board has for the Fund and, based on that, identify operational priorities and an action plan that can guide the Fund over several years.

When the draft Plan was shared with the full Board, the general consensus was that the proposal from the small group provides a great basis, but also listed during the course of the meeting in various sessions the following issues that should be strengthened in the Plan.

• Gender (going beyond a gender-sensitive approach to gender-responsive)
• Transparency, governance, learning and knowledge sharing
• Structured dialogue with other climate funds in order to share experiences, and rationalize the climate finance landscape
• Address the need to support countries in the implementation of their national contributions under Paris Agreement
• Strengthen the role of the private sector; involvement should also clearly reference the private sector in LDCs and SIDS in particular. Regarding country-ownership it is vital to reflect the importance of indigenous people
• The definition of ‘scale’ should not be limited to financial value and replicability and that a focus purely on scale would disadvantage small countries
• Strengthen the function of the GCF as a knowledge platform

While some of these concerns have now been reflected in the slightly revised Strategic Plan, it has now been adopted by the Board at this meeting, but also stressing that the plan should be considered a living document that can be updated or revised at any time. The Secretariat is now mandated to implement it as well as adjust the Board’s work plan for 2016 accordingly.

Consideration of Accreditation Proposals

For this Meeting, a set of 13 entities were put forward by the Accreditation Panel (AP) and the Secretariat for accreditation. Of these, nine had already been on the agenda at the last Board meeting in Zambia, but not been considered due to time constraints.  The Board has serious concerns about the limited number of direct access entities in the package (four national and one regional out of thirteen), as well as the regional imbalance.

Several Board Members referenced the criticism civil society groups have been raising regarding the accreditation of the two commercial banks, Credit Agricole and HSBC. The general view was that by engaging with large financial institutions, the GCF could reinforce a shift in its portfolio. While the accreditation was supported overall, they stressed the need to consider the development of an entities’ total portfolio over time. Regarding HSBC in particular, there were concerns about its compliance with anti-money laundering standards. An additional conditionality to monitor this aspect has been added to the decision.

The Board adopted the decision, accrediting the 13 following entities: Agency for Agricultural Development of Morocco(ADA),  Ministry of Finance and Economic Cooperation of  Ethiopia (MOFEC), National Environment Management Authority of Kenya (NEMA), Development Bank of Southern Africa (DBSA), Crédit Agricole Corporate and Investment Bank, HSBC, African Development Bank (AfDB), European Investment Bank (EIB),  International Finance Corporation (IFC), Unidad Para el Cambio Rural Argentina (Unit for Rural Change, UCAR), International Union for Conservation of Nature (IUCN), World Food Programme (WFP) and World Meteorological Organization (WMO).

Accreditation Strategy: Considering the issues that are continuously surfacing with the accreditation now that the Fund has ample experience to draw upon, the Board decided to develop an Accreditation Strategy that will help guide future Board decisions, spelling out how principles such as country ownership, potential to contribute to the GCF’s mandate of supporting a paradigm shift, balance and diversity, efficiency in terms of cost, time and resources, fairness, effectiveness and transparency can be achieved. A draft Strategy will be shared at the next Board Meeting.

Pipeline and Project Preparation Facility

The status of the pipeline of funding proposals was presented. As following:

The numbers: 34 funding proposals and 90 concept notes with a total GCF funding of USD 6.2 billion.  22 of these proposals, with a total requested GCF funding of USD 1.5 billion, have a greater than 50 percent chance of being ready for Board approval in 2016. Among the 22 projects there are two direct access private sector proposals and not a single one in the public sector. Private sector proposals worth over one billion and public sector proposals worth around 440 million

Missing direct entities: Several common gaps that explain why there are few proposals from national and regional entities in the pipeline, including the absence of quality feasibility studies, environmental and social impact assessment, economic analyses, stakeholder consultations, and other preparatory work. This will need to be addressed by stronger readiness support and in the accreditation strategy.

Clearing the mitigation/adaptation balance: Since 66 percent of the 22 projects are classified as “cross-cutting” rather than mitigation or adaptation, Board Members also said that at one point this classification would need to be worked out in order to be able to ascertain that the targets for balanced allocation are being reached.

Project Preparation Facility (PPF): One way to improve the balance in the pipeline is the PPF that was established at the 11th Board Meeting, a facility that will target small-scale activities and the direct access entities. Many questions on the design and operations are still open: Area 4 of the Readiness Programme also supports pipeline development and the relationship between this readiness area and the PPF should be clarified or the two should be merged, also whether the PPF should serve accredited entities with direct access only.

Although the operational modalities are still to be ironed out, the GCF has already received its first request for funding under the PPF from the Ministry of Natural Resources (MINIRENA) of Rwanda.  Many felt that before deciding on the approval of a proposal, the details of the PPF should be defined in order not to set a wrong precedent. Other Board Members, however, argued that the proponent should not be punished for a lack of diligence by the Board and therefore decided to approve the proposal.

Development of Indicators in the Performance Measurement Framework: A decision on this has been deferred to the 13th Board meeting, inviting submissions from Board members, Alternates, as well as active observers. In addition, the Secretariat will also facilitate a technical consultation on this prior to the Board’s consideration of this matter at the next meeting.

Proposal approval process: The Board considered the progress report on the review of the initial proposal approval process, presented by the secretariat. After a brief round of comments, the Board decided to request the Secretariat to review the initial proposal approval process and present the outcome and recommendations for consideration and decision to the Board at its 15th meeting. The co-chairs will oversee the review of the proposal approval process. The Board also decided to invite submissions from Board and Alternate Members, observers, accredited entities, national designated authorities and focal points and delivery partners to be received no later than 10 April 2016.

Readiness and Preparatory Support Programme

Progress achieved in providing readiness support:

• The Secretariat has received a total of 139 nominations of national designated authorities or focal points in developing countries. It has direct contact with nearly 110 countries through regional workshops.

• It has received readiness requests from 101 countries, and readiness proposals from 60 countries. The Secretariat has so far approved proposals for readiness support in 45 countries under activity areas 1–3 of the readiness programme, totaling USD 11.2 million. 30 of the 45 countries are small-island developing states, least developed countries or African states.

While there was appreciation of the efforts, it is clear that disbursing readiness support is a very slow process and therefore there is a need to simplify access to readiness funds, particularly with regard to the necessary legal agreements. It is also critical to hire full time staff for the coordination and facilitation of readiness activities, particularly at the regional level. The new decision on the matter instructs the Secretariat to provide advance payment up to a limit of USD 50,000 to countries or their delivery partners that have concluded readiness grant agreements where lengthy domestic processes are required to satisfy all of the Fund’s requirements.

Comprehensive Information Disclosure Policy

While there was a general consensus on almost all aspects of the information disclosure policy, there was a serious divide on the issue of webcasting Board meetings. A simple method for additional audiences, including national designated authorities and implementing entities, to be able to follow the Board’s proceedings.  Those with smaller delegations, also suggested that this would allow them to access additional remote support and advice from home. Finally, it was agreed to approve the webcast of formal Board meetings until the end of 2017, with a qualitative and quantitative review of the webcast considered no later than March 2018.

The comprehensive Information Disclosure policy has also set rules for the disclosure of different types of GCF documents, mainly through the website and based on the presumption that everything will be disclosed, except where confidentially is required for certain reasons defined in the policy. The new website has now become more accessible to users.  Gradually it should move away from not only serving negotiators and experts, but also country-level stakeholders, such as governments, accredited entities, national designated authorities and civil society.

The Budget Committee and Staffing

The Board has now established a Budget Committee, mandated to review and make recommendations to the Board on matters related to the administrative budget of the GCF, inter alia by reviewing and making recommendations on the GCF’s proposed annual administrative budget, including the budget implications of the staffing structure and staff remuneration. As a first task, the Committee was requested to develop options for a proposed increase in staffing.

Staffing of the Secretariat: The Secretariat presented two proposals to the Board to increase the number of staff, especially for those areas that are urgently needing human resources, including country programming and portfolio development/management, in order to achieve the target of approving USD 2.5 billion worth of projects. The two options would be to either bring the total staff to 140 or 180 positions. There was general consensus among Board members that increase in staffing was needed. Board Members also called for a strategy for staff retention and for diversity and balance in recruitment.

The Budget Committee reported back from its deliberations and suggested a decision to increase the staffing of the Secretariat and increase the budget accordingly, which was adopted. The committee had considered issues such as the role of consultants, the role of the trustee and the ability to recruit and absorb new staff.  It also noted that the Board will need to provide additional guidance to the Secretariat on some of its functions and opportunities to streamline them. The decision is to increase the staff to 100 positions at the end of 2016 and 140 positions at the end of 2017. The administrative budget will increase to USD 35.8 million, also reflecting the cost of holding a fourth Board Meeting this year.

Appointing a new Executive Director: The current ED, Hela Cheikhrouhou, has announced that she will not seek a second term after her initial term ends in September 2016. The Board considered matters in a closed executive session, including the Performance Review of the ED and the Process for the Appointment of a new ED.

Policy Gaps – Accreditation Master Agreements and Risks

While the Fund has already approved its first set of projects, policy gaps remain; particularly the legal agreements the fund needs to conclude with accredited entities, known as the Accreditation Master Agreements (AMAs), and risks.

AMAs can be contentious and take a lot of time, holding up the implementation of approved activities. Since some aspects of the agreements are confidential, and were therefore discussed in a closed session. Details will emerge subsequently.

On risks, a paper was produced which includes a risk register and interim investment guidelines with caps for certain types of investments in order to reduce concentration risk. There were serious concerns about the proposed caps- rigidity can prevent the Fund from being flexible enough to invest where it can be most impactful. Many concerns were raised regarding limitations to the financing available for public sector grants and regarding co-financing requirements for loans to the public as well as private sectors. Ultimately, only a revised risk register was adopted but a decision on the proposed risk investment guidelines have been differed to the next Board meeting.