Last week marked a key moment for climate finance: The last foundations were laid for the Green Climate Fund (GCF), and it’s now ready to receive funding.
Board members met and signed off on remaining steps to operationalize the fund, which is expected to become the main vehicle for securing and distributing climate finance. Expectations are high that developed nations will commit at least $10 billion by the end of November to help developing nations mitigate climate change and adapt to its impacts.
The GCF is the most ambitious climate finance fund thus far, with a goal of completely transforming sectors and economies toward low-emission, climate-resilient development. Its decision-making is balanced equally between developed and developing countries. And it’s designed to empower developing countries and national institutions—as opposed to only international institutions—to be at the center of climate solutions.
However, the same things that make the Green Climate Fund different can also make for a bumpy ride. This tension between tried and tested approaches versus the new and innovative was reflected in the GCF Board’s key decisions at its latest meeting.
Here’s a look at three key issues the Board tackled:
1. Striking the balance between strict standards and a diverse set of partners
The Board struck a balance between opening the door to a wide range of partners while still managing social, environmental, and financial risks. A diverse set of institutions (including development banks, ministries, development agencies, businesses, and others) will be eligible to channel the Fund’s resources, while the social, environmental, and fiduciary standards required of partners will be linked to the size and types of activities they intend to undertake. This is an appropriate decision. Taking the example from our previous blog, a development bank investing in a major infrastructure project like a wind farm will need to have much stronger social, environmental, and financial risk standards than a national ministry conducting training.
2. Getting countries and institutions ready for the Green Climate Fund
The Board approved a work program that will help countries and national institutions engage in “readiness” activities. This involves putting standards and processes in place to access and deploy the Fund’s resources—such as making sure a national agency has the right financial controls, and rules to ensure that its projects don’t cause unintended social or environmental harm. The decision also puts national entities—rather than international institutions—firmly in the lead in prioritizing their needs and in deciding which entities implement readiness activities in their countries.
Crucially, the Board’s decision ensures that the poorest countries will receive at least half of these readiness resources, while all developing countries remain eligible for the remainder.
3. Engaging the private sector strategically
The Board provided clear signals on how the private sector will engage with the fund. It will have the flexibility to use a wide range of instruments—including grants, concessional loans, equity investments, and risk guarantees—through its intermediaries. This provides flexibility so that the Fund can maximize its investments by matching the right financial instrument with the right opportunity. The Board also expressed broad alignment on a special program for small and medium enterprises to ensure they won’t be pushed out by larger private sector interests in accessing Fund resources. However, a final decision will need to be made at the next meeting, and the Board delayed dealing with some key issues—such as how GCF will mobilize larger sources of private finance.
Homework for Countries and the Green Climate Fund Board
While the Board made significant progress, crucial questions remain. At its next meeting, the Board will need to be clearer about what kinds of projects it will invest in. It also needs to ensure transparency in its operational policies and decision-making processes, and incorporate participation by key stakeholders—including civil society and communities that may be impacted by GCF investments—in its processes.
Countries themselves have some homework to do, too. Functionally, the Fund is nearly ready to go, but it can’t get far without ambitious financial pledges from developed nations. A pledging meeting is currently scheduled for this November in Berlin. Pledging at least $10 billion to the fund this year is a key milestone for both securing an ambitious international climate treaty in 2015 and scaling up climate finance over the long-term.
The Green Climate Fund is ready—now let’s start filling it up with resources to overcome the climate change challenge.