TWN Info Service on Climate Change (Oct12/07)
29 October 2012
Third World Network

South Korea to host Green Climate Fund

Seoul, 25 Oct (Marjorie Williams) – Songdo, Incheon City, in the Republic of Korea has been selected to be the home of the Green Climate Fund (GCF) by its Board.

The second meeting of the Board was held in Songdo from October 18-20, where this decision was taken, and which is expected to be endorsed by the 18th meeting of the Conference of Parties (COP) of the United Nations Framework Convention on Climate Change (UNFCCC) to be held in Doha, Qatar in late November this year.

Six countries had offered to host the GCF which were Germany (Bonn), Mexico (Mexico City), Namibia (Windhoek), Poland (Warsaw), Switzerland (Geneva) and South Korea (Songdo).

The GCF was established at COP 16 in Cancun 2010 and its governing instrument was approved in Durban in 2011 at COP 17. The selection of a host country brings the GCF one step closer to its operationalization to help disburse climate funds to support mitigation and adaption efforts of developing countries.

At its first meeting in Geneva in August 2012, the GCF Board set in place a host country Evaluation Committee to conduct an open and transparent process to assess the proposals received, based on the evaluation criteria. The Committee was chaired by Ms. Audrey Joy Grant (Belize).

At its second meeting in Songdo, the Committee reported on the outcome of the evaluations criteria agreed by the Board. The Board, through a series of confidential balloting, (with ballots casted only by Board members) and the voting process supervised by the representatives of the Global Environment Facility (GEF) and the UNFCCC secretariat, the options were narrowed down to one candidate. During each round of balloting, the country with the least support was eliminated, with the final selection based on the country with the majority support of the Board members.

On Saturday, October 20, 2012, the Board by consensus agreed on Songdo as the permanent home of the Green Climate Fund. The outcomes of the initial balloting rounds were not made public.

During the course of the three-day meeting, the Board discussed a wide range of issues including, additional rules of procedure, its work plan and priorities, arrangements for the interim trustee, arrangements for an independent secretariat and the selection of its’ Executive Director, the status of the resources and administrative budget of the GCF and arrangements between the COP and the Fund.

The work plan and priorities of the Board

The Board agreed to work with a listing of 25 indicative priority matters in the work plan until the end of 2013. The top five of these were: the business model framework, private sector facility-related matters, resource mobilization, results management framework and the establishment of the independent secretariat. These items also are the key agenda items proposed for discussion at the first Board Meeting in the year 2013.

The work plan and priorities of the Board were hotly debated.

Many developing countries wanted to focus on the structural and institutional issues they saw as critical to fully operationalizing the GCF such as the arrangements for the establishment of the independent secretariat, including hiring of the Executive Director and host country arrangements and resource mobilization (all items which were initially set to be discussed in the later part of 2013), with other members placing emphasis on the private sector facility and business model in the first meeting. Small Island Developing States also wanted the issue of readiness and preparatory support to have priority.

In the end, agreement was reached in principle on the elements of the Board’s work plan and the indicative priority matters. The interim secretariat, working with a 6 member board team, was requested to prepare a set of five documents for the first Board meeting in 2013 viz. -

(1) business model framework, covering the issue of structure and organization of the Fund (including structural options for the business model, models for the delivery of the Fund’s resources, structural options and financial instruments in terms of leveraging potential of additional public and private sector finance, complementarity of the Fund with other channels of climate finance and linkages with thematic bodies of the Convention); private sector facility and related matters; access modalities and result management framework);

(2) Resource Mobilization, including policies and procedures for public contributions and other contributions, including from alternative sources; process and policies, participants and timeframes for resource mobilization and subsequent replenishments;

(3) Modalities for readiness and preparatory support, including priority areas for readiness and preparatory support, mechanisms for allocation, delivery and simplified approval process for readiness and complementarity of modalities for readiness and preparatory support with other channels of climate finance;

(4) Establishment of the independent secretariat, including selection of the Executive Director, review of staffing of the interim secretariat and guidance on administrative policies; and

(5) Host country agreement – relating to provisional legal arrangements for privileges and immunities for the establishment of the independent secretariat.

As regards the document on the business model framework, a 6 member committee/team is to facilitate its preparation. The interim secretariat will also solicit input from consultants, experts and stakeholders, including private sector and civil society organizations on specific matters.

Mr. Dipak Dasgupta (India) proposed the sponsoring of three stand- alone papers that will offer independent views in support of what the Board team will be doing on the vision of GCF, resource mobilization and how can instruments be matched with outcomes on the ground. He was of the view that these papers would complement and help to deepen the discussions.

Additional rules of procedure of the Board

Under this agenda item, three challenges confronted the Board.

First, was the issue of funding the participation of advisers, in particular, for developing countries representatives. Developing countries argued for funding for the participation of advisers from developing countries and flexibility for the participation of more than one adviser per member and for alternate members to be present in the Board meeting room in the case of multi country seats. (Presently observers, including some advisers, are sequestered in a separate meeting room from where the Board members meet. Four ‘active observers’, [two from civil society organisations and two from the private sector] are allowed in the Board meeting room). There was no final decision on this matter.

A second issue raised was the matter of working language of the Board. Many developing countries argued that effective representation and transparency dictate the use of the UN languages, or at a minimum, the provision of interpretation on an individual or request basis, in particular for French speakers. There was no consensus on this matter as some Board members were concerned about the cost implications of interpretation and translation of documents.

A third issue was the role and nature of participation of observers in the GCF Board meetings, which was an important topic of discussion. The matter of “active observers” was well debated, in particular, whether funding should be provided for active observers. The Board agreed that funding for active observers should not go beyond funding travel and daily subsistence .There was no consensus as to whether active observers could sit at the table with Board members. This issue was particularly contentious as it was linked to the question of the parity of alternate Board members and their effective participation in the Board meeting.

On the issue of accreditation of observers to the meetings of the Board, it was proposed that provisional accreditation of accredited UNFCCC and GEF observers be agreed to until the Board approves its own process. There was some discussion to expand the list of potential observers to include national development financial institutions.

As regards the process for selection of active observers, there was a general understanding that civil society and private sector organizations would decide themselves who would represent their constituencies.

A team of six Board Members was established to further deliberate on the additional rules of procedure and aim to seek consensus and report back to the Board.

Arrangements for the interim trustee

The representative of the World Bank (which is the interim trustee of the GCF) in presenting its report to the Board questioned whether the interim trustee could enter into legal arrangements with the GCF or the Board as this related to the juridical personality and legal capacity of the GCF.

In response, while not questioning the legal status of the GCF, (which was conferred juridical personality by the Durban COP), Mr. Omar El-Arini (Egypt) raised the issue of consistency of practice by the World Bank. He said that he had forwarded a document to the Bank that verified that the Bank had in fact signed an agreement with another entity before that entity had egal personality conferred upon it or had concluded a host country agreement.

El Arini wondered why this should not be the same with the GCF. He said that the President of the World Bank had signed a similar agreement with the Multilateral Fund under the Montreal Protocol (on ozone depleting substances) prior to the conclusion of it attaining juridical personality and the host country agreement. In this case, he said that the Bank did not see any impediment to finalizing that agreement with the Multilateral Fund and it was very odd that the Bank was adopting a different posture on the same arrangements with the GCF. El Arini expressed concern with the insistence by the Bank that it could not conclude arrangements with the Board until the Bank had evidence of the host country agreement that verified the GCF’s legal status, as this could cause delay with the operationalization of the Fund. He pointed out that having a different approach to the matter would save the GCF time as it was not yet clear when the host country agreement (which in some cases could take up to a year) would be concluded. Hence the current posture of the World Bank, as the interim trustee regarding an interim agreement with the GCF and the Board, raised a question mark. El Arini argued that based on past precedent, such an agreement could be concluded now.

Mr. Gilbert Metcalf (US) was of the view of that the host country will have to confer legal personality under domestic law for ensuring the GCF is on sound legal footing in that country. He argued that legal clarity is important and if there is legal uncertainty, it raises legal risks and puts at risk contributions to the GCF. Hence, the need for a solid approach to the legal arrangements under domestic law is critical, he said.

El Arini requested that questionable references to the legal personality of the GCF are removed from the document presented for approval to the Board by the interim trustee. This was accepted.

Arrangements for independent secretariat

There was consensus that the Fund needed to look for a highly qualified Executive Director for the GCF.

Ms. Zou Jiayi (China) argued that the candidate should have experience working in developing countries. This point was also supported by other developing countries members, noting that the person should also have experience working on development issues and/or working in developing countries.

There was some tension over whether or not to hire a search firm to participate in the selection process for the Executive director, given an anticipated cost of about $200,000. Most developed countries were in support of a search firm search driven process. Many developing countries, on the other hand, were of the opinion that the process could be managed internally and be cost effective.

In addition, there were concerns that the interim secretariat, (without instructions from the Board or oversight and knowledge of the Co-Chairs), had already initiated and concluded a request for proposal process involving the identification of 14 search firms, submission of 6 proposals and apparently culminating in a short list of one search firm. This action had been undertaken even before the first Board Meeting but was not communicated to the Board or the Co-chairs until this meeting.

Many developing country members of the Board queried the basis for the proposal for the search firm when the terms of reference for the Executive Director had not been established by the Board. Developed countries on a whole were supportive of the actions taken by the interim secretariat as a ‘proactive’ step to be welcomed.

The Board proceeded to establish an “Executive Search Committee” of six of its members to explore these issues, including the terms of reference for the Executive Director; to decide on whether or not a search firm should be contracted as part of the selection process and if so, to develop terms of reference for contracting such a firm. The Committee would ultimately recommend a short list (not ranked) of three names to be considered for the Executive Director position to the Board. Up to $200, 000 including, potentially covering of the cost of a search firm, was allotted for this selection process.

The budget of the interim secretariat and interim trustee

The budget issue was also a hotly debated agenda item on two grounds: (1) The limited amount of resources currently available to the GCF Trust Fund (established by the interim trustee under its Financial Intermediary Fund arrangement, to receive and disburse contributions for the GCF) and (2) the financial gap between resources available and the proposed expenditures in the budget.

Board members especially from developing countries had a great deal of difficulty with the presentation of the budget which they said lacked clear explanations of the assumptions behind the proposed budget lines for items such as staff travel (especially the relative costs for GEF staff versus UNFCCC staff), information technology, Board meetings and consultants (over 200 hours budgeted for this item).

Many developing country members such as El Arini, Dasgupta, Zou and Mr. Paul Gomes (Guinea Bissau) raised issues over the request to approve a budget with a large resource gap and which was primarily based on pledges. While developed country members such as Metcalf, Mr. Kjetil Lund (Norway) and Mr. Rod Hilton (Australia) expressed their comfort with this practice, several developing country members raised the issue of principles and best practices used by international organization and multilateral funding institutions.

Gomes said that approving a budget based on pledges goes against the best practice at multilateral levels. He highlighted that with the IFIs, a developing country will not have its programme approved unless its resource gap is closed. He further argued that for the GCF to be driven on pledges to close its budget will not look good and said that the Board should seek to adopt what is the current best practice.

Dasgupta said the GCF needed valid resources and that pledges are not resources, given all that that is known about pledges in practice. He said that approving the present 14 months budget was not prudent fiscal management.
The budget and related documents were revised to reflect the input and requests made by Board members.

Given that approval of the budget was also necessary in order for the trustee to approve and disburse funding, including to the Interim Secretariat, the budget was approved with the recording of funds available for disbursement at $2.7 million; previous pledges amounting to $2.5 million; pledges made at the meeting of $1.5 million and strong commitments for additional pledges. The administrative budget of $7,481,000 was approved for 1 November 2012 to 31 December 2013.

Arrangements between the COP and the GCF

There were differences of opinion among Board members as to whether or not the Board should initiate the arrangements between the COP and the GCF or if this was the prerogative of the COP.

Developing country members on the Board such as Mr. David Kaluba (Zambia), Zou (China), El Arini (Egypt) and Dasgupta (India) strongly argued that based on the provisions of the Convention as well as the GCF’s governing instrument, and the Durban COP decision, the arrangements should be determined by the COP.

Kaluba pointed out the COP is the superior organ or body that gives the guidance and it should be left to form its mandate and its role. He said that the Board should not assume the role of the COP on how the arrangements should be handled. Zou agreed that the Fund is a mechanism under the guidance of the COP and so, the arrangements should be initiated by the COP not the Board.

On the other hand, Metcalf (US) supported by Hilton (Australia), Mr. Nick Dyer (UK) and Mr. Amaud Buisse (France) were of the opinion that the Board should take the initiative and undertake the draft arrangements.

Given the disagreements, the Co-Chairs concluded that there was no consensus on the issue.

The Board also established the practice of subcommittee or teams as useful working modalities.

Thus, far there have been four operational six-member teams: (1) the Evaluation Committee for the selection process for the host country; (2) a team for working on additional rules of procedure: (consisting of Mr. Per Callesen (Denmark), Dasgupta (chair), El-Arini , Ms. Beata Jaczewska (Poland) , Metcalf and Mr. George Zedginidze (Georgia); (3) a team to deliberate the work plan: (consisting of Buisse (France), Dyer, Mr. Derek Gibbs (Barbados), Lund, Mr. Tosi Mpanu Mpanu (Democratic Republic of Congo) and Ms. Adriana Soto (Colombia who is also the Chair); (4) an Executive Director Selection Committee (also with 6 Board members whose names are to be announced) to oversee the selection process and make recommendations to the Board.

The next meeting of the Board of the GCF will take place in Berlin, Germany, March 12-15, 2013, hosted by the German government.+