TWN Info Service on Climate Change (May14/06)
27 May 2014
Third World Network

Green Climate Fund adopts decision on accreditation framework

Delhi, 27 May (Indrajit Bose) - The recently concluded meeting of the Board of the Green Climate Fund (GCF) adopted a key decision on the accreditation framework.

A draft decision prepared by the GCF Secretariat on the issue was presented for the consideration of the Board at its 7th meeting in Songdo, South Korea. Adopting a decision on accreditation processes was among the essential requirements to kick-start the process of mobilizing financial resources to the Fund, a key ask of the meeting held from 18-21 May 2014.

The focus of the accreditation framework was on what would be the guiding framework and the processes to accredit national and international entities to access the Fund, which reflect the Fund’s fiduciary principles and standards as well as environmental and social safeguards (ESS).  At an earlier Board meeting in October 2013 in Paris, the Board had decided to develop the guiding framework and procedures for the accreditation process of the Fund. The underlying idea was that the guiding framework and procedures for accreditation process should “enhance country ownership, accommodate different capacities and capabilities of countries in a transparent, objective and credible manner, in line with the Fund’s objectives, results and guiding principles”.

In Paris, an accreditation team was formed, comprising Board members Arnaud Buisse (France), Jan Cadergren (Sweden), Derek Gibbs (Barbados) (who was replaced later by Patrick McCaskie) and David Kaluba (Zambia) to oversee the development of the guiding framework for the Fund’s accreditation process. The process resulted in the draft decision which was taken up by the Board for consideration at the Songdo meeting. The decision was debated upon, as there were several areas of divergence among the Board members on a number of issues. Following were some of the key issues of divergence:

Priority to national and sub-national entities: Several developing country Board members wanted to ensure that national and sub-national entities should not face difficulties for accreditation, including in getting direct access to the Fund, which they felt was lacking in the document. They also underlined that international entities such as the multilateral development banks (MDBs) should not get privilege over national and sub-national entities.

Capacity building: Developing country Board members were of the view that efforts must be made for capacity building for strong national entities in developing countries.

Fast-tracking MDBs: Developed country Board members wanted to fast-track accreditation for the MDBs. The counter argument was that some MDBs are not necessarily clean and for the process to be fair.

Fast-tracking accreditation process referring to principles adopted by private sector associations: A proposal advanced by some developed country Board members including from the US, was to fast-track the accreditation of implementing entities and intermediaries already accredited by relevant private sector associations. Reference was made to the ‘Equator Principles’. (According to Wikipedia, “the Equator Principles is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.).  Following objections by Omar El-Arini (Egypt) on the vagueness of these private sector associations and the active observer for civil society organisations (CSO), this proposal was dropped from the final decision. Brandon Wu from ActionAid (the active CSO observer) pointed out that private sector associations do not have accreditation processes and systems that are suitable for fast-tracking and that the Equator Principles are voluntary and do not have oversight mechanisms for accountability.

Composition of the Accreditation Panel: The draft decision proposed that there would be four Board members or alternates in the Accreditation Panel. The disagreement was over whether Board members should be there in the Panel at all. Since the role of the panel is technical, developed country members cast doubts that including Board members in the panel might render it a political panel.

Accreditation fee: Developing country Board members sought more clarity on a proposed policy on accreditation fee in the document.

Timeline for the Board to set its own standards: Developing country Board members were of the view that there should be a clear timeline for the Board to develop its own ESS.

Specific reference to private sector: Developed country Board members wanted the inclusion of the private sector in the decision, which was not present in the draft decision presented to the Board.

Intervention by Board members
Board members articulated these issues by intervening in the plenary meeting of the Board. Following were some of the interventions made by the Board members on the accreditation document.

Liang Ziqian (China) reiterated the focus areas of the accreditation framework, the importance of the country ownership principle and the need for capacity building. He said that it should comprehensively consider factors such as the objectives of the GCF, the practical situation of the country that receives the fund as well as policy and professional capacity of institutions applying for accreditation. He also said that the accreditation processes should comply with the “country ownership” principle with full consideration of specific national conditions of recipient countries and that their effort must be directed at helping developing countries strengthen capacity towards establishing a strong national implementation entity which would have direct access to the financial resources of the GCF.

Tosi Mpanu Mpanu (Democratic Republic of the Congo) stressed the importance of empowering national and sub-national implementing entities and intermediaries to meet the necessary standards to access funds. He said this was in line with the principles of country ownership and enhanced direct access, the central tenets of GCF. He asked of the Board to link the accreditation capacity needs with readiness and preparatory support and to prioritize applications from national and subnational entities. He expressed disappointment at the lack of progress on fast-tracking applications for bodies already accredited to other relevant funds such as the Adaptation Fund.

He proposed that it should be possible to grant temporary accreditation for the relevant bodies, while at the same time conducting a review of any additional criteria that the Board feels is necessary in relation to the activities that the Fund invests in. The other option, he said, could be for bodies accredited by other funds to be automatically, but permanently, accredited in relation to certain activities, while any further assessment against fiduciary standards would be undertaken for other activities.

Mpanu also called for different accreditation criteria to apply to bodies undertaking different activities, rather than highly specialized and inflexible criteria because the idea is to get a diversity of bodies to apply for accreditation. He wanted more clarity on how the IFC’s performance standards would provide the base for the Fund’s ESS and how the IFC standards are different from those of other multilateral bodies.

He added that a proposal in the draft decision for a tiered approach to deal with the Fund's proposed ESS should be supported. The draft decision suggests the possibility of a tiered approach with differentiation by institution or activity-type. This should be encouraged because otherwise the requirement to have a fully-developed and rigorous Environmental and Social Management System (ESMS) in place could act as a significant barrier to entry to those applying to become an intermediary or implementing entity. A tiered approach would be consistent with the approach to apply the ESS on a scaled risk-based approach (that will ensure the environmental and social requirements and processes are commensurate to the level of risk).

Patrick McCaskie (Barbados): Speaking for the Small Island Developing States (SIDS) said the accreditation process is of critical important to them since it will determine the degree of access to the resources of the fund. He said SIDS supported the creation of a new Fund because they were frustrated with the onerous requirements to access existing funds, the lack of taking into account capacity constraints being one of them. He therefore stressed the importance of capacity building, the need for the Fund to set a timeline to set its own safeguards, the importance of developing a fast-track process for entities already accredited with other existing multilateral funds, including those accredited with the Adaptation Fund.

Omar El Arini (Egypt) said that the in the draft decision, national entities were downplayed, and echoed other developing country Board members’ sentiments that performance standards of other institutions should be explored. “Did the (accreditation) committee explore the possibility of using standards of Global Environment Facility (GEF), especially since GEF deals with climate change and they have been funding climate change related work?” he asked. He also wanted a time limit to the GCF developing its own standards because the performance standards of a financial institution would be intrinsically different from the GCF’s, he said. He called for more clarity on the accreditation fee, and proposed to defer decisions on additional specialized fiduciary standards. (The draft decision (j) which was initially proposed, read: “Requests the Secretariat to develop, under the guidance of the Accreditation Panel, additional specialized fiduciary standards that may be deemed necessary to effectively accommodate all institutional capacities required in IEs and intermediaries in the initial phase of operations of the Fund as deemed necessary”).

He also questioned if the Board needed to decide on the ESMS right at this initial phase of the Fund. (This led to a deletion from the initial draft decision for such a system).

Leonardo Martinez (USA) said governments of many countries have been working very hard that the international development assistance provided is responsible and that resources are managed in a transparent manner. There is emerging international consensus that an international institution can provide this.

He seconded the need for capacity building, but added that it should not be done with only GCF assistance. Countries should also use their own money, as well as increase their own capacities, he said. He was open to considering a tiered approach, but he didn’t know what it meant and wanted more details on that. He supported the fast-track approach “in principle”, and said it would be worth considering under what conditions would institutions be eligible for fast-track. He wanted the multilateral development banks (MDBs) to be accredited “right away” as he had high confidence in their standards. He also referred to the ‘Equator Principles’ which could be useful for fast-tracking accreditation.

Ana Fornells de Frutos (Spain) wanted clarity on the composition of the Accreditation Committee. She suspected that having four Board members in the committee ran the risk of the committee turning political or non-technical. She sought clarification on the competence of Board members and alternates and the technical experts.

Irene Jansen (Netherlands) wanted language on two elements to be added to the decision: one on the fast-tracking proposal and two, including private intermediaries in the fast-tracking proposal.

Norbert Gorissen (Germany) agreed that the Board needs a timeline to set its own standards and that the Accreditation Panel should comprise technical experts rather than Board members as it could result in a conflict of interest. He was in favour of fast-tracking institutions already accredited and supported readiness for capacity building to access the Fund.

Zaheer Fakir (South Africa) said he would like to see flexibility, relevance and diversity. Flexibility did not mean downplaying standards but to be able to have an approach where the process meets the needs of the different institutions the Fund is dealing with. He reminded the Board members of the ethos of GCF, which was to bring about a transformative and paradigm shift and it was about doing business unusual.

Adam Kirchknopf (Hungary) agreed that country ownership is the key guiding principle behind all the work and that it was important that national entities in SIDs and least developed countries have access to the Fund. He supported the use of IFC performance standards, saying the Board did not need to “reinvent the wheel”, and agreed that there should be clarity about cost implications or fees related to the process and that it would aid transparency. 

Decisions taken by the Board
Following these interventions, a small group was formed, which met over the next three days and following intense deliberations, it was agreed that a “fit-for-purpose” accreditation approach would be adopted “that matches the nature, scale and risks of proposed activities to the application of the initial fiduciary standards and interim ESS.” The Board also adopted the following decisions:

  • The initial guiding framework for the accreditation policies would apply to “private sector entities”. The guiding principles state that the Fund’s fiduciary principles and standards and ESS should be “in line with international best practices and standards”; the accreditation framework should ensure “accountability, transparency, fairness and professionalism”; it should be “a dynamic process that is reliable, credible and flexible”; “the Fund’s fiduciary principles and standards, ESS and general accreditation procedures” should be coherent and integrated with “other relevant provisions of the Fund”; and that the accreditation process “should allow for readiness and preparatory support in the context of direct access and the different capacities and capabilities of countries and institutions to enhance country ownership, with a view to facilitating capacity building”.
  • A review of “initial fiduciary principles and standards” would be conducted “within three years”. The initial fiduciary principles and standards would “distinguish between basic fiduciary criteria and specialised fiduciary criteria, which will reflect the institutional capacities necessary to deliver against the Fund's objectives and in accordance with the scope of responsibilities entrusted to the implementing entity (IE) or intermediary”.
  • The Board decided “to adopt, on an interim basis, the Performance Standards of the International Finance Corporation”.
  • The Board decided that the process of developing the Fund’s own environmental and social safeguards would be completed within three years after the Fund becomes operational and it would do this “with inclusive multi-stakeholder participation”.
  • Application of the Fund’s interim ESS would be “implemented in a risk-based manner and not in a blunt, one-size-fits-all approach.” This approach is to ensure that the “environmental and social requirements and processes are commensurate to their level of risk and, coupled with the modular application of the Fund’s interim ESS, will not slow down or overburden low- to no-risk projects”.
  • The initial guiding framework also lays down that to identify the potential environmental and social risks or to determine any inconsistencies with the Fund’s interim ESS, implementing entities and intermediaries accredited to the Fund would be able to screen funding proposals, which can be categorized into three different categories: Proposals that entail activities with significant adverse environmental or social risks or diverse, irreversible or unprecedented impacts would be Category A proposals; those with mild risks and fewer impacts which could be mitigated would be Category B proposals; and those with minimal or no adverse risks or impacts would be Category C proposals.
  • Similarly, the initial guiding framework also lists three categories for activities involving investments through financial intermediation functions or through delivery mechanisms involving financial intermediation. Category 1—high level of intermediation—arises “when an intermediary’s existing or proposed portfolio includes, or is expected to include, substantial financial exposure to activities with potential significant adverse environmental and/or social risks and/or impacts that are diverse, irreversible, or unprecedented”. Category 2 or medium level of intermediation arises when the financial exposure to activities has limited adverse risks and impacts; and Category 3 or low level of intermediation arises when the risks and impacts are minimal.
  • It was also decided that there would be an "Accreditation Committee, comprising “four Board members or alternates”, and established “the Fund’s Accreditation Panel as an independent technical panel to advise the Board in matters related to the accreditation of implementing entities and intermediaries to the Fund. The panel would comprise “six expert members with balanced representation between developing and developed countries and the appropriate range of expertise, to be nominated by the Accreditation Committee for endorsement by the Board soon after”.
  • The Board also adopted the terms of reference for the Fund’s Accreditation Committee and the Accreditation Panel. (In a previous version of the decision, it was proposed that there would be an Accreditation Panel comprising four Board members or alternates, two of each who would serve as chair and vice chair. Developed countries opposed to this saying that inclusion of Board members ran the risk of making it political and non-technical.)
  • In the decision adopted, it was made clear that a policy on accreditation fee would be developed “that takes into account the financial capacity of institutions”. (In the earlier draft version, there was mention of developing a policy on accreditation fee, but several developing country Board members reflected on the need for more clarity.)

Work areas for the next Board meeting
The Board has tasked the Secretariat with further work on the processes on accreditation, and to present to the Board, by the eight meeting, scheduled to be held in Barbados from October 15-17, the following:

  • To elaborate “guidelines for the operationalization of the fit-for-purpose accreditation approach for a decision”.
  • “A work programme on complementarity and coherence with the accreditation systems and processes of other relevant funds, as well as relevant private sector associations, in consultation with the Private Sector Advisory Group (PSAG) and relevant stakeholders”. (This was owing to the demand from developing countries that experience of other funds such as the GEF and the Adaptation Fund must be taken into consideration for a robust accreditation process under the GCF.)
  • “An assessment, including a gap analysis, of institutions accredited by other relevant funds and in line with the Fund’s objectives against the interim ESS and initial fiduciary standards with recommendations on their potential accreditation or fast-tracking”
  • “The identification of potential relevant private sector international best practice fiduciary principles or standards and ESS, and an assessment of gaps against the Fund’s initial fiduciary standards and interim ESS, in collaboration with the PSAG and in consultation with relevant stakeholders”
  • “To develop an environmental and social management system for the Fund… which will include guidelines on the categorization of projects by implementing entities and intermediaries according to the level of environmental and social risk and in accordance with the Fund’s interim ESS”
  • To develop “additional specialized fiduciary standards that may be deemed necessary to effectively accommodate all institutional capacities required in IEs and intermediaries in the initial phase of operations of the Fund”