What’s in store for the Green Climate Fund in 2012?

With the first board meeting of the Green Climate Fund scheduled for the end of April, now is a good time to provide a bit of a primer and update on the GCF.

The lead-up to the Green Climate Fund

Since 2008, Friends of the Earth and many others have been calling for the establishment of a global climate fund – like the GCF – under the UN Climate Convention. The world was lacking a dedicated climate fund based on sound environmental integrity, socioeconomic justice, and efficacy that put the adaptation and mitigation needs of people in developing countries first and foremost. These needs include projects that, for example, would reduce the risk from and vulnerability to flooding and drought, as is occurring in Nicaragua, and mitigation projects that would increase efficiency and exploit solar energy to provide electricity, instead of fossil fuels.  Supporters of the fund envisioned that many tens of billions of dollars would flow through this channel for ecologically sustainable development. What many – Friends of the Earth included – did not want was for the World Bank to successfully make a power grab and take over control of this fund.

At multiple UN climate summits, negotiators debated the concept of the GCF, as well as the question of who should control the fund. Finally, after much effort by many developing country negotiators and a whole range of activists across the justice, environmental, and development spectrum, the Cancun Climate Summit established the GCF in December 2010.

A new fund is born

Shortly thereafter, a Transitional Committee was formed to begin designing the Fund. Representatives from 25 developing and15 developed countries met 4 times throughout 2011 to hash out the barebones of the GCF.

It was not always smooth sailing, and, as you would guess, the geopolitical power dynamics present in the climate negotiations – and the world writ large – were also at play within the Transitional Committee. Not surprisingly, the more powerful governments held more sway, and their priorities often got more air time and recognition.

For example, the UK – with the US and Japan as devoted cheerleaders – pushed for a fund that would primarily be a vehicle by which to leverage and “crowd in” private finance. Never mind the fact that very few adaptation projects would turn a profit for the private sector, and that, similarly, some areas of mitigation are not revenue generating.

For demonstrable evidence of why constructing a climate fund that privileges the private sector remains such an alarming a proposal to so many, look no further than the track records of the World Bank’s private sector lending arm, the International Finance Corporation, and the UN’s Clean Development Mechanism. Both the IFC and the CDM are supposed to mobilize private finance in support of sustainable development in developing countries. However, the records of both institutions demonstrate that an excessive focus on leveraging private finance often comes at the expense of both climate and development effectiveness. For example, the IFC and CDM both have a strong bias toward larger-scale projects in a limited number of larger middle income countries. But there are many smaller, poor countries that also must be served by the GCF. (For more on this topic, please see a submission to the Transitional Committee that Friends of the Earth made on the role of private sector finance and the GCF.)

By the end of the Durban Climate Summit one year later (in December 2011), the beginnings of a GCF governing structure emerged: a 13-page mixed-bag legal document that both causes deep worry and inspires hope. While many remain troubled by provisions allowing the private sector direct access to the fund, which has real potential to undermine country ownership, they were also pleasantly surprised that there will be a competitive bidding process to determine which institution will be the permanent trustee of the fund, preventing the World Bank from being a shoo-in for the role.

Now, the GCF torch has been passed from the Transitional Committee (which has been dissolved) to the new GCF board. Unlike the Transitional Committee, which was comprised of a majority of developing countries, the board is composed of an equal number of developed and developing country representatives (12 each). The first meeting is scheduled to be held at the end of April in Geneva.

Key issues to look out for in 2012

The majority of the board’s focus during the first meeting is expected to be taken up by basic administrative and organizational issues. Some of the critical areas we’ll be following closely at the GCF throughout this year include:

Role of the private sector – There is a real concern that the GCF could end up serving the interests of the corporate and financial sectors, instead of serving the planet and protecting the poor in developing countries. At the insistence of countries like the US, UK, and Japan, the GCF includes a private sector facility “that enables it to directly and indirectly finance private sector mitigation and adaptation activities at the national, regional and international levels.” The details and workings of the private sector facility are not yet delineated.

Because the private sector facility may allow international corporations to directly access the GCF, a poor country like Malawi, for example, could end up having to compete with a multinational corporation like ExxonMobil for climate money. However, at the Durban climate talks we helped put a kink in the inevitability of such a scenario. Now, developing countries, through their national designated authorities (national bodies that recommend particular funding proposals to the GCF board, according to the countries’ given climate strategies and plans), can object to any activity proposed by the private sector, whether international or domestic. In 2012, it will be absolutely critical to get the sequencing of this “no-objection” procedure right, so that a nearly final project is not simply presented to the national designated authority as a fait accompli for a rubber stamp. A country’s right to object to a project must be a tool to be exercised at the early stages of any GCF activity.

We also do not want to see a fund that allows companies to privatize profits, while letting the public shoulder financial losses and other risks. We’ll be watching for any links with carbon markets and other risky investments, whether financial or environmental, as the board contemplates “an appropriate risk management policy for funding and financial instruments.”

There is, of course, a legitimate role for the private sector to play in this process, but that must be decided and managed at the national level (and lower – state/local levels, etc.) in the context of national strategies. In turn, those strategies must be informed by sovereign participatory processes. With the right regulatory frameworks and governance systems, the GCF can galvanize action at the domestic level to help developing country micro, small and medium enterprises.

National designated authorities and genuine country ownership – To the greatest extent possible, the GCF should be designed so that the primary unit of GCF structure and decision-making is at the national and sub-national level. Decisions about climate finance should be made in recipient countries, not in the boardrooms of Corporate America nor by bureaucrats in some European capitol. As blueprints for the structure and functions of national designated authorities emerge, they must be truly participatory, representative of impacted communities, democratic, and well-run.

Safeguards – GCF-funded activities, at minimum, should guard against social and environmental harm. The GCF decision contains a provision stating, “The Board will agree on and adopt best practice environmental and social safeguards.” This is the year to start putting some meat on the bones, to make sure that the safeguards reflect an upward harmonization of transparency, environmental and social standards. This means creating standards that go beyond “do no harm” and embrace a pro-active rights-based agenda that advances human rights protections in all aspects of the fund.  Existing World Bank safeguards must be seen as the absolute floor – not the ceiling – of what is acceptable as safeguards for the GCF.

Money – Even the world’s best fund is meaningless if there is no money in it. Though technically the GCF board is not supposed to deal with sources of funds, this issue remains the elephant in the room. There is no plan for how to raise the money necessary to fill the fund, a problem of enormous proportions. In the age of Occupy Wall Street, now is the time to rally behind the implementation of a financial transaction tax and a crack-down on tax havens and corporate welfare as sources of revenue for climate finance. In the meantime, many organizations are urging countries that have, in the past, contributed funds to the World Bank’s Climate Investments Funds to direct future money to the GCF.

A UNFCCC fund – The US is not especially fond of the UN Climate Convention, or UNFCCC, so, to the great frustration of many, it has sought to put as much distance as possible between the GCF and the UN. Yet the fund’s founding document is unambiguous – the GCF “will be accountable to and function under the guidance of the Conference of the Parties (COP).” 2012 is an important year to cement the primacy of the UNFCCC as the home of the fund, particularly as an agreement between the fund and the COP must be negotiated by the end of the year.

Civil society engagement – The GCF allows for 2 active observers from civil society, one from the South and one from the North; and 2 from the private sector, one from the South and one from the North. While acknowledging the clear bias shown toward the private sector (in the UN Climate Convention, civil society represents 8 constituencies – from labor to Indigenous Peoples to environmental organizations – while the private sector represents only one constituency, itself), this year it is essential to put in place the most effective, transparent, and representative processes for both the selection of the active observers and for broad civil society participation, engagement and consultation. Moreover, a process must be put in place to allow Indigenous Peoples to represent themselves. Finally, when it comes to private sector representation, the GCF should ensure participation of small and medium enterprises from developing and developed countries, so that the interests of large corporations and financiers are not the only ones considered.