TWN Info Service on Climate Change (Oct22/02)
26 October 2022
Third World Network

Green Climate Fund Board unable to approve 3 projects due to insufficient funds 

Penang, 26 Oct (TWN) — The 34^th meeting of the UNFCCC’s Green Climate Fund (GCF) Board held on 17-20 October in Incheon, South Korea had to defer three projects from being considered for funding due to a lack of sufficient resources in the Fund. Three projects had to be deferred because the United Kingdom (UK) did not fulfill its contribution to the Fund. According to sources, the UK defaulted on a payment of USD 288 million to the GCF.

During the discussions, the Secretariat informed the Board that three projects endorsed by both the Secretariat and the Independent Technical Advisory Panel (ITAP) had to be deferred to meet the available commitment authority (available resources) at the Board meeting (B.34).

“This (deferring) was necessary as a result of the GCF receiving a low volume of contribution by contributors that was anticipated by the end of quarter 3 (September 2022),” the Secretariat representative informed the Board.

The Board, however, did approve nine new climate projects worth USD 544.1 million in GCF funding, with one private sector project becoming hugely contentious due to issues around country ownership. (See further details below).

Several developing country Board members expressed their concerns in relation to the deferred projects. Nauman Bashir Bhatti (Pakistan), Isatou Camara (Gambia), Nadia Spencer-Henry (Antigua and Barbuda), Tanguy Bekale (Gabon), Antwi Amoah (Ghana) wanted to know what the issue was with the commitment authority and expressed concerns about developed countries not fulfilling their pledges.

Sarah Metcalf (UK) responded that part of the challenge related to the UK not being able to make the payment in September due to “pressures on the UK Overseas Development Assistance (ODA) budget as a result of ongoing crises and as a result of this the UK has temporarily paused payments while priorities are reviewed”.

(According to sources, it is unclear when will the UK be able to resume payments to the Fund. This makes the UK the second developed country to fail in its pledges to the GCF. The US had pledged USD 3 billion to the GCF during the initial resource mobilization period, but contributed only USD 1 billion. Further, the US did not provide anything to the GCF during its first replenishment period from 2020 to 2023.)

During the discussions, developing country Board members also expressed concerns on the projects that were not endorsed by ITAP.

(For the B.34 meeting, the Secretariat had submitted 17 funding proposals to the ITAP for review. The ITAP did not endorse 4 of the 17 funding proposals for the Board’s approval and the Secretariat informed the meeting that the 4 funding proposals would be revised by the respective accredited entity for future meetings. Sources said a number of problems arose because of the ITAP not engaging adequately with the accredited entities of the funding proposals which it did not endorse. Accredited entities are those entities which are approved to access GCF resources.)

The developing countries stressed the ITAP’s role in communicating better with accredited entities on projects that it was not endorsing. Following discussions, in the decision on the funding proposals, the Board requested the ITAP “to meaningfully engage and communicate with accredited entities throughout the funding proposal package assessment, including during the endorsement, non-endorsement and resubmission phases”.

The Board also adopted other key decisions on the Accreditation Strategy of the Fund and agreed on the timeline for the update of the Fund’s Strategic Plan.

Contentious Project

A project proposal on “Green Guarantee Company (GGC)” by the MUFG Bank Ltd. (Mitsubishi UFJ Financial Group) as the accredited entity was submitted to the Board for approval. The project requested USD 82.6 million from the GCF. The project’s objective was to be the first global financial institution dedicated to leveraging its funding by providing guarantees for climate bonds, with significant adaptation and mitigation benefits. According to the Secretariat’s presentation on the project, the GGC would provide an equity investment alongside the Foreign Commonwealth and Development Office of the UK and other founding shareholders of GGC, which would allow it to mobilise up to USD 4 billion of climate bonds and loans from global capital markets for climate finance in developing countries.

The Secretariat in its assessment of the project had noted that the project raises the risk that “the GCF proceeds could be used to pay guarantee claims with respect to projects located outside of the no-objection letter (NOL) countries and not liable to GCF policies and the GCF could also end up absorbing other investors losses and guarantees that are not compliant with GCF requirements. Therefore, if this funding proposal were to be approved by the Board, the Board will be waiving the requirements under the Initial No-objection Procedure and the Guidelines for Enhanced Country Ownership and Country Driven-ness to the extent that GGC funds that are funded from GCF proceeds are used to pay claims under guarantees for sub-projects in non-NOL countries.” (No objection letters from the national designated entities [who are developing country governments] are required for GCF projects to be funded and implemented in the relevant countries).

(The countries involved in the project include Gabon, Rwanda, India, Indonesia, Lao, Philippines, Brazil and Trinidad and Tobago.)

Developed country Board members, however, were unanimous in their support for the project, but developing countries expressed concerns over how the proposal would be of benefit and how GCF’s investment would play out in developing countries that had not submitted their NOLs to the GCF to be able to use its resources. They requested the consideration of the project to be deferred.

Expressing concerns, Antwi Amoah (Ghana) said the key issue is that the GGC intends to make investments in large number of developing countries but only 8 of these countries are GCF NOL countries. As this GCF contribution will be mingled, there is no certainty that GCF resources will be used only for those 8 countries,” said Amoah.

Similar concerns were echoed by Nadia Spencer-Henry (Antigua and Barbuda), Tanguy Bekale (Gabon), Kushaal Raj (Fiji) and Nauman Bashir Bhatti (Pakistan).

“We are also concerned about the eligibility criteria for the countries that will access the guarantee; how climate impact will be measured from these guarantees that will be provided; how this hopes to really to advance in terms of access that each beneficiary countries are likely to get in terms of the guarantees and who are the entities that they are likely to work with in these countries,” questioned Spencer-Henry.

The Office of the General Counsel (OGC) of the GCF also confirmed that if the project is approved, the GCF would be departing from the NOL procedure, and which posed a significant legal concern.

Lengthy discussions followed on the project with developed countries resolute in their support of the project. Eventually, the project was approved not for the requested amount of USD 82.6 million, but for USD 40.5 million, subject to conditions.

In the decision adopted, the Board also recognized that the approval of the funding proposal “does not set a precedent with respect to compliance with the no-objection procedures established by the Board” and reaffirmed that the “Secretariat shall not present any funding proposals to the Board which are not fully compliant with the no-objection procedure”.

Other funding proposals approved

Apart from the MUFG Bank Ltd project referred to above, the Board approved the following projects:

·         USD 23.3 million for ‘Enhancing Adaptation and Community Resilience by Improving Water Security in Vanuatu’ with Pacific Community as the accredited entity (AE). The project is a climate adaptation investment, aiming to enhance climate resilience and increase water security of rural communities.

 

·         USD 39.4 million for ‘The R's (Reduce, Reuse and Recycle) for Climate Resilience Wastewater Systems’ in Barbados with Caribbean Community Climate Change Centre as the AE. The goal of 3R-CReWS is to facilitate the enhancement of the health, wellbeing, and productivity of Barbadians through the use of carbon neutral and climate resilient water and energy management technologies and strategies that ensures water is protected, managed, recycled, reused, and conserved.

·         USD 9 million for ‘Peruvian Amazon Eco Bio Business Facility (Amazon EBBF)’ with PROFONANPE as the AE. The EBBF will provide effective climate change mitigation outcomes by investing in eco bio businesses (EBBs) supporting the sustainable management and conservation of Peruvian forests. 

·         USD 220.5 million for ‘Programme for Energy Efficiency in Buildings, Cool’ with Agence Française de Développement (AFD) as the AE. The project is aiming to transform the construction sector at scale by supporting resilient and energy efficient building, so called green buildings, design, construction and operation. The Programme targets 11 countries in 4 continents with climates in which the temperature reaches level at which heat related risks become significant in Africa (Djibouti, Morocco, Nigeria, Tunisia), South-East Asia (Indonesia, Sri Lanka), South America (Argentina, Costa Rica, Mexico), and Eastern Europe (Albania, North Macedonia).

·         USD 76.6 million for ‘E-Motion: E-Mobility and Low Carbon Transportation’ with the Development Bank of Latin America / Corporación Andina de Fomento (CAF) as the AE. The project covers Panama, Paraguay and Uruguay, and aims to enable a large-scale regional transition towards electro-mobility in Latin America focusing on intensive use vehicles leading to reduced fossil fuel consumption, greenhouse gas emissions and air pollution.

·         USD 105.5 million for ‘Supporting Innovative Mechanisms for Industrial Energy Efficiency Financing in Indonesia with Lessons for Replication in other ASEAN Member States’ with Korea Development Bank as the AE. The Programme will support Indonesia and other ASEAN countries to be ready to drive a low-carbon development pathway with enhanced energy efficiency and conservation performance.

·         USD 26.9 million for ‘Concerted Action to Accelerate Local I.5°C’ with GIZ as the AE. The project will establish and implement regional technical assistance and investment grant platforms that build a portfolio of early-stage climate ventures in Latin America and West Africa, with the objective of triggering venture capital investments in start-ups and young businesses with the highest climate mitigation impact and business growth potential. It will be implemented in Argentina, Costa Rica, Dominican Republic, Honduras, Mexico, Benin, Burkina Faso, Cote d’Ivoire, Guinea, Mauritania, Niger, Senegal and Togo.

·         USD 9.8 million for ‘Adaptation of Agricultural Production Systems in Coastal Areas of Northwest Guinea-Bissau’ with Sahara and Sahel Observatory as the AE. The project integrates and scales up initiatives and expertise from climate resilience and rural development projects in the Cacheu and Oio Regions of Guinea-Bissau. 

Accreditation related decisions

The Board also approved the accreditation of Zambia National Commercial Bank Plc, and the reaccreditation of:

·         Ministry of Environment of Rwanda;

·         National Bank for Agriculture and Rural Development in India;

·         PT Sarana Multi Infrastruktur in Indonesia;

·         XacBank LLC in Mongolia;

·         World Wildlife Fund, in the US.

Accreditation Strategy

During the discussions on accreditation strategy, several contentious issues emerged. These included divergence on which types of applications to prioritize (re-accreditation or new accreditation); the types or characteristics of applicants to prioritize (first national direct access entities, private sector entities); and over retiring non-performing AEs at the end of their accreditation term.

Developing countries were largely in favour of having no caps to accreditation of new entities. They also wanted direct access entities to be prioritized and encouraged the GCF to think of ways of enhancing cooperation with entities rather than retiring them.

Following discussions, the Board adopted the Accreditation Strategy of the Fund, with the agreement that the contentious issues in the proposed strategy would be considered at its next Board meeting.

The accreditation strategy adopted aims to “enhance the efficiency, effectiveness and inclusiveness of the GCF accreditation and re-accreditation process; strategically use accreditation of partners to advance the goals of GCF by filling gaps in capabilities and coverage to deliver on high quality, transformational and paradigm-shifting programming while increasing the share of direct access entities; and optimize incentives for partners to invest in a dedicated capacity to programme for GCF”.

Under the strategy adopted, the GCF will develop “clear guidance on the various types of partnerships that can be built with GCF; clarify the obligations and responsibilities of AEs; encourage entities and national designated authorities (NDAs) to choose the right approach to accreditation depending on the project/programme pipeline size”. The GCF will also provide “programming directions and guidance to support AEs to deliver on such programming; address GCF programming objectives and provide capacity development support for climate programming”. The accreditation strategy is to be reviewed after five years.

Update of the Strategic Plan

The Board also had rich discussions on the update of the Strategic Plan (2024-2027) where members provided their views on its long term vision; mid-term programming goals; and linkages to other strategies.

(The Board had launched the decision to review and update the strategic plan at its 32^nd meeting. Since then informal discussions have convened on the issue, with a zero draft of the update presented to the Board at its 34^th meeting.)

The discussions were captured in a Co-Chairs’ summary of B.34 discussions, which includes an “Ad referendum approach draft on the Strategic Plan for the GCF 2024–2027”. The draft will be finalized in accordance with a timeline that was also agreed by the Board.

According to the timelines agreed, the Secretariat will issue the first draft of the update in December 2022, and following consultations on the draft, the second version of the update will be presented at the 35^th meeting of the Board, where the sticky issues will be discussed. The Board is expected to conclude consideration of the update at its 36^th meeting in July 2023.

The next meeting of the Board is scheduled in March in Korea.