TWN Info Service on Climate Change (Sept11/03)
12 September 2011
Third World Network

Green Climate Fund design committee to focus on key issues

Geneva, 12 September (Meena Raman) – The third 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 Geneva, Switzerland on the afternoon of Sunday, September 11, with members identifying what are key issues for the focus of further work.

A workshop held in the morning to discuss the engagement of the private sector in the GCF drew sharp criticisms from some members of the TC from developing countries as well as major civil society coalitions who were opposed to proposals by several developed countries to establish a special funding window for the private sector under the GCF.

Mr. Trevor Manuel of South Africa and Mr. Kjetil Lund of Norway co-chaired the meeting, which is scheduled to end on Tuesday, September 13.  

Mr. Lund proposed that TC members focus discussions on 5 key issues viz. (i) the relationship  between the GCF and the Conference of Parties (COP), involving the accountability and reporting of the GCF components to the COP and relationship with relevant thematic bodies established under the Convention; (ii) legal status of the GCF, which involves the issue of the legal personality or legal capacity, as well as privileges and immunities for the GCF and/or its officials; (iii) issues related to the establishment of an independent secretariat including the selection of its head; (iv) the use of funding windows (for example, funding windows for adaptation, mitigation and forest-related activities) and substructures; and (v) the structures and processes for the engagement of the private sector.

For the meeting in Geneva, the Co-chairs and Vice-chairs of the TC had prepared a “Draft outline of the report of the Transitional Committee for the design of the Green Climate Fund to the Conference of the Parties” which contained various elements such as - objectives; guiding principles; scope; governance and institutional arrangements which included the board of the GCF, observers, rules of procedure, secretariat and trustee; relationship to the COP; legal status; participation and membership; financial inputs; financial instruments; operational modalities which covered eligibility, funding windows, access modalities, accreditation (of implementing entities), allocation and fiduciary standards; environmental and social safeguards; engagement of the private sector; monitoring and evaluation; accountability mechanism and stakeholder input and participation.

In response to Mr. Lund’s listing of the key issues, members of the TC generally agreed with the approach proposed while some suggested additions to the list.

Mr. Wu Jinkang of China wanted the issue of the board of the GCF and trustee to also be added. China’s proposal was supported by Mr. Jorge Ferrer from Cuba (who is the alternate member to Nicaragua), Ms. Bernarditas Muller of the Philippines and Ambassador Sergio Serra of Brazil.

Dr. Yaga Venugopal Reddy of India was of the view that the approach proposed by the co-chairs was workable with the most critical issues being identified first while the remaining issues be addressed later. He also suggested the need for a checklist of the Terms of Reference (TOR) of the TC to ensure that they were being addressed by members.

Ms. Bernarditas Muller also agreed with the approach proposed by the co-chairs as identifying the key issues which would unlock other issues. She stressed the importance of the issue of legal status of the GCF, the board, the secretariat and the trustee. She was of the view that the issue of funding windows and the engagement with private sector were secondary. She suggested that the issue of the private sector could be subsumed under stakeholder participation and noted that there was no reference to the private sector in the TOR. 

Ambassador Burhan Gafoor of Singapore, who is also a Vice-chair of the TC, agreed with the 5 issues proposed by the co-chairs, stressing that all the issues were still on the table. He said the key issues represented the minimum necessary to get the GCF up and running by January next year. He supported the idea of the Philippines that the private sector engagement could be dealt with together with civil society engagement.

On the issue of the legal status, Mr. Nick Dyer of the United Kingdom wanted this to be discussed last, saying that “form needs to follow function.” His view was supported by the United States representative, who also wanted the issue of fiduciary standards as well as environmental and social safeguards to be also listed.

Mr. Alexey Kvasov of Russia stressed the importance of the selection of the head of the secretariat, saying that the independence of the secretariat was important.

The representatives of Poland and Switzerland wanted discussion on financial instruments while Japan wanted discussion on financial inputs.

Discussion on these key issues is to continue on Monday, September 12. Mr. Lund also informed members that further discussion on the process for further work of the TC would be discussed informally at a dinner on Sunday evening for TC members.

On another agenda item related to the adoption of the report of the second meeting of the TC meeting held in Tokyo from 13-14 July this year, Mr. Omar ElArini of Egypt wanted the report to reflect the names of all the 13 countries who made a joint submission entitled “Draft instrument for the establishment of the Green Climate Fund” as this was not contained in the report. The amendment proposed by Egypt was accepted by the meeting. (The 13 countries involved in the joint submission were Argentina, Burkina Faso, China, the Democratic Republic of Congo, Egypt, El Salvador, Gabon, India, Morocco, Nicaragua, Philippines, Saudi Arabia and Zambia.)

Earlier in the morning of Sunday, a workshop was held for half a day on “The role of the GCF in fostering transformational change, engaging civil society and leveraging the private sector”.  The workshop heard presentations for some NGOs and representatives of the private sector from developed countries. One of the questions posed during the workshop by the facilitators of the session was whether there was a need for a dedicated window or facility for the private sector.
Ms. Carol Mwape Zulu of Zambia said that there should be no private sector window as this would present problems for LDCs as the private sector was not interested in adaptation but only in mitigation. She said that the private sector should be engaged at the national level. 

Mr. Jorge Ferrer of Nicaragua said that the TC members should not overestimate the need for private sector engagement and called for more caution and balance in addressing the question. He was also opposed to the establishment of a separate window for the sector. He drew attention to how the private sector in developed countries had to be rescued by governments in some developed countries during the financial crisis.

Two major civil society coalitions from Climate Justice Now! (CJN!) and Climate Action Network (CAN) also poured cold water on proposals for engagement with the private sector.

Ms. Lidy Nacpil for CJN! called for caution in addressing private sector engagement. She said that “private sector participation is best decided, managed, regulated and incentivized at the national level, according to national strategies that were identified through the participation of people who are most impacted by climate change.”

She urged the TC not to establish a stand-alone private sector window, nor to provide finance or incentives directly to the private sector. “The establishment of a private sector window would most certainly be a boon for rich country-based multinational corporations, but it would most certainly circumvent the interests of poorer countries.  The proposal for a private sector window in the GCF is worryingly reminiscent of the World Bank Group’s International Finance Corporation (IFC), which performs poorly in relation to the Bank’s stated mission of alleviating poverty and promoting sustainable development in developing countries. Alarmingly, almost two-thirds of IFC investments in low-income countries go to companies based in the richest countries.”

 “The over-emphasis on leveraging private investment could lead to a fund that depends heavily on financial intermediaries. As demonstrated by the IFC, the greater the use of financial intermediaries, the more intrinsically difficult it will be for the Green Climate Fund’s board and beneficiaries to ensure implementation of and compliance with environmental and social standards.  Similarly, the financial sector’s desire for less disclosure, less liability, and less accountability for environmental and social outcomes will pose a significant challenge for global efforts to promote sustainable development and climate stabilization. Therefore, the Green Climate Fund should not disburse money directly through financial intermediaries.”

“The TC should design the Green Climate Fund in a manner that ensures the GCF steers clear of excessively risky investments from a financial or  environmental  perspective. The parceling of bonds into derivatives, and investments in carbon markets are examples of these excessively risky instruments. The volatility that we are currently observing on the world’s stock exchanges provides a clear reminder, should one be needed, that such tools are hardly a basis for the kind of stable, sustainable approach to financing that the GCF requires if it is to meet its aims. Moreover, a strict firewall must be enacted between financial flows resulting from international offsetting schemes and the provision of climate finance for, and the use of climate finance by, developing countries,” added Nacpil.

Ms. Mahlet Eyassu of CAN told the TC that a private sector window designed to support individual projects is unlikely to be the proper mechanism to catalyze transformation in low-carbon and climate resilient development. “Support for private sector initiatives should be provided through national institutions and in accordance with country-led strategies and plans.  Engaging the private-sector should not add to unsustainable debt or pass significant risk burden from the private to public sector in developing countries. The GCF should engage private sector actors only when they can guarantee transparency and accountability for complying with robust standards on environmental, social, and development effectiveness, and the implementation of robust due diligence processes designed to address financial, social, and environmental risks, and produce effective mitigation and adaptation outcomes. The TC must think carefully about how GCF support for the private sector would interact with the carbon markets, and ensure that its private-sector finance does not result in any double-counting of mitigation action by developed countries,” she added.