TWN Info Service on Climate Change (May11/01)
3 May 2011
Third World Network

World Bank’s conflict of interest in Green Fund design?
Published in SUNS #7142 dated 4 May 2011

Geneva, 3 May (Meena Raman) – Developing countries on the Transitional Committee for the design of the Green Climate Fund (GFC) under the United Nations Framework Convention on Climate Change (UNFCCC) raised concerns that there could be a conflict of interest if World Bank personnel are seconded to the Technical Support Unit to help in the design of the GCF.

This issue of the conflict of interest was raised during the second day of the meeting of the Transitional Committee on Friday, 29 April in Mexico City, by developing countries including the Philippines, Nicaragua and India, when the working arrangements for the TC and the role of the TSU were discussed.

They said that since the World Bank has been invited to serve as the interim trustee for the GCF under the December 2010 Cancun decision [of the Ad-hoc Working Group on Long-term Cooperative Action under the UNFCCC], staff connected to the World Bank could not be involved in providing consultancy services related to the design of the GCF which is about its governance.

Nicaragua said that this would be contrary to international fiduciary standards, citing the case of Arthur Andersen, the audit firm involved in the Enron Corporation scandal in the United States, where as auditors of Enron, Arthur Andersen was also involved in providing consultancy services to the company and this was found to be a conflict of interest.

Nicaragua said that it is not internationally acceptable for the World Bank to be involved both in a consultancy function (in designing the GCF) as well as in being a trustee of the GCF.

This would be a violation of international fiduciary standards, as there is an apparent conflict of interest to be involved in role of designing the GCF that relates to the governance structure of the GCF when the World Bank is a trustee of the GCF. In such a situation, any World Bank personnel should excuse themselves from such a role as in the designing of the GCF, said Nicaragua.

The Philippines referred to the “sunset-clause” under the World Bank’s Strategic Climate Fund (SCF) that provides for the cessation of the SCF once a new financial architecture becomes effective under the UNFCCC.

It referred to the ‘sunset clause’ of the Climate Investment Funds (CIF) of the World Bank as contained in paragraphs 57 and 58 of the Strategic Climate Fund (SCF) where the World Bank as the trustee of the SCF is involved in decisions about the continuity of the SCF. (The SCF is one of the two funds of the CIF, the other being the Clean Technology Fund).

The Philippines said that anybody who is connected with the CIF and the SCF would be in a conflict of interest situation if they were also involved in the design of the GCF.  It also referred to the ‘Arthur Anderson syndrome’ (in the Enron scandal).

(Paragraphs 57 and 58 of the Strategic Climate Fund of the World Bank’s “sunset-clause” are as follows: 

“57. Recognizing that the establishment of the trust fund is not to prejudice the on-going UNFCCC deliberations regarding the future of the climate change regime, including its financial architecture, the SCF will take necessary steps to conclude its operations once a new financial architecture is effective. Specifically, the Trustee will not enter into any new agreement with donors for contributions to the trust fund once the agreement is effective. The Trust Fund Committee will decide the date on which it will cease making allocations from the outstanding balance of the Trust Fund.

58. Notwithstanding the above paragraph, if the outcome of the UNFCCC negotiations so indicates, the Trust Fund Committee, with the consent of the Trustee, may take necessary steps to continue the operations of the SCF, with modifications as appropriate.”)

In response to this, the United States did not agree that there was a conflict of interest involved and said that any determination relating to the sunset-clause as to whether the CIF was to continue or not would be done by the Governing Body of the CIF and not the trustee (the World Bank).

(Paragraph 58 above clearly shows that the consent of the World Bank as trustee of the SCF is necessary in determining the continuation of its operations.) 

Germany also disagreed that there was a conflict of interest and said that there was no need to overstate the issue as the Technical Support Unit was not an independent consulting body but is working through the Transitional Committee and therefore, it did not have independent judgment. 

On the sunset-clause of the CIF, it said that Bank worked under the direction of governments and did not have an independent role. It was the governments that decided what the priorities are. 

Sweden agreed that the issue of conflict of interest must be taken seriously and there was need to ensure impartiality on the part of members of the Technical Support Unit.

Nicaragua in response to the interventions by developed countries, said that it could not agree that there was an abdication of a situation of conflict of interest just because the Technical Support Unit functioned under the Transitional Committee. It said that if Parties were applying international fiduciary standards, then a consultancy function (of persons in the Technical Support Unit) could not be combined with a fiduciary function of being a trustee of the GCF (as in the case of the World Bank).

India said that the issue was not just of whether a conflict of interest existed in reality but whether there was also a perception of such a conflict and this must be prevented.

The Cancun decision requested the UNFCCC secretariat to make arrangements enabling relevant United Nations agencies, international financial institutions and multilateral development banks, to second staff to support the work of the Transitional Committee for the design phase of the GCF.

Pursuant to this, the Executive Secretary, Ms. Christiana Figueres, informed Parties that arrangements have been made for establishing the Technical Support Unit, which is to be operational immediately after the initial meeting of the Unit. The Unit consists of the secretary to the Transitional Committee and a substantive team drawn from the UNFCCC secretariat staff and staff seconded from relevant organizations to support the work of the Committee


In an information note by the UNFCCC secretariat, Parties were informed that a fund design specialist will be seconded from a multilateral development bank (MDB) and will inter alia, coordinate the preparation of design options papers, including assessment of governance options.

The Philippines requested the deletion from the information note any reference to a fund design specialist being seconded from an MDB.

Another issue of controversy that arose during the meeting related to how decisions are to be made by the Transitional Committee and what the meaning of consensus was.

Developing countries led by the Philippines and supported by China, Saudi Arabia, India, Egypt, Pakistan, Nicaragua and the Democratic Republic of Congo (DRC) wanted the existing United Nations rules of procedure to continue and for consensus to mean that no single member has made a formal objection to adopting conclusions.

They did not want a repeat of what happened in Cancun where despite the express objection by Bolivia, decisions were adopted.

The DRC and Pakistan also said that since the Transitional Committee was a body created by the Conference of Parties (COP), the rules of procedure of the COP applied, and this could be modified as necessary but there was need for explicit consensus in this regard which must be clearly reflected under the working arrangements of the Transitional Committee. 

Developed countries such as the United States, Spain and Canada wanted a more flexible approach. The US said that it was possible to have “consensus voting” and that it was not appropriate to use the UNFCCC rules wholesale and there could be important modifications and Parties can look to the UNFCCC rules for guidance.

Spain said that there was need for flexibility on the consensus rule according to the work that was needed and would not support a strict definition of consensus.

Canada said that a hard rule on consensus could lead to “filibusters” (referring to tactics used in the US Congress to prevent a measure from being brought to vote).

Italy said that the Transitional Committee was not a decision-making body and could provide options that can be brought to the decision-making bodies, while ensuring a transparent process.

A further matter that was controversial was in relation to a request by members of the Asian Group of the Transitional Committee to have a representative from the region to serve as Vice-Chair to the Committee, in addition to the three Co-Chairs that were agreed to through a compromise reached on the first day of the meeting on April 28 (see TWN Info. Service on Climate Change April 11/01 dated 30 April 2011 for a report of meeting held on 28 April).

The current 3 Co-Chairs are Mr. Enersto Cordero Arroyo of Mexico, Mr. Trevor Manuel of South-Africa and Mr. Kjetil Lund of Norway.

Saudi Arabia, speaking for the Asian Group said that that the Group had shown great flexibility on the issue of the election of the Co-Chairs. It said that the Group deserved a seat on the leadership of the Transitional Committee and would like to be assured that there was a place for it in the process as vice-chair.

Pakistan supported Saudi Arabia and said that at the time of the election of the 3 Co-Chairs of the Transitional Committee, the issue of the vice-chair was not addressed and this did not mean that the position was precluded. It said that before the next Committee meeting, the Asian Group needed a chance to be represented.

The Philippines said that when the Asian Group agreed to the suggestion for the 3 Co-Chairs, it was made clear several times that the Group would also have a role. The Asian Group wanted Singapore’s Transitional Committee representative, Ambassador Burhan Gafoor to be considered as vice-chair of the Committee.

The request by the Asian Group was supported by the Democratic Republic of Congo for the African Group, Nicaragua, El Salvador and Brazil.

The developed countries, led by the US, did not want the discussion on the matter to continue.

The US suggested that the matter be left to the Co-Chairs to decide when and how additional vice-chairs can be allowed and that this issue be brought to the next meeting.

The UK and Australia echoed the US suggestion and the Mexican Minister of Finance Mr. Cordero who was chairing the Transitional Committee meeting, said that discussion on this issue should be resumed at the next meeting of the Committee.

An interesting exchange also followed on the kind of experts needed for the Technical Support Unit with the Alliance of Small Island States (AOSIS) setting out principles for its staffing and operation, including a call for an additional expert familiar with the specific constraints faced by developing countries in accessing climate finance. 

Barbados, speaking for AOSIS, said that among the principles that should operate for the staffing and operations of the Technical Support Unit should be included the guarantee of independence and impartiality of each member; it should be composed of experts and specialists who have demonstrated and recognized technical expertise in the relevant field of work; the selection of experts and specialists should be made through a transparent and fair process; no dominance or over-representation of one single institution in the Unit; avoidance of conflict of interest; and the need for geographical balance in the representation of regional development banks.

Several developing countries including Nicaragua and the Democratic Republic of Congo also stressed the importance of the work of the TSU to be mandated by the TC. Nicaragua said that the TC should not be a “rubber-stamp” of the TSU.

The Transitional Committee meeting also considered a revised discussion note prepared by the Co-Chairs which was entitled ‘Revised draft work-plan for the TC (Transitional Committee)” with a proposal for 4 work-streams on (1) scope, guiding principles and cross-cutting issues; (2) governance and institutional arrangements; (3) operational modalities; and (4) monitoring and evaluation.

Nicaragua said that the document was not a work-plan for the TC but was a proposal for work-streams. The co-chairs were requested by Parties to revise the document following inputs received during the meeting.

There was also disagreement between developed and developing countries over whether the Transitional Committee should address the roles and functions of the Standing Committee (SC).

Under the Cancun decision, Parties decided to establish the SC to assist the Conference of Parties in exercising its functions in relation to the financial mechanism in terms of improving coherence and coordination in the delivery of climate change financing etc.

Under work-stream 2, the Co-Chairs’ note referred to the relationship between the Green Climate Fund and other bodies including the SC. The US wanted the reference to the SC to be removed as it said that the SC was yet to be established.

The Mexican Co-Chair agreed with the US that the SC had not been created.

The Philippines, Pakistan, China and India all insisted that the Cancun decision established the SC and that it was an integral part of the Transitional Committee process. India said that the Cancun decision established the SC but what remained to be done was for the SC to be operationalised. The Philippines opposed the removal of any reference to the SC as suggested by the US

The Mexican Co-Chair also proposed that two facilitators facilitate each work-stream, with one from an Annex 1 country and one from a non-Annex 1 country. Work-stream 1 would be facilitated by Barbados and Spain; work-stream 2 by the Democratic Republic of Congo and Switzerland; work-stream 3 by Pakistan and Australia and work-stream 4 by Bangladesh and Sweden.

The UNFCCC Parties at the meeting also expressed support for workshops to learn the lessons from the (UNFCCC) Adaptation Fund as well as from other existing funds, including from beneficiaries of the funds.

The Parties also agreed that the second meeting of the TC would be held in early July in Japan, while further meeting venues were offered by Switzerland (Geneva), Singapore and South Africa. +