TWN Info Service on Climate Change (Jul17/02)
11 July 2017
Third World Network

GCF Board grapples with status of Fund’s resources due to Trump announcement

Delhi, 11 July (Indrajit Bose)- The actual status of the resources committed to the UNFCCC’s Green Climate Fund (GCF) became an issue at the 17th Board meeting  which was held on 5-6 July in Songdo, South Korea.

The backdrop of the issue was the announcement in June by United States (US) President Donald Trump that his country was pulling out of the Paris Agreement and that it would not be putting in any more resources to the GCF.

The US under the Obama Administration had pledged USD 3 billion of which, USD 1 billion has been provided to the Fund so far.

Without making any reference to the US announcement, Board members queried about the status of the Fund’s resources in view of the US situation.

Zaheer Fakir (South Africa) sought clarification on the total signed amount of GCF pledges, which according to a document issued by the Secretariat, stood at USD 10.1 billion. He referred to the US’s contribution agreement with the GCF, which states that the US intends to pay USD 3 billion, but is signed up to provide USD 500 million.

Addressing the Secretariat report on the status of resources, Fakir said that “recent developments have resulted in me looking at this more carefully. In the introduction, you state that you have signed contributions and arrangements amounting to USD 10.1 billion. Given the exchange rate fluctuations, it has reduced virtually to USD 8.75 billion,” said Fakir, stressing that this was not the real problem.

The real problem he said was the what was on the GCF website which displays a document on ‘resource mobilization’ and under the column listed “signed”, there is reference to the US contribution being listed as USD 3 billion.

Fakir said he consulted the US contribution agreement  and found a problem as the agreement in one part says the contributor “intends” to make a contribution of USD 3 billion available to the trust fund “subject to the availability of funds”, and in another part it states that “upon signature of the contribution agreement, the contributor will make available to the trust fund a sum of USD 500 million.”

He said the Secretariat was listing USD 3 billion as being “signed” when this is actually only an intention to do so, as what was signed for is only the provision of USD 500 million. Fakir sought clarification regarding whether the GCF was “overstating the actual signed commitment.”

Larry McDonald (the US Board member) clarified that the US had paid USD 1 billion to the GCF.

Fakir repeated his question saying that while the document says it intends to do something, the signed commitment is something else. “What is the signed commitment that you actually have?” he asked further.

The Secretariat representative responded, saying, “I would not use (the term) ‘commitment’ because there is no commitment. There is an arrangement. The arrangement is for USD 3 billion. The disbursement has been USD 1 billion.”

Unhappy with the response, Fakir said the website referred to “signed” contributions and asked “what is the commitment signed?”

The Secretariat again presented the same response that the contribution arrangement was signed for USD 3 billion.

Ludovica Soderini (Italy) intervened to provide a suggestion and said that in future the Secretariat should not have a table on signed agreements because it did not reflect what was correct.

Omar El Arini (Egypt) said that an intention is an intention, not a payment of contribution and that the GCF should not base its calculations on intentions. “I do not know what kind of an agreement or arrangement exists that says a country intends to (provide something) pending the availability of resources. …These things are important to clarify. I do not want a clarification now but I want the documents to be more accurate in the future,” said Arini.

Co-chair Ayman Shashly (Saudi Arabia) said that the points were well made and that the Co-chairs and the Secretariat would look into the matter and if need be, the document would be adjusted.

Fakir reiterated that he was not arguing about the figures in there but it was very pertinent in terms of the trigger for replenishment. “Our trigger is based on an IRM (initial resource mobilization) figure and a percentage related to the figure. We need to be accurate in terms of what that figure is,” he stressed.

(According to the Board’s ‘Policies for Contributions’, “Once the Fund’s cumulative funding approvals exceed 60 per cent of the total contributions, confirmed by fully executed contributions agreements/arrangements, received during the IRM, the Fund will initiate a formal replenishment process. Hence, the issue of what is the ‘total contributions’ confirmed to trigger the replenishment process.)

With that, Shashly concluded discussions on the matter and noted the report by the Secretariat on the status of the Fund’s resources.

Besides this matter, there were other issues that came up during the meeting which drew some controversy. These included facilitating increase in proposals from direct access entities, selection of the permanent trustee and the investment policy of the GCF trust fund.

There was no progress in any of the items due to disagreements among developing and developed country Board members.

Facilitating increase in proposals from direct access entities

The issue of increasing proposals from direct access entities was an outstanding item from the 16th Board meeting where the Board could not take a decision on the matter then and the same prevailed at the current Board meeting due to lack of consensus on two matters in this regard.

The two matters included a proposal to have champions from the Board to take on the work of increasing the number of direct access proposals in the pipeline; and to prioritise the work and consideration of concept notes presented by direct access entities or national designated authorities (NDA) or focal points.

Consultations led by Ignacio Lorenzo (Uruguay) and Frank Fass-Metz (Germany) happened during the two days of the Board meeting. According to their report back to the Board, there was agreement on a number of issues such as reporting modalities to the UNFCCC Conference of the Parties (COP), elements to support direct access entities in their accreditation and helping develop of concept notes and funding proposals etc, but for the two matters mentioned above.

As a way ahead, Co-chair Ayman Shashly (Saudi Arabia) asked Lorenzo and Fass-Metz to continue consultations and to bring back the matter to the Board at its 18th Meeting.

In response, Lorenzo reiterated the importance of the issue and said that it was an issue of COP guidance and that it was of utmost political importance.

(In a decision adopted in Marrakech at COP22, the COP requested the GCF Board to facilitate an increase in the amount of direct access proposals in the pipeline and to report to the COP on progress made in this regard.)

Expressing disappointment at the state of matters in respect of direct access entities, Fakir reiterated the importance of direct access as being a critical element of the Fund.

“It is one of the pillars and one of the stars of this Fund. I am rather disappointed that we cannot make progress on such trivial items. Part of the reason the COP raised this is that they recognized this as a problem…So, what is needed from this Board is something that is more proactive than what we currently have,” stressed Fakir.

He added that a whole workshop for direct access entities was held in Songdo and that the Secretariat had exposure to all the entities and had identified the gaps.  Fakir was astounded that no progress on the matter could be made at the present Board meeting on the matter.

(The GCF Secretariat had convened a workshop from 23-25 May, targeted at direct access entities in Songdo. The Secretariat reported to the Board that the workshop served to enhance the knowledge of the entities as well as to help them accelerate the development of proposals in the pipeline. Twenty-two direct access entities participated in the workshop and shared several project ideas and concepts, which the Secretariat said was being taken forward.)

Weifeng Yang (China) supported Fakir and said that the issue of increasing direct access entities was an urgent matter and that the Board could not take the risk of waiting too long.

Following the interventions, Lorenzo and Fass-Metz were asked to continue consultations. After further consultation, Fass-Metz reported back that they had a compromise and presented a decision to the Board for adoption.

However, with the decision being distributed too close to the scheduled time of the closure of the meeting, some Board members expressed the need for more time to go through the decision and expressed that they would not be able to adopt the decision.

It was then agreed that consultations on the matter would continue and for the issue to be taken up at the 18th Board meeting.

Selection process for the permanent trustee

Reporting back on the progress made in the selection process of the permanent trustee, Fakir, (who was chair of the ad hoc committee created to look into the selection process of the permanent trustee), said that the committee had been mandated with providing three products: the terms of reference, the timeline and the selection process.

(Omar El Arini [Egypt], Mikio Mori [Japan] and Larry McDonald [US] are the other members of the ad hoc committee.)

(The World Bank is the interim trustee of the GCF and a permanent trustee is to be selected.)

Fakir added that there was no consensus on the selection process within the committee.

“During the deliberations the committee was confronted with certain elements such as the institutional requirements that some of the contributors would need to have because we wanted to make sure that we choose a trustee that everybody could work with and we looked at those elements as what that would constitute. When we were looking at the selection process we were conscious of providing the most open, transparent and competitive process and we looked at what best would provide that kind of process,” he said further.

Fakir explained that the committee could not find a selection process that they could agree on.

McDonald said that the conundrum was how to do a selection process that would be true to the letter and spirit of open, competitive and transparent process. He added that the committee wanted to take account of the fact that some institutions that have the experience and other characteristics should be able to participate and not be precluded by a procurement process that is open to the universe of all possible participants.

Mori added that hopefully there would be a decision on the issue at the next meeting. Arini said that he was hopeful of reaching would take some compromises and that it would be the best of the committee’s efforts.

Investment Policy of the GCF’s Trust Fund

Another issue that proved quite contentious was the investment policy of the GCF’s trust fund.

Lars Roth (Sweden) raised the issue under the agenda item ‘Other Matters’.

Elaborating on it, Roth said that he sought the Board’s approval to have the trustee investment policy item to be considered as a standalone item at the 18th Board Meeting to allow enough time for Board discussion.

To facilitate such discussions at the next board meeting, Roth proposed that the Secretariat present a paper on possible options for such a policy with the aim to provide guidance to the trustee of the GCF on the financial management of the GCF Funds held in trust.

Board members from Germany, France, Norway and Denmark supported Sweden.

Arini said he was not in a position to go along with the need for elaborate studies of different investment portfolios. He added that the Board was in the process of selecting a permanent trustee and that the investment of the Fund resources will continue to be discussed between the trustee and the Board.

He also said that it could not be a condition for the selection of the trustee. “It should be left to the trustee and the Board to negotiate on a regular basis, but to preempt with a study like this is not a good idea for the investment of uncommitted resources of the Fund,” said Arini.

Zaheer Fakir and Nauman Bashir Bhatti (Pakistan) supported Arini.

With no agreement in the room on the study proposed by Roth, Co-chair Ewen McDonald (Australia) asked the Board if the investment policy of the trustee could be taken as a separate item at the 18th Board meeting.

Co-chair Ayman Shashly (Saudi Arabia) sought legal advice and responded that they could not commit to bringing the issue raised by Roth as a separate agenda item.

The matter concluded with Co-chair McDonald saying that the Co-chairs will consult regarding bringing the matter to the 18th Meeting of the Board.

Edited by Meena Raman