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2 Big Issues to Tackle as the Green Climate Fund Sets Up Shop

The world will need to spend an estimated US$5.7 trillion annually in green infrastructure by 2020 in order to limit global temperature rise to 2 degrees C. This week, it took a step toward creating an institution – the Green Climate Fund – that will be pivotal in achieving this goal.

The Green Climate Fund (GCF) celebrated the official opening of its headquarters in Songdo, Korea, amongst notable attendees like the President of the Republic of Korea, Park Geun-hye, UNFCCC Executive Secretary, Christiana Figueres, and World Bank President, Jim Yong Kim. The GCF is expected to become the main vehicle for distributing climate finance. The opening ceremony marks a concrete step toward making the Fund operational.

The GCF has been working toward the official opening of its offices for more than a year since Korea was selected to host the Fund. Now that it has its new premises, it’s time for it to make brisk progress in 2014 to complete the development of its operational policies. Several issues remain to be resolved. They are scheduled to be completed by May 2014 to allow the GCF to mobilize resources in September 2014 and begin its operations by the end of the year.

Héla Cheikhrouhou, the GCF’s first-ever Executive Director, said the GCF should act as the catalyst that tips the balance towards climate-friendly investment decisions. This will require tackling two big issues that are important for the GCF’s operations: strengthening its funding recipients’ institutions and systems to ensure effective use of its resources, and identifying ways to incentivize the private sector to play a stronger role in tackling climate change.

The Government of the Republic of Korea and other international organizations, including WRI, convened two major events in Korea this week to help the GCF address these two big issues.

Climate Finance and Development Effectiveness

A two-day Global Forum on Climate Change Finance and Development Effectiveness hosted by the United Nations Development Programme (UNDP) and Korea’s Ministry of Strategy and Finance took place on December 2-3. This event provided a platform for civil society and government leaders to discuss major topics concerning access to climate finance, development policy, and coherence and transparency of investments. Participants came to several important conclusions, including:

  • It’s important to strengthen countries’ institutions and systems to manage climate finance effectively. Doing so will foster stronger country ownership over mitigation and adaptation activities and result in more sustainable outcomes.

  • There is a need to integrate climate finance with countries’ development decision-making to ensure that they truly undertake development projects that are low-carbon and climate-resilient.

The strength and capacity of countries’ institutions and systems will be important to the success of the GCF. As the Fund firms up its rules for accrediting the institutions of countries that wish to access its resources, there are at least four ways the GCF can strengthen these national institutions and systems: set aside funding, promote coordination, integrate such support into larger projects, and fast-track support before the GCF is operational.

Climate Finance and the Role of the Private Sector

On December 5th, Korea’s Ministry of Strategy and Finance, the Korean Capital Market Institute, and WRI convened global leaders of business, finance, government, and civil society in a conference entitled Climate Finance and the Private Sector: Investing in New Opportunities. Participants came to share their practical experiences, discuss opportunities associated with climate-friendly investments (such as those directed toward clean energy development), and suggest ways the GCF could help usher in low-carbon, climate-resilient development. Among other things, the forum concluded that:

  • There is a need to synchronize the goals and lexicon of the public and private sector to build trust.

  • Even when the business case for clean energy investments are evident, knowledge barriers may prevent these investments from being realized.

The GCF will need to find ways to be responsive to such barriers that prevent the private sector from making more climate-friendly investments. It can do so in two ways: by providing support for creating the policy, regulatory, and institutional conditions that incentivize shifting investment toward cleaner, low-carbon, and climate-resilient activities; and by carefully tailoring its financial instruments and financing approaches to the needs of a diverse set of investors operating in different markets.

The GCF Moving Forward

While the world still has a long way to go in actually reaching global investment needs, this week’s events in Korea provided a useful platform for various stakeholders to discuss ways to get there. The establishment of the GCF office also signals progress in setting up a major, global institution to tackle climate change. It reinforces how important it is for both policymakers and investors to address the climate change challenge, and builds momentum for low-carbon, climate-resilient investments. As Christina Figueres said, the GCF is a “GPS for climate investments, to set the course and test directions for different investments,” and will be “an important bridge connecting the world of finance with the climate change challenge.”

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