Climate Fund fails to reach accord on replenishment process

Climate Fund fails to reach agreement on replenishment process

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Songdo, 9 July (Indrajit Bose and Meena Raman) — Attempts to arrive at consensus on the first formal replenishment process of the UNFCCC’s Green Climate Fund (GCF) came to a naught at the 20th meeting of the Board of the GCF, held in Songdo, South Korea, from 1-4 July.A decision on the process for replenishment of the GCF’s resources was seen as a critical outcome for the Board meeting, given the state of its existing resources, where there is a gap of about USD 3 billion between resources pledged and committed, and resources realized.
This gap includes nearly USD 1 billion in foreign exchange losses and USD 2 billion due to the United States not fulfilling its pledge. (The US had made a pledge of USD 3 billion, “subject to the availability of resources” and only USD 1 billion has been transferred to the GCF thus far.)
According to the GCF Secretariat as reported at the Board meeting, the initial resource mobilization (IRM) period of 2015-2018 would yield only USD 7.2 billion by the end of the year, as opposed to USD 10.2 billion in signed commitments by countries.
The document also revealed that of the USD 6.5 billion received so far, cumulative funding decisions of USD 4.5 billion have been made, which includes the approval of funds for 76 projects thus far.
The Fund therefore has about USD 2 billion left for funding decisions and with an expected USD 790 million to be made available by end of the year, about USD 2.8 billion can be committed for spending. Of this money available, more than USD 300 million has to be allocated for the administrative budget of the Secretariat and other expenses including those related to the operations of the Fund.
For the 20th Board meeting, nearly USD 1 billion worth of funding proposals were expected to be considered for approval. However, the Board did not get to discuss the funding proposals due to a number of process-related deadlocks and disagreements among Board members at the meeting, which drew much frustration and disappointment all around.
The Board also noted the growing demand for GCF funds. According to the Secretariat, as of June 2018, the GCF pipeline comprised 87 funding proposals requesting USD 5.1 billion of GCF funding.
Given the need for more resources, the urgency in getting the replenishment process in order was stressed particularly by developing country Board members.
In this regard, there were substantive areas of disagreement related to the replenishment process, which were three-fold: (i) whether or not certain policies and procedures needed to be in place before the process of replenishment could begin; (ii) whether and what type of review of the GCF should be conducted for the replenishment to happen; and (iii) whether the replenishment process should be driven by the GCF Board or contributors who contribute to the GCF.
In relation to the review of the GCF, according to sources, developed countries just wanted to allocate USD 830,000 to the Independent Evaluation Unit (IEU) of the GCF without any defined scope of the review and they did not want any Board approved Terms of Reference for the review, which developing countries could not agree to.
Status of the financial resources Upon the presentation of the status of the financial resources, developing country Board members raised concerns on the USD 3 billion gap and the amount of resources left.
Some developing country Board members also said that the figure of USD 10.2 billion (which includes the US contribution), should not be bandied about anymore because it was clear that the amount could not be realized, (given the position of US President Donald Trump who made clear last year his government did not intend to put in any more resources to the Fund.)
Developed country Board members, however, focused on the need to manage the pipeline with some prioritization and change the practice of “first-come-first-serve” basis in relation to funding projects.
Developing countries cautioned that changing the rules of engagement mid-way might rock the boat, and it would be difficult for the Board to agree on a new set of criteria for the use of the remaining funds at this stage. They stressed on the need of sound financial planning for the remaining resources of the Fund.
After further discussions, the Board adopted a decision on financial planning, in which it requested “the Secretariat to prepare an analysis of options for the financial planning of the GCF commitment authority for the IRM with a view to managing the GCF pipeline to balance commitments and diversity among accredited entities and across the initial results areas of the GCF based on confirmed contributions…and present this to the Board for consideration and adoption at its 21st meeting.”
Issues in relation to replenishment During the 19th Board meeting, in relation to the replenishment issue, developing countries had proposed that the process be based on the needs of developing countries, but developed countries led by the US had objected to this. (See related TWN update).
The disagreements further widened at the 20th meeting, which led the Board to be deadlocked, with no decision possible.
In the initial draft decision for the meeting on replenishment presented for consideration, the Board was asked to consider agreeing to initiate the process “in line with the policies for contributions, with such process to commence following the adoption of the essential policies and procedures for the first formal replenishment.”
These included policies related to the following matters: gender policy, environmental and social safeguards standards, options for further guidance on concession, incremental and full costs, policy on co-financing and further options for decision-making, which included decision-making without a Board meeting and decision-making in the absence of consensus.
The draft decision presented to the Board also proposed a “forward-looking review” of the performance of the Fund during the IRM and for the review to be carried out by the Fund’s IEU.
Developing country Board members raised concerns against making these policies “conditional” to initiating a process on replenishment. They referred to a sense of “déjà vu”, where prior to the IRM process, the Board was faced with similar discussions about fulfilling essential requirements before launching the IRM (see related TWN Update).
Zaheer Fakir (South Africa) recalled the discussions during the IRM process and said that the Board then was tasked to fulfil eight essential requirements, which the members agreed to after prolonged discussions and the pledging process began. At the 17th Board meeting (in July 2017), members said that decisions on projects should be stopped because of policy gaps.
“Many of the things being raised as policy gaps now were policy gaps even then,” stressed Fakir, adding that there was no consensus on how the Board is to address the issue of voting. Yet he recalled that the Board had taken difficult decisions before and had found ways of getting consensus. “If the policies were not concluded, would there be no replenishment?” he questioned further.
As regards the review of the Fund, Fakir said that the majority of the GCF’s portfolio had not gone into the implementation stage yet. In this regard, he asked what was going to be reviewed.
(So far, in terms of actual disbursements for the approved projects, the GCF has only given out USD 274 million due to various reasons.)
Fakir lamented that the Fund lacked ambition. “We do not have any strategic targets of what we want to achieve,” he said further, explaining that the Board does not know what the contribution it wishes to make in terms of reducing emissions.”
On the quantum of resources, he said any evaluation will tell us that with the resources in hand, it is not possible to achieve the targets going into the future. Fakir said that what the Board should be discussing is about the issue of the ambition of the Fund and how to get there.
Another issue he said which was yet to be discussed was the role of the Board in the replenishment process. “Do we want the replenishment process to be endorsed by the Board and welcomed by the COP (referring to the meeting of the Conference of Parties to the UNFCCC)?” asked Fakir, adding that the Fund is an operating entity of the financial mechanism of the Convention.
Ayman Shasly (Saudi Arabia) said that the process put forth in the draft decision was loaded with irrelevant policies linked to replenishment. He said that the policies on gender and environmental and social safeguards are currently in place, and while they may not be perfect, he asked developed country members if they really required “the reshaping (of) the Fund to be an institution that complies with very high standards of gender and social safeguards,” before contributions are made.
Shasly also wanted to know how the issue of decision-making in the absence of consensus is linked to the replenishment of resources. “We are being told that money is scarce and yet you are saying that we cannot have replenishment without these policies,” he lamented further. He also stressed the importance of discussing the needs and requirements of the GCF to achieve the results that it wants to see for mitigation and adaptation.
Omar El Arini (Egypt) also urged the Board to think of having an ambitious target in terms of reducing the amount of greenhouse gases. “There are metrics to achieve this. Here comes the evaluation, to check whether there is enough absorptive capacity (of the GCF) present to achieve the target,” he said, adding that then, if the Fund goes to the world and communicates its ambition, governments will take it seriously.
Jorge Ferrer Rodriguez (Cuba) was concerned about the Fund running out of money very soon and added that the IRM was an exceptional process, with its own flaws and that model should not be followed for the replenishment process. He was also concerned about some of the policies being put forth as conditions for replenishment. He also underscored the importance of the Board’s role in the replenishment process. Ferrer also said that the GCF’s replenishment was a legal obligation and a moral duty since the Fund was related to the Convention.
Other developing country Board members, including Mamadou Honadia (Burkina Faso) and Ignacio Lorenzo (Uruguay) also underscored the importance of the GCF being an operating entity of the financial mechanism of the Convention and the need for new, additional and predictable financing for developing countries to tackle climate change and the urgency to start a process on replenishment.
Developed country Board members, however, stressed on the need to see the entire set of policies referred to in the draft decision to be in place before getting into the replenishment and focused their interventions largely on the review of the Fund, which they said should be carried out by the IEU.
Karsten Sach (Germany) said that the Board needs to ensure a complete set of policies since the first thing the contributors would be asked would be what has the Fund done in the past.
“There are important policy gaps and we do not have an answer to that,” he said.
Sue Szabo (Canada) also spoke about policy gaps and supported a review by the IEU. Cyril Rousseau (France) said it was obvious that people would ask questions about policy gaps. Lars Roth (Sweden) spoke about governance crises ailing the Fund, which would make putting in money only more difficult.
Satu Santala (Finland) said before commencing any serious work, there needs to be a review of the achievements of the Fund and added that the remaining policy gaps needed to be addressed so that the contributors could build a convincing case for replenishment. Chris Tinning (Australia) spoke about gaps in the governance and operational model of the GCF and called for a review.
Geoffrey Okamoto (US) said he agreed on comments made on governance failures of the Fund, and that he would add policies related to integrity to the list of proposed policies. He also said that it would be important to answer questions about the results of the past six years.
After further discussions, a revised draft decision on replenishment was presented to the Board on 4th July, amidst confusion over addressing the items on the agenda.
Disagreements over the review of the GCF as a precondition to replenishment and the Board’s role in the replenishment process continued.
Rousseau (France) said the replenishment process should be a contributor-driven process, and if that was not reflected in the decision, it would be difficult to go along. (Rousseau was responding to a paragraph in the draft decision, which read: “Decides that the first formal replenishment process will be driven by and implemented under the guidance and oversight of the Board.”
Santala (Finland) said she too could not go along with the proposed paragraph on board-driven replenishment process and called for the decision to be focused only on review. Okamoto (US) also said that that replenishment is a donor-driven process; so that would be at odds with the proposed paragraph on a Board-driven process.
Sach (Germany) said that the Fund was running dry and if there was one thing the Board needed to decide, that was the review, which was a “precondition for replenishment processes”.
While these discussions were going on, Arini (Egypt) raised a point of order that the work on the draft decision (by a small group of four Board members who were tasked to support the Chair) was unfinished and the agreement was that the respective constituencies would have a chance to look at the text before it came to the Board. The meeting was suspended for the constituencies to consult.
After further consultations, two separate draft decisions were presented to the Board, one dealing with the replenishment process, the other dealing with the review.
One of the draft decisions was focused on the scope of the review to be carried out and the second draft decision was about starting the preparation for the first formal replenishment and concluding such arrangements by the next meeting of the Board. The paragraph concerned reads: “Decides to start the preparation for the first formal replenishment and conclude the preparatory arrangements for replenishment, including the role of the Board, for consideration by the Board at B.21 (emphasis added).”
Responding to the draft decisions, Tinning proposed that only those paragraphs pertaining to the review should remain and everything else related to replenishment should be deleted.
Fakir (South Africa) explained that the Board was discussing the replenishment process and not about the review of the performance of the Fund. He also said that he was concerned about hearing terms such as “donor-driven” or “contributor-driven” processes. The GCF is an equal fund, he said, referring to developed and developing countries having an equal say on the Board.
He also reiterated the expectations of developing countries on the replenishment process. He added that developing countries were not opposed to a review, but that the replenishment process should not be contingent on a review.
At the end of the meeting though, there was no consensus on the draft decisions proposed. It did not help that the atmosphere was riddled with further confusion over how to proceed with the agenda, with the developed countries blaming developing countries for delaying the adoption of the agenda of the meeting.
Procedural difficulties at B.20 Several procedural difficulties surfaced during the commencement of the meeting, especially in relation to the adoption of the agenda.
Lennart Bage (Sweden) chaired the meeting alone, as the developing country Co-Chair Paul Ooquist (Nicaragua) could not make it and developing countries did not nominate a replacement Co-Chair to replace Ooquist for the duration of the meeting. The Board decided that this was “in light of the exceptional circumstances and without setting a precedent, that the Co-Chair from developed country Parties shall discharge the duties of both Co-Chairs for the duration of the 20th meeting of the Board only.”
According to several developing country Board members, the developing country Co-Chair had not adequately consulted the constituency prior to the 20th meeting, including on the agenda and the documents for the meeting, which was the usual practice. Hence, they wanted to raise their concerns at the Board meeting.
Several developing country Board members wanted to add issues such as matters related to the permanent trustee to the agenda (given that the open competitive process did not yield any eligible candidates, including from the current interim Trustee, which is the World Bank). They also wanted to prioritize certain issues such as guidance from the COP, status of the GCF’s portfolio and status of the IRM before discussing the replenishment issue.
It took two days to finalize the agenda, which was finally adopted late afternoon of the second day of the meeting on 2nd July.
On 3 July, with two remaining days, and a long agenda to navigate through, Co-Chair Bage informed the Board that he has asked a group of four Board members, comprising Arini (Egypt), Fakir (South Africa), Sach (Germany) and Wheately (UK), to advise him on the prioritization of outcomes for B.20 and to complete the business of the Board in the limited time available.
The group was given the task of discussing the core outcomes of the meeting and which outcomes were unlikely to enjoy consensus. According to sources, the small group tasked their advisers with preparing a scenario for securing outcomes and the group arrived at an agreement on prioritizing the issues for discussions on the morning of July 4, the last day of the meeting.
Sources also said that the issues listed included replenishment, gender policy and action, consideration of accreditation proposals, funding proposals, along with certain core procedural outcomes such as the ,report of the Co-Chairs, matters related to the independent technical advisory panel, dates and venue of the following meetings of the Board and administrative matters. The agreement, it seems, was communicated to Bage.
Later that morning of 4 July, the developing country constituency had a meeting where the proposed agreement in the small group was explained, which agreed to the proposed prioritization of issues.
However, when the meeting opened, the Chair proposed the prioritized outcomes for the meeting, which were supported by developing countries. However, the developed countries did not agree and preferred to continue with the agenda items, with no prioritization. They wanted to conclude on the agenda items already opened before moving to other agenda items.
According to sources, there was no agreement in the developed country constituency about the prioritization of the issues on the agenda, even though their members had worked and agreed on the approach of how discussions should proceed on the final day.
After the morning session and the Chair’s proposal was rejected, Bage continued with the replenishment discussion, and then broke early for lunch. According to sources, he then consulted with the four Board members who tasked their advisers to continue drafting a decision on (a) financial planning and (b) replenishment. This work continued on till at least 4pm.
Following the adoption of the financial planning decision (as reported above under the status of resources), the Board went on to discuss the draft decision on replenishment which could not be adopted due to a lack of consensus, as reported above.
Even though some of the developed country Board members said that they could go through the agenda as agreed, Okamoto (US) cautioned against decisions to be taken in a “non-deliberative manner”. Tinning (Australia) said that he was prepared to go through the agenda only after a decision on the “review of the Fund” was taken even though it was clear that there was no agreement in the Board on focusing the replenishment contingent on the review.
Following the frustration from many quarters over the deadlock in the Board in making progress on matters, Bage announced that Howard Bamsey, the Executive Director of the GCF, had resigned from the Fund with immediate effect due to “personal reasons,” raising further concerns among observers as to what was going on. Sources said that the resignation had nothing to do with the procedural issues at the Board meeting.
The Board will meet next from 17-20 Octobe 2018.

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