The Green Climate Fund – a beacon for climate change action

The Fund has travelled a long way in a short time in order to start fulfilling this ambitious mandate. Since opening its doors in December 2013 it has established the principles, policies and procedures necessary to ensure both efficiency and accountability for this unique enterprise. That was necessary in order to earn the trust of the international community, and to pave the way for the Fund’s capitalization.

The Fund’s initial resource mobilization took place in 2014, and GCF raised over USD 10.3 billion in pledges from 35 countries, including both developed and developing states. This is a record for international climate finance mobilization, and this funding, intended to cover an initial period from 2015 to 2018, has given GCF the means to get to work on mitigation and adaptation activities.

GCF approved its first project investments on schedule in 2015, just ahead of the Paris COP meeting. The Board has set an ambitious aspirational goal to allocate USD 2.5 billion in climate finance by the end of 2016. Following decisions taken at the Board’s fourteenth meeting in October 2016, the Fund’s aggregated portfolio comprises 27 projects and programmes, with a total GCF funding amount of USD 1,212 million, and USD 3,915 million in total project costs. The Fund has also recently started disbursing finance to these projects, making its first funding transfer in September 2016.

The Fund has made truly remarkable strides from conception to execution in just a few years. But much more is expected of GCF in the years to come. The following sections examine how the Fund is structured, and how it makes decisions on allocating its funds.

At the Fund’s heart is a balanced governance structure that ensures consensus-based decisions between developing and developed countries. The Fund is governed by a Board of twenty-four members, equally drawn from developed and developing countries, with two Co-Chairs, one each from a developed and developing country.

Representation from developing countries includes representatives of relevant United Nations regional groupings and representatives from small island developing States and least developed countries. Each Board member has an alternate member, and Board members and their alternates are selected by their respective constituency or regional group within a constituency. They serve for a term of 3 years and are eligible to serve additional terms as determined by their constituency. There is no voting, but rather the Board reaches decisions through consensus.

One of the first tasks for the Board was to establish rigorous fiduciary principles and standards as well as environmental and social safeguards to govern all of the Fund’s activities. The Board has also adopted policies which guide the Fund’s financial risk management and investments. These include ensuring that in its initial stages, grants will constitute at least 50% of the total contributions to the Fund. The Fund measures its impact through an initial results management framework, which sets targets for all investments. The World Bank currently serves as the interim trustee to manage the financial assets of the Fund.

So with such an ambitious mandate, how does the Board decide to prioritise its investments?

In order to support the development of its project portfolio, the Board has established a number of principles and policies to guide decision-making, and to help countries and accredited entities in developing project proposals.

Some of these are specified directly within the Fund’s governing instrument, as established by the UNFCCC parties, whilst the Board has also approved an initial investment framework to give further details. This investment framework plays a key role in translating the Fund’s overall objectives into clear guidelines for investment decisions. Its adoption in 2014 marked a major step towards full operationalization.

One of GCF’s central principles is that the Fund aims for a 50:50 balance between mitigation and adaptation investments over time. This focus on a balance between mitigation and adaptation activities is crucial, and is also aimed at re-balancing the flows of international climate finance. The poorest people, and poorest countries are likely to be most affected by the impacts of climate change, so GCF also aims for a floor of fifty percent of the adaptation allocation to be reserved for particularly vulnerable countries, including Least Developed Countries, Small Island Developing States and African states.

Beyond these general principles, the Board has developed a set of investment criteria to evaluate where the Fund can make the most effective investments. These criteria aim to targets investments to achieve paradigm shift towards low-emissions, climate-resilient development. The Fund’s six investment criteria are impact potential, paradigm shift potential, sustainable development potential, country ownership, efficiency and effectiveness, and the needs of the recipient.

Alongside these investment criteria, the Board has also identified and prioritized eight adaptation and mitigation results areas as part of its investment framework. The eight results areas cover both mitigation and adaptation, and provide the reference points to guide the Fund and its stakeholders to ensure a strategic approach when developing programmes and projects, whilst respecting the needs and priorities of individual countries.

The results areas have been targeted because of their potential to deliver a substantial impact on mitigation and adaptation. The eight results areas are energy generation and access; transport; buildings, cities, industries and appliances; land use, deforestation, forest degradation; enhanced livelihoods of vulnerable people and communities; food, water security and health; infrastructure; and ecosystems and ecosystem services.

Together, these six investment criteria and eight results areas provide the Board, countries, and accredited entities with guidance on how the Fund seeks to shape its investment decisions. Since the first project decisions were taken in December 2015, the Fund’s project portfolio has started to take shape. The twenty-seven projects approved to date range from small-scale investments to strengthen the resilience of Pacific islands through to large-scale programmes to develop private sector markets in renewable energy. What is clear is the Board’s determination for the Fund to achieve a real paradigm shift through its investments, whether in terms of building climate resilience, or supporting the transition to low-emission economies.

The unprecedented agreement at the Paris COP, and the rapid ratification of the Paris Agreement into force show that the international community appreciates how urgent it is to act on the climate. GCF has moved from an initial idea to a fully-fledged Fund with a developing project portfolio in just a few short years. It will clearly need to move even further, and even faster in the future if it is to deliver on its ambitious mandate to help the international community to keep average global temperature rise well below 2° Celsius.