TWN Info Service on Climate Change (Jul11/02)
14 July 2011
Third World Network

Disagreements in Green Fund design committee over conflict of interest issue 

Tokyo, 14 July (Meena Raman) – The second meeting of the Transitional Committee (TC) to design the Green Climate Fund (GCF) under the United Nations Framework Convention on Climate Change (UNFCCC) kicked off in Tokyo, Japan, on Wednesday July 13, with an intense exchange between members on the issue of conflict of interest in the appointment of staff seconded to the Technical Support Unit who are from the World Bank Group.

The Technical Support Unit (TSU) was set up to support the work of the TC, while the Cancun decision adopted last year by the Conference of Parties to the UNFCCC decided to invite the World Bank to serve as the interim trustee of the GCF.

The issue of conflict of interest was raised by Dr. Paul Oquist, the TC member from Nicaragua, who presented a detailed written submission which he read out, calling on the TC “to apply conflict of interest rules and principles at least as stringent as those contained in the United Nations System and World Bank Guidelines.” He said that “the Secretary of the Transitional Committee should take due cognizance of these rules and principles and immediately apply them with due diligence to the Green Climate Fund design process in all of its dimensions, including the Technical Support Unit.”

The proposal by Nicaragua, which received support from the Philippines and Egypt, was opposed by the United States, Japan and Denmark, leading the Mexican Co-chair, Mr. Enersto Cordero, who chaired the session, to conclude that there was no agreement on the matter. Nicaragua wanted the record of the meeting to reflect that the Co-chairs could not approve his proposal for application of the UN rules on conflict of interest to the TC as the proposal was rejected as there was no consensus on the matter.

The first day of the TC meeting, which ends on 14 July, also saw the election of two new Vice-chairs to the TC: Mr. Burhan Gafoor from Singapore and Mr. Ewen McDonald of Australia. (At the first meeting of the TC in Mexico City in March this year, the Asian group had proposed Mr. Gafoor as Vice-chair and was supported by the African Group and several Latin American countries.)

The Tokyo meeting of the TC also saw the presence for the first time of all the three Co-chairs, who, in addition to Mr. Cordero from Mexico, are Mr. Trevor Manuel from South Africa and Mr. Kjetil Lund of Norway. The Minister of Finance of Japan, Mr. Yoshihiko Noda, also made a brief appearance at the meeting in the afternoon to address the TC members and said that the GCF must have value added and it was important to show clearly how it was different from other existing funds. He added that the financial resources to the GCF should be new and additional to the developed countries’ official development assistance (ODA) commitments in addressing poverty in developing countries.

The provisional agenda for the TC meeting was adopted following an amendment to include an agenda item for the adoption of the “draft report of the meeting” by the TC (which was raised by the Philippines and Egypt) and on the understanding that the agenda item on “next steps” will be more explicit on the roadmap to Durban, including the dates and venue of the next TC meetings. (The Philippines and Egypt had previously raised concerns that the first TC meeting did not have a report of the meeting, other than a Co-chairs’ summary which contained inaccuracies and did not reflect important suggestions from developing countries.) The TC meeting also considered the working arrangements for the TC which included an update on the arrangements for the TSU.

The meeting also discussed issues relating to work-stream I on “scope, guiding principles and cross-cutting issues” and work-stream II on “governance and institutional arrangements.” The issues relating to the remaining two work-streams on “operational modalities” and “monitoring and evaluation” will be addressed on Thursday, 14 July. 

Conflict of interest

On the conflict of interest issue, Dr. Oquist of Nicaragua recalled the first meeting of the TC held in Mexico City, Mexico from 29-30 March, where he had advised that participation of the World Bank, World Bank staff or World Bank seconded staff in the design of the GCF would constitute conflict of interest, potential conflict of interest, and the appearance of conflict of interest as the World Bank had been invited to be the interim trustee of the GCF under the decision adopted in Cancun last year.

He said that despite having been duly advised, the UNFCCC Secretariat proceeded to form the TSU with World Bank participation. Oquist referred to the Co-chairs’ summary of the Mexico meeting and said that the summary ignored the ample discussion undertaken on this issue and instead included the UNFCCC Executive Secretary’s position that there is no problem due to the existence of a Memorandum of Agreement with the seconded staff which addresses the issue of conflict of interest, impartiality and independence as it relates to members of the TSU.

In addition, Oquist drew attention to the Executive Secretary’s update on arrangements for the TSU where she refers to the World Bank conflict of interest issue and stated that “concerning the question about a possible conflict of interest between staff from the World Bank seconded to the TSU and the possible functions of the World Bank as the interim trustee for the GCF, … it has been verified that the part of the World Bank that performs the trustee functions and the part which has seconded staff to the TSU are institutionally independent”.

Oquist said that “it is clear that the Secretariat is not fulfilling its fiduciary duty to avoid conflict of interest in the TSU in accordance with internationally accepted fiduciary standards” and that “the Secretariat is rather improvising its own rules that fail to meet those standards.”

Oquist stressed that “a Memorandum of Agreement signed with a seconded individual cannot obviate institutional conflict of interest derived from the fact that the said individual is in the employment of an entity with current or future fiduciary responsibilities in relation to the organization to which the individual has been seconded. Thus, the aforesaid Memorandum of Agreement has no bearing whatsoever on the issue of institutional conflict of interest”.

“The World Bank Group … has a single Board of Governors, a single Board of Executive Directors and a single President with full authority and responsibility over the entire organization. Conflict of interest is inherent in any employee or seconded employee, permanent or temporary, of the World Bank Group being involved in design activities of an entity for which the World Bank exercises, or will exercise, fiduciary responsibilities. The location of said individual in the organizational structure of the World Bank Group is completely irrelevant to the issue of institutional conflict of interest,” he added.

“A trustee cannot participate in design, decision making, administration or evaluation of an entity for which it exercises, or will exercise, a fiduciary responsibility,” said Oquist, referring to the US case of Enron Corporation and Arthur Andersen in which a conflict of interest was found between fiduciary responsibilities and consultancy functions by Arthur Andersen in the firm Enron.

He said further that “conflict of interest ethics and law are not a matter of opinion nor of convenience, but rather enshrined in the ethical codes of both the United Nations System and that of the World Bank Group, as well as in international and national corporate governance best practice. The TC objective must be a GCF design process characterized by transparency, accountability, probity and integrity that proactively avoids conflicts of interest, potential conflicts of interest and the perception of conflicts of interest, at the institutional, and individual levels.  The means are internationally accepted fiduciary standards.”

Oquist then called for the TC to apply conflict of interest rules and principles at least as stringent as those contained in United Nations System and World Bank Guidelines.

Ms. Bernarditas Mueller of the Philippines supported the Nicaraguan intervention and asked for clarification about the institutional affiliation of all the TSU staff and experts as this was not disclosed by the Executive Secretary. Ms. Carol Mwape Zulu of Zambia also wanted disclosure of the institutional affiliation of the TSU staff and experts. Mr. Omar El-Arini of Egypt also supported the Nicaraguan intervention and suggested reflection of the language proposed by Nicaragua to be in the report of the meeting.

The United States representative to the TC, Ms. Marisa Lago, in response to Nicaragua, said that there was no actual nor appearance of a conflict of interest. She said that arrangements had been made between the UNFCCC Secretariat and the Multilateral Development Banks to ensure impartiality and avoid conflict of interest. She said that the Enron case had no relevance here. She said that other institutions such as UNEP and UNDP could have a greater potential for conflict of interest than the World Bank as these UN agencies could be implementing agencies of the GCF funds, while the Bank was only playing a limited role as the interim trustee. Implementing agencies involved in project design and supervision would have incentives to design safeguards (in the GCF) which are easy to satisfy, she added. Lago said that national  authorities too could find themselves in a similar situation.  She said that if this logic is to apply, then all implementing agencies and recipients of the GCF funds would be excluded from the design of the GCF.  

The Japanese representative to the TC, Ms. Naoko Ishii, and Mr. Per Callesen of Denmark supported the US.

In response to comments, Mr. Henning Wuester, the secretary of the TC, explained that the Memorandum of Agreement between the UNFCCC and the staff of the TSU as well as the undertakings the staff have to sign were based on legal analysis provided by the UNFCCC’s legal advisors and were based on UN guidelines and that the issue of conflict of interest had been taken care of and could be made more explicit. On the request for disclosure regarding the institutional affiliation of the TSU staff, Wuester said that the information could be provided to the TC members on a confidential basis but he did not want it to be made public as this was not the practice within the UN system.

In response to the comments by TC member, Mexican Co-chair Cordero, who was chairing the session, said that his impression was that not all members were in agreement with the Nicaraguan proposal and that this should be reflected in the report of the meeting. He also asked the TC secretary to circulate the legal note that there was no conflict of interest in the arrangements made between the UNFCCC Secretariat and the TSU staff. 

Nicaragua in response said that it was not for the TC members or the Co-chairs to choose if the UN rules were accepted as members were subject to them. Oquist asked the Co-chairs to study the matter less defensively so that the issue could be resolved and not glossed over.

Cordero said that not all members were in agreement with Nicaragua and they were comfortable with the handling of the matter by the Executive Secretary in this regard and the concerns of Nicaragua would be reflected in the report of the meeting.


South African Co-chair Trevor Manuel chaired the session in the afternoon which dealt with work-streams I and II.  He said that there was a need to leave the meeting on Thursday with something that lays the basis for a document to be drafted and to be finalized at the fourth meeting of the TC. TC members proceeded to discuss issues under the two work-streams, highlighting where more work was needed, given differences of views among members. (Further  reports on this will follow.)