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Breakdown of UN’s Green Climate Fund: Resignations & ‘failed to approve almost a billion dollars in proposed projects’

Q&A: Behind the breakdown at UN’s Green Climate Fund

Zaheer Fakir, GCF South African board member and former co-chair. Photo by: African Development Bank

TORONTO — Last month, the international climate change community was left reeling amid a disastrous fallout at the United Nations’ Green Climate Fund board meeting in Songdo, South Korea. The fund failed to approve almost a billion dollars in proposed projects, with board members still tussling over how to progress with GCF’s first official replenishment process.

On top of that, the fund’s Executive Director Howard Bamsey unexpectedly resigned, leaving GCF scrambling to find a successor. With only a few months left until December, when the annual U.N. Conference of the Parties takes place in Katowice, Poland, many wonder how the world’s largest international climate fund will overcome its challenges.

To help answer this question, Devex caught up with the GCF South African board member and former co-chair, Zaheer Fakir, to discuss the fund’s policy gaps, the polarizing issue of replenishment, and how GCF might move forward.

The conversation has been edited for length and clarity.

How did GCF get to such a low point at its last board meeting?

It’s a combination of several factors that have accumulated over a number of meetings that finally manifested at the last board meeting. First and foremost, the board did not fully form all of GCF’s relevant policies — such as incremental cost, co-financing, or even eligibility criteria before we started approving projects and accrediting entities — which has led to a number of policy gaps.

This goes back to the 2015 board meeting in Zambia, where we approved the very first GCF portfolio — despite recognizing that we do have a lot of gaps, many of which we still haven’t been able to address. In the absence of clear, agreed policies, some board members have even refused to approve projects on the basis of their own domestic policies, even though the projects were compiled based on the criteria of the fund.

The other major factor relates to the GCF’s commitment authority. We’ve always operated on the basis of having $10 billion at our disposal and this is the message that has been communicated at various platforms around the world.

The lack of clarity on whether those pledges will be fulfilled, coupled with negative exchange rate factors, has resulted in a situation where $10 billion is not the figure we have at our disposal to program — the actual figure is much less.

Yet, we have gone out into the wild and created excitement and expectation. Developing countries have been developing projects for years, so now, the portfolio you have in the pipeline far exceeds what you have available. How do we deal with this? Do we just stop the portfolio? What is the political signal that sends? Do we continue the portfolio, but knowing that we would run out of money? Whose projects get funded?

These questions have resulted in different answers from various board members at the last board meeting. The board realized that we need to exercise financial management, but what does that mean in reality? Do we start not funding projects? And on what basis? How does that relate to existing portfolio of projects?

We might have a number of projects that we approved previously, but now we’re not funding them because of a lack of finance. Is that an equitable way of approaching it? On top of all this, we have the most important, urgent yet complicated topic of the GCF’s first formal replenishment.

Since the GCF is a new fund, how do we go about doing this, how do we determine the appropriate size of the replenishment and what role will the GCF board play in this process?

These are just some of the questions that have been raised. We also need to bear in mind that within the board there are some members who believe that the trigger to initiate replenishment has not yet been met and therefore, such discussions are premature.

How can GCF move forward?

We need to address the issue of policy gaps as a matter of urgency, including how do we give the level of clarity and predictability to developing countries without clear policies on co-financing, incremental cost, or eligibility criteria.

I need to stress that it’s not merely having policies for the sake of policies, but having the appropriate policies that are designed to enable GCF to meet its objective of supporting developing countries in transitioning toward low-emission and climate-resilient development pathways.

GCF has been addressing the issue to a large extent on a case-by-case basis, which is a very difficult thing to do, and often rather subjective. We need to strike a balance where we allow for a bespoke approach, but with some level of predictability and clarity on the policy side.

It also needs to be something that’s not merely guided by abstract or theoretical views, but rather, what is required to make the mitigation and adaptation projects materialize. It needs to be guided by lessons learned both within GCF, other funds, and financial mechanisms.

When we look at our portfolio of 76 projects — it’s questionable as to how many are actually under implementation — we need to review whether or not the policies, instruments, and modalities in place have resulted in the desired outcomes. Developing countries have been in favor of an independent review of the fund because it’s what responsible boards do. However, such reviews should not be made conditions for replenishment — as proposed by some board members. The review will provide valuable information for a replenishment, but it is rather backward looking.

Reviewing the fund is not just a question of reviewing the projects, but reviewing how the fund is operating. For instance, how effective are the policies that we have, how are we managing the master agreements, and the funded activity agreements [legal agreements that need to be signed before funds can be disbursed].

We find that to a large extent, implementation has slowed down because the FAAs have not been signed or effective. In some cases, projects were approved a year or two ago, but can’t start without all the necessary legal documents in order. Long delays in implementation put into question whether the fundamentals of the project are still relevant after such long delays — such as the costs of renewable energy, which has changed and decreased over time. We need to be addressing these issues. The question is, where do we address them and how do we address them?

For me, it is critical that replenishment is guided by the needs of developing countries. We need to identify what is the most ambitious potential mitigation and adaptation scenarios that GCF can achieve. Then, we can assess the funds required to make it happen and review whether or not GCF, with its current instruments, policies, and modalities is equipped to meet the challenge.

You can’t have a replenishment process whereby you send donors into a room and they’ll magically come out with the money and the solutions. While we recognize the role contributors play in replenishment, it is fundamental to understand the key role that the board and the Conference of the Parties play in this process. GCF operates under the guidance and authority of the COP, and is governed by the board.

Have you received any feedback from developing countries on this issue? Are they concerned that they might not get the funding they need?

Developing countries are concerned, but it’s also accredited entities, project execution agencies, and developed countries that are concerned. Implementation can only begin once the FAAs have been fully executed leaving many countries and entities uneasy over the financial situation that we’re in right now.

They fear that there may be pipeline management exercised i.e. projects canceled due to long delays. Given the reduced funding available and the high demand for the money, this is a real fear.

“One of the problems is, that the board itself is approving projects with conditions rather than saying ‘no’ outright. In many cases … we know countries and entities will never be able to fulfill them and in that way, we’ve said ‘yes’, but in effect are saying ‘no.’”

— Zaheer Fakir, GCF South African board member and former co-chair

Part of the question is why haven’t many FAAs been signed or effective? One of the problems is, that the board itself is approving projects with conditions rather than saying “no” outright. In many cases these conditions are often so onerous that one can argue that we know countries and entities will never be able to fulfill them and in that way, we’ve said “yes,” but in effect are saying “no.” Or in fulfilling the conditions, they have a fundamentally a very different project altogether, which would mean that they would have to come back to the board for approval.

So why doesn’t the board just say “no” then?

It’s rather difficult politically, although we have not approved nor requested projects to be withdrawn.

You can’t deal with GCF in isolation; it is interconnected with other political processes. It is important to note that GCF was operationalized at the Conference of the Parties in Durban in 2011 and is not a creation of the Paris Agreement process, but rather serves the agreement.

GCF is one of the operating entities of the financial mechanism of the U.N. Framework Convention on Climate Change that also serves the Paris Agreement.

One must understand that in this current global political environment many countries are concerned that we’re going to lose the momentum of Paris. It could be assumed that positive developments within GCF may be a vehicle to sustain that momentum.

This is also why many people may find that the last board meeting was disastrous given the fact that we’re going into COP 24 in December where we need to figure out the work program for the Paris Agreement and we have all this negative messaging. About 30 percent of the funds that were pledged to the GCF are not going to materialize. That’s not the type of positive information that creates an enabling environment in the UNFCCC negotiations.

It can also be assumed that some people who are skeptical about the Paris Agreement might use GCF’s last board meeting to further their views and ideas. Some might use it to further their narrative that the board is dysfunctional, which in my opinion it is not. Some would use it to reinforce the view that they can’t take developed countries on their word in terms of fulfilling their pledges.

“About 30 percent of the funds that were pledged to the GCF are not going to materialize. That’s not the type of positive information that creates an enabling environment in the UNFCCC negotiations.”

— Zaheer Fakir, GCF South African board member and former co-chair

This is all fodder for all kinds of wrong reasons and I believe we can collectively find a positive way forward. Robust discussions and diversity of opinions lend themselves to more robust, balanced and sustainable outcomes.

On that note, one of the longstanding criticisms that popped up again after GCF’s July board meeting is that it’s better for the GCF to switch to voting rather than try to achieve consensus. It is, some argue, too hard to achieve consensus given the mix of climate negotiators and financiers on the board. What are your thoughts on this?

That criticism of the mix of climate negotiators and financiers is not limited to GCF. On most climate funds, people ask if you have the right mix of board members. But, what’s the difference?

Does somebody from treasury have a better understanding of the challenges of dealing with climate change? Does someone with a climate change background have the same understanding of finance or fiscal management? And yet, combining the two gives you a much more robust team. When all think alike, no one thinks very much.

Personally, I think consensus is much better than voting because it forces you to think about the other’s position and ultimately try to adopt a much more balanced outcome. One can say, however, that the process of consensus leads us to the lowest common denominator. I believe that it still prevents a winner takes all scenario.

In voting, it’s purely whoever has the most votes wins. Often you might have outliers, such as when the U.K. board member objected to a roughly $22 million project for Argentina, despite not having any GCF policy basis for doing so.

Overall, I think decision-making by consensus has worked excellently for GCF. Within the fund, we have found ways and processes to find consensus even on difficult issues, such as the selection of both executive directors and choosing the host country for GCF.