Expectations are running high as the Board of the Green Climate Fund prepares for its fifth meeting in Paris this week. As the scale of the global climate change challenge becomes increasingly apparent, the GCF is expected to play a pivotal role in moving money quickly and smartly to help countries transition to low-carbon, climate-resilient development pathways.
The GCF’s Board, which met for the first time last year, has already made a number of important decisions, including the selection of a host country and the head of its secretariat. But this meeting is a significant one, as it will need to make important decisions on how the fund will operate. Progress at this meeting will also be an acid test of how effective the Fund will be in mobilizing the scale of finance needed to deliver its ambitious goals.
The GCF must make progress towards five key issues at next week’s meeting in Paris, including:
1) Defining where to focus its support
In Paris, the GCF will need to identify a number of clear priority areas for funding. It should frame the desired results of its financial support in a way that is ambitious and lives up to its goal of transforming economies to become low-carbon and climate-resilient. In doing so, it will need to strike a balance between the pursuit of its global goals and the domestic goals of recipient countries. While there may be pressure to respond to a wide number of needs and priorities, the Fund will have a larger impact if it can respond strategically to proposals in line with its global vision. It will also need to agree on a framework to measure the impact of its funding, so as to hold itself and its recipients accountable for delivering on its desired results.
What’s the Scale of the Climate Finance Challenge?
Addressing the climate change challenge requires significant investments and fundamental shifts to prevailing economic and social models. In order to keep global temperature rise below 2 degrees Celsius and protect vulnerable communities from climate change’s impacts, experts estimate that developing countries will need investments of up to $565 billion annually by 2030 to mitigate climate change and an additional $70-100 billion annually to adapt to its impacts. Developed countries have committed to channel US$100 billion (from public and private sources) annually by 2020 to developing countries. While this commitment is a good start, it’s far from the amount needed to meet the scale of the climate change challenge.
2) Mobilizing the necessary money to achieve its goals
The GCF should establish a process for receiving financial resources that ensures that funding arrives in a predictable manner and at an ambitious scale, while also giving it the flexibility to disburse funding through a range of financial instruments. In the short term, donors will likely make voluntary contributions through a pledging process. This will allow the GCF to get off to an expeditious start with support from those countries that are willing and able to provide funds. In the longer term, as confidence in the GCF grows, a systematic process for receiving contributions will be important to secure the needed ambition and predictability. Such a process should consider innovative means to attract private sector sources of finance. It should also take into account the capacity of contributor countries to provide funding, and ensure fairness and equity between contributors and recipients.
3) Distributing its resources efficiently and fairly
The GCF should establish a way of distributing resources to countries for adaptation and mitigation projects that is efficient and equitable. This will require carefully defined criteria for allocating its limited funds. The criteria will be different for adaptation and mitigation, but should be based on the transformative aspirations of the Fund. Despite the rhetoric to the contrary, climate finance to date has been skewed toward mitigation rather than adaptation. Changing this balance will not be easily achieved on short order. However, the GCF has an opportunity to start recalibrating this balance by ensuring that adequate funding is set aside to help vulnerable people, ecosystems, and infrastructure become more resilient to climate change’s impacts.
4) Partnering widely to deliver results
The GCF will need to build partnerships with a wide range of institutions that share its goals—particularly in developing countries—in order to implement projects and programs. It therefore needs to ensure that its funding is accessible—directly and indirectly—to a wide range of institutions including public agencies, civil society organizations, small and medium-sized enterprises, banks, data providers, and companies at international, regional, national, and subnational levels. At the same time, it will need to make sure that these institutions have proper financial management systems in place and the ability to guarantee that funds won’t support projects that cause undue harm to people and ecosystems. Where necessary, the GCF should also support developing countries to strengthen their institutions and capacities to use climate finance most effectively, including applying appropriate financial standards and environmental and social safeguards to investments.
5) Optimizing financial incentives for investors
The GCF should use carefully tailored financial instruments and structures with its partners to break down barriers that public and private investors face in undertaking ambitious climate actions. It can also attract finance from previously untapped sources, such as pension funds, which are increasingly seeking responsible investment opportunities in several developing country markets.
These decisions present a tough task ahead for the GCF Board. But the scale of the climate change challenge calls for strong leadership to make tough decisions. Science has reminded us again that the need to respond to climate change is urgent.
The task of making the GCF operational will not be completed in Paris—more work lies ahead in 2014. But if the Board gets some fundamental decisions right in Paris, they will set the GCF on a path to transforming developing countries into low-carbon, climate resilient economies. This kind of progress will ultimately transform the lives and livelihoods of some of the world’s poorest and most vulnerable people.
Alex Doukas, Milap Patel, Pieter Terpstra, and Shally Venugopal also contributed to this piece.