The Green Climate Fund is holding its 7th Board meeting in Songdo, Korea this week. This meeting is critical because the Board is set to decide on six key design elements that are crucial to getting the fund up and running. One of the most difficult questions that the GCF Board will grapple with is how entities will become “accredited” to receive GCF funds to help developing countries mitigate and adapt to climate change. These entities will include a range of actors, from multilateral development banks to national institutions from the developing countries that the GCF is designed to support.
The GCF’s accreditation process will need to strike a delicate balance between stringency and flexibility. On the one hand, the GCF needs to make sure that its funding goes to entities that will adhere to sound fiduciary standards and implement effective social and environmental safeguards to protect people and the environment from harm. The GCF Board will need to feel comfortable that the entities it gives money to can implement projects transparently, in-line with national laws and international agreements, and in a manner that protects local communities who may be negatively affected by the project.
On the other hand, the GCF needs to ensure that its funding is accessible to a wide range of actors, including in particular the institutions in the countries the GCF is meant to support. As WRI noted in its recently published report Striking the Balance, providing funding directly to national institutions in the developing countries can, under the right circumstances, help enhance the effectiveness of project implementation, support country ownership over the implementation process, and strengthen domestic governance structures. Some of national entities in developing countries may not yet be able to implement large, high-risk projects. It is in the GCF’s interest though to allow these institutions access to finance for the types of projects that they do have the ability to implement, and to help strengthen their capacity to meet strong fiduciary and safeguard standards.
The GCF can use three methods to help ensure that it upholds international fiduciary and safeguard standards while supporting access to finance for a broad range of institutions.
1. Create policies that reflect international best practice
To ensure that GCF funds are used in accordance with global standards for financial management and social and environmental protection, GCF policies should reflect international best practice in these areas. Such practice is embodied in international environmental and human rights agreements, the policies of multilateral financial institutions, and certain national laws. Examples of international best practice include, for example, thorough protection of indigenous peoples and other marginalized groups, restrictions on activities in areas of high biodiversity, and controls to hinder corruption.
2. Implement a Tiered Accreditation Process
While the GCF’s fiduciary and safeguard standards should reflect global best practice, they should also allow flexibility for entities undertaking lower-risk projects. This can be done through a tiered approach to accreditation that takes into account the nature of the project or program that an entity seeking accreditation is likely to take on. For example, an institution seeking to implement a small grants program focused on energy efficiency initiatives will encounter different types of risk than those seeking to access a multi-million dollar loan to build an on-grid renewable energy power plant.
An accreditation process that takes this difference into consideration will allow the GCF to support a wide range of institutions at different scales. By doing so, it can implement potentially transformational projects and programs, while ensuring that best practice standards and safeguards are upheld in a manner that is commensurate with the risk.
3. Provide Readiness Support
Some developing country national institutions may struggle to meet the GCF’s standards and safeguards, even under a tiered approach. The GCF will benefit from providing support to these institutions to help improve their capacity to manage environmental, social and fiduciary risks, so they can reach accreditation in the future. Such support will be critical to ensuring that a wide range of institutions can uphold the GCF’s high standards, access funding, and implement effective projects or programs. In this way, the GCF can also create incentives for institutions to match the standards of their peers.
It will not be easy for the GCF to create an accreditation process that effectively balances the GCF’s interest in high fiduciary, social and environmental standards with its interest in supporting direct access to funding for national institutions. If the GCF can get it right though, it can be transformational in supporting the activities of a wide range of actors from local to international, both public and private, to promote a paradigm shift to low-carbon, climate resilient development.