TWN Info Service on Climate Change (Mar13/02)
19 March 2013
Third World Network
Green Climate Fund Board meeting concludes after lively exchanges

Berlin, 19 March (Meena Raman) – The third meeting of the Green Climate Fund (GCF) Board took place in Berlin, Germany, on 13 – 15 March, 2013.

The Board adopted several decisions during the three day meeting which included decisions on the Fund’s business model framework, resource mobilisation, establishment of the Fund’s independent secretariat, modalities for readiness and preparatory support, arrangements between the Conference of Parties of the United Nation’s Framework Convention on Climate Change (UNFCCC) and the Fund, logo of the Fund, the headquarters agreement (with the Republic of Korea), communication and representation, and  additional rules of procedure of the Board including that relating to observers.

Among the most controversial issues which saw divergence of views among board members were those related to the business model framework, resource mobilisation and the administrative policies of the independent secretariat.

The main issues that occupied the attention of board members on the business model framework were on the meaning of “wholesale” and “retail” functions of the GCF as well as that of resource mobilisation. Several Board members stressed the importance of the GCF being “country-owned and driven”. India advocated this to be a core principle for the GCF

Several developed country Board members were of the view that the issue of resource mobilisation should not be the subject of the business model framework while several developing country members thought otherwise.

Another issue discussed under the business model framework was that of the leveraging of funding resources. Developing countries wanted a more comprehensive approach, with the leveraging of funds, programmes and policies within a country-led context. How to address the private-sector facility was also discussed, with several developing country Board members expressing concern that it was being over-emphasised. They expressed concerns that a parallel fund was being set up for the private-sector facility.

(The GCF Board is comprised of 24 members, composed of an equal number of members from developed and developing countries).

The Board meeting was co-chaired by Ewen McDonald (Australia) and Zaheer Fakir (South Africa). Two “active observers” from civil society organisations (CSOs) and two from private sector organisations (PSO) representing developed and developing countries were allowed to participate in the meeting. The Third World Network and the Sierra Club represented CSOs while the PSO representatives were from Carbon Markets and Investors Association (CIMA) and the International Chamber of Commerce.   

Business model framework (BMF)

In a background document prepared by the interim secretariat for the Berlin Board meeting on the issue of the BMF, Board members were reminded that at their last meeting in Songdo, Republic of Korea in October 2012, a team of six Board members were tasked with preparing documents on the BMF. According to the secretariat’s background document, the team, assisted by the interim secretariat conducted a series of teleconferences and developed the terms of reference (TOR) for a consultancy on the BMF.

The TOR for the document to be prepared by the consultancy was to have four components: a first overarching component on the ‘Structure and organisation’ of the Fund, private sector facility-related matters, access modalities, and results management framework.

The team of Board members requested that an institutional contractor be engaged for the work and suggested a number of possible institutions to undertake the work. The interim secretariat executed a fast-track procurement process. According to the background document, two proposals were evaluated by the interim secretariat. “Given that the anticipated cost of the consultancy was higher than the overall consultancy budget presented to the Board at its second meeting (in Songdo), the Co-chairs recommended that the work be divided in two stages and sought the approval of the Board on a no-objection basis to award the consultancy for the work associated … The Co-chairs subsequently received objections from two Board members (from developing country Board members),” said the background document.

The Berlin meeting was invited to provide guidance on how to take the work forward. When the agenda item on the BMF issue arose for consideration on the second day of the meeting (on 14 March), co-chair Ewen McDonald asked Board members to consider a draft decision which was emailed to members the night before on 13 March.

McDonald said that following discussions at an informal meeting held on 12 March, the co-chairs agreed to provide a draft decision on the BMF. (He was referring to an informal meeting held on 12 March for Board members/alternates/advisors to discuss mainly the BMF issue. According to sources, the informal meeting saw an airing of views about the BMF, including information provided by Board member Dipak Dasgupta of India on the outcomes of a meeting held in New Delhi from February 15 -16, 2013. The Delhi meeting was attended by a small group of Board members or their alternates and representatives from India, Egypt, the Philippines, Saudi Arabia, Sweden and Zambia and resulted in a document called a ‘Delhi Vision Statement for Enhanced Operationalization of the GCF’. According to the Delhi statement, at the Board meeting in Songdo, Dasgupta had offered to prepare a ‘vision statement’ to help frame for Board members and stakeholders some key issues and options in operationalizing the GCF. The ‘Delhi Vision Statement’ was also submitted by Dasgupta on 11 March as an input to the discussion on the BMF).

McDonald referred to the draft decision drafted by the co-chairs which initially read as follows: “The Board….

(b)  Notes that the following areas of convergence on the business model framework of the Fund are consistent with the Governing Instrument, namely that the Fund will be ambitious, flexible and scalable, have a country-driven and owned approach, employ direct access, and leverage the private sector through its Private Sector Facility;

(c)  Further notes convergence that the Fund should also:

(i) Use a phased approach by commencing as a wholesale fund for the interim period and to transition to retail functions upon further assessment by the Board;

(ii) Leverage funding, including from other multilateral funds; and

(iii) Focus initially on grants and concessional lending, and employ additional financial instruments as necessary to effectively achieve the objectives of the Fund; …”

The draft decision also had two annexes – with a list of documents on the BMF to be prepared for the June and September 2012 meetings of the Board respectively.

Dasgupta (India) said that it was important for the Board to have high order convergence and suggested that part (c) (i) be deleted as the focus was on wholesale and retail functions. He said that the Board should agree on a devolved country-led model and country-led framework for the GCF work.

On the issue of leveraging [referring to (c)(ii)], Dasgupta said there was need to be more comprehensive, with the leveraging of funds, programmes and policies with the approach first of all being within a country-led process, involving both the public and private sector. He said that there was need to also ensure that the Fund was transparent and accountable. Dasgupta also wanted inclusion of raising resources which were sufficient given the urgency and scale of the funding needed. 

Hong-Sang Jung (Republic of Korea) raised questions about the GCF commencing as a wholesale fund, saying that it could make it much weaker as it could not just be a wholesale provider, using the same channels and process. There was need for direct access and country ownership, he added.

David Kaluba (Zambia) stressed the need for the Fund to involve local actors, small and medium enterprises who should be the beneficiaries of channels in the private-sector facility. He asked what “wholesale” or “retail” was, saying that it would take a long time to agree on a definition. It was better to stick to what is in the Governing Instrument of the GCF and not add new language. He asked how enhanced direct access is supposed to be achieved.

Kjetil Lund (Norway) said there was need to have a top-down discussion of the “whole house”, including a look at the existing infrastructure (on climate financing) and what has worked and what has not worked so well. 

Jan Cedergren (Sweden) wanted reference to the Fund being “decentralised”; he did not want reference to “wholesale” and “retail”. On the issue of leveraging, he supported the views of Dasgupta. He also stressed that country ownership was an essential feature of the Fund. 

Omar El-Arini (Egypt) also said that he could not understand the terms “wholesale” and “retail” saying that this was “mercantile terminology”. On the list of documents for further work, he said there was need to address what are performance indicators; what are incremental costs and what the Fund would disburse and on what basis. He said that the private-sector facility was being over-emphasised as if we are creating a parallel fund and we are not addressing funding windows which are part and parcel of adaption and mitigation.

El-Arini added that as regards access modalities, there is need to develop the “no-objection procedure” in relation to the national designated authorities (NDA).

(In Durban at the 17th meeting of the UNFCCC Conference of Parties, it was agreed that the Board will develop a transparent no-objection procedure to be conducted through the NDAs, in order to ensure consistency with national climate strategies and plans and a country driven approach and to provide for effective direct and indirect public and private sector financing by the GCF. The Board was requested to determine this procedure prior to approval of funding proposals by the Fund.)

The Egyptian Board member also stressed other areas of importance such as the development of fiduciary standards, environmental/social safeguards, and the need for accountability mechanisms. He also suggested the organizing of a workshop for Board members/alternates where the papers produced could be discussed.

Yoshiki Takeuchi (Japan) was not sure that the issue of resource mobilization is part of the BMF and said that there was no convergence on this.

Nicholas Dyer (UK)  said as regards “mitigation”, we are chasing the lowest abatement costs as regards CO2 emissions that will determine what type of investments are needed. This might not be in low-income countries. There was need for policy choices. As regards “wholesale” and “retail”, Dyer said the difference is between funding a project directly by the GCF or via an intermediary; retail meant funding a project directly while wholesale is through the NDAs. He asked if members wanted the GCF to fund individual projects which would require a different structure.

Manfred Konukiewitz (Germany) welcomed the need for country ownership and leadership. Referring to Dasgupta’s proposal for a devolved model, Manfred said that the term ‘devolution’ was too ambiguous. On the issue of resource mobilisation, he said that this was not an element of the BMF. He said that developed countries had a commitment from the Cancun (UNFCCC Conference of Parties) decision (to mobilise USD 100 billion per year by 2020) and that all had agreed to channel substantial amounts. He said developed countries need to convince “their constituencies” that the GCF had added-value.  

Audrey Joy Grant (Belize) also expressed concerns over the use of the terms “wholesale” and “retail.” 

Matthew Kotchen (US), referring to paragraph (b) of the draft decision said that the private sector should be leveraged through all aspects and not just through the private sector facility. On measuring performance at the programme and project level, he said efforts should be compared to business-as-usual, as we want transformational effect.

Tosi Mpanu Mpanu (Democratic Republic of Congo) expressed support for Zambia, Egypt and India.  Referring to donor countries stressing the need to pass the “tax-payer test”, he said there is the other side of the transaction as recipients of the money which is the “efficacy test”. The recipients must be able to access the funding and must have capacity to do so. On the issue of devolution of the Fund to the country-level, this is counterbalanced by the need for accountability, he said.

Arnaud Buisse (France) supported a decentralized approach but with a global and strategic perspective.

Per Callesen (Denmark) said that the BMF was only a sub-component of all the work that needed to be done by the Board. He also supported the idea of having workshops for Board members.

Adriana Soto (Colombia), who was the leader of the team that drafted the TOR for the BMF, said the draft TOR provided a good basis for the work ahead. Ernesto Cordero (Mexico) expressed disappointment that the TOR drafted by the BMF team was not on the table anymore. 

Beata Jaczewska (Poland) said that discussions were going on internally (in Poland) on the effectiveness of using public money for ecological investments. There needed to be a certain set of rules and vision in this regard.  

Alexey Kvasov (Russia) said that whatever “wholesale” and “retail” means, members were dealing with different “species”. What is missing is the need for “safety nets” – safeguards, audits, inspections, and remedies to correct irregularities, as misappropriation of funding could derail the Fund, he added.

Rod Hilton (Australia) said that the BMF is critical to the credibility of the Fund in order to show his treasury what the funding support is for. He added that ‘devolution’ and ‘decentralization’ could be hard to define but there is already the notion of “country ownership”.

Dasgupta (India) in response to the various comments said that “country-owned and driven” is a core principle for the GCF. He added that on the access modalities, from the Governing Instrument, international access comes after enhanced direct access. It is important to devolve responsibilities to where they belong and this is a fundamental design principle, he stressed.

On the issue of “leveraging”, there needed to be a broader definition, said Dasgupta, through the use of national policies and programmes to strengthen the base for private sector and civil society engagement to get results. Referring to questions posed by the co-chairs in the run-up to the Berlin meeting, he said there seemed to be an extraordinary emphasis on the private-sector facility. He asked what it was that members wanted to achieve.  He said there was need to focus on the outcomes that use instruments including the private sector but in a context with country-ownership being the core of the BMF.

The active observers from the private sector and CSOs were invited to give their views. The CIMA representative said that the focus on grants will only mobilize private sector funding to bridge specific risk or cost gaps and there was need to allocate grants for partial risk guarantees. Grants and concessional lending is not what normally engages the private sector, said the representative further.

The representative from Sierra Club (speaking for CSOs) said there was need for further analysis on how the private-sector facility can further a country-driven approach. He said  leveraging the private sector is not an objective in itself. It was important to view the leveraging of the private sector in the context of sustainable development and the impact that would have on the poor. He added the need to consider role of safeguards and accountability mechanisms.  The Third World Network representative stressed the need to consider the overall direction of the outcomes of the GCF in serving the interest of the poorest in developing countries. She also supported the view that resource mobilization was a key issue in the design of the GCF and the BMF.

Following these comments, co-chair McDonald introduced a revised version of the draft decision and solicited further reactions.

Dasgupta (India) wanted reference to a Fund that operates through funding entities and transitions to direct access. He also wanted reference to resource mobilisation and to allow for a mechanism for additional sources of funding, enabling resource mobilisation at a larger scale. Readiness and capacity building were also important elements, he added further.

El-Arini (Egypt) did not want reference to operating through intermediaries as this implied financial intermediary. He preferred operations through funding entities.

Kjetil Lund (Norway) in response to Dasgupta did not want reference to resource mobilisation. He said Norway wanted to contribute to the Fund but needed to politically explain how the GCF worked so that contributing to it could be defended.  

Dasgupta (India) in response insisted reference be made to mobilising sufficient resources in addition to the rest of the words in paragraph (c)(iii) (in the revised draft) which were “leverage funding, knowledge and expertise from public and private sources both at national and international level.” (Dasgupta’s proposal was as follows: “Mobilise sufficient resources and leverage funding, knowledge and expertise from public and private sources both at national and international level.”)

Matthew Kotchen (US) could not support Dasgupta’s proposal as he did not want resource mobilisation to be addressed before members looked at other design elements of the GCF.

Tosi Mpanu Mpanu (DRC) also wanted reference to resources being mobilised.

Dasgupta (India) in response said that if the GCF wants to get to the large changes needed in developing countries towards addressing climate change, it is clear from literature that costs have to be upfront for policies to be designed to achieve the goal of ambition and scale to deliver the global public good. He asked if developed country members were saying they do not have resources.

When asked by co-chair McDonald if there was convergence on Dasgupta’s proposal on referencing resource mobilisation in the sentence regarding “leverage funding …”  Manfred Konukiewitz (Germany) responded that there was need to keep the issues of the BMF and resource mobilisation separate. One issue should not be held hostage to the other, Manfred added. In response, Dasgupta called for the deletion of the entire sentence in paragraph (c)(iii) if there was no convergence on the issue of resource mobilisation.

The final decision that was adopted as regards the BMF was as follows-

“The Board, having reviewed document GCF/B.01-13/11, Business model framework of the Green Climate Fund:

(a)     Took note of and welcomed the work of the business model framework team, comprised of six Board members/alternate members formed at its second meeting under decision B.02‐12/03, in the preparation of the detailed terms of reference for a consultancy on the business model framework of the Green Climate Fund, as contained in the annex of document GCF/B.01-13/11; 

(b) Noted that the following areas of convergence on the business model framework of the Fund are consistent with the Governing Instrument, namely that the Fund will be ambitious, flexible and scalable, have a country-driven and owned approach, employ direct access modalities and other access modalities, and leverage additional public and private resources through the operational modalities of the Fund, including through the private sector facility;

(c) Further noted convergence that the Fund should also:

(i) Recognise that a country driven approach is a core principle to build the business model of the Fund;

(ii) Commence as a fund that operates through accredited national, regional, and international intermediaries and implementing entities;

(iii) Focus initially on grants and concessional lending, and employ additional financial instruments as necessary to effectively achieve the objectives of the Fund;

(iv) Enhance transparency and accountability;

(d) Decided that the areas of the business model framework set out in Annex XXX  to this report should be the focus of further analysis and work to develop options for consideration by the Board at its June 2013 meeting;

(e) Decided that the areas of the business model framework set out in Annex XXX to this report should be the focus of further analysis and work to develop options for consideration by the Board at its September 2013 meeting;

(f) Requested that, the Interim Secretariat, under the guidance of the Co-Chairs, to draw from and build on the work of the terms of reference for a consultancy on the business model framework of the Green Climate Fund to develop the parameters  for the work set out in (the) Annexes ;

(g) Requested the Co-chairs to work with the Interim Secretariat to ensure that there is overall coherence within the development of the business model framework work, as well as coherence within the development of the business model framework work and the broader work plan of the Board;

(h) Requested thereafter that the business model framework team provides guidance on the work set out in Annexes … to this decision and coherence, and report to the Board at its June and September 2013 meetings;

(i) Decides to authorise the Interim Secretariat, if necessary, to organise one or several meeting/s of the BMF team to review the Board documents, under the guidance of the Co-Chairs, prior to the June and September Board meetings;

(j) Approves, from the administrative budget of the Fund for the period from 1 November 2012 to 31 December 2013 as amended in this decision, an allocation of US$ 600,000 for the completion of the work set out in Annexes …;

(k) Requests the Interim Secretariat, under the guidance of the Co-Chairs, to ensure that expenditure under this decision is efficient and cost‐effective and to seek the Co‐Chairs’ approval if there is a requirement to exceed this amount, noting the Co-Chairs may approve a larger allocation of funding for this work provided that it can be accommodated within the administrative budget of the Fund for the period from 1 November 2012 to 31 December 2013 as amended in this decision;

(l) Decides that the overall administrative budget for the Fund for the period from 1 November 2012 to 31 December 2013 as adopted in decision B.02‐12/06 for the Interim Secretariat, and specifically the amount allocated for consultancies, be increased by US$ 150,000;

(m) Invites contributions to the Green Climate Fund Trust Fund; and

(n) Authorizes the Interim Trustee to make additional cash transfers of US$ 150,000 from the Green Climate Fund Trust Fund to the UNFCCC secretariat for the Interim Secretariat for this purpose, subject to available resources.”

(The annexes to the above decision are not reproduced here.)

The issue of resource mobilisation was a separate agenda item that the Board addressed on the final day of the meeting on 15 March. This issue once again was mired in controversy. (Another article in this regard is forthcoming).+