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Green Climate Fund Explained

  • Published at 04:35 pm April 3rd, 2019
Green Climate Fund Explained
Photos : Courtesy

Has the GCF made a paradigm shift in Climate finance by considering the needs of the most vulnerable groups?


The Green Climate Fund (GCF) is an international climate fund developed to help developing countries limit or reduce their greenhouse gas emissions and adapt to climate change. Through the Green Climate fund developed countries fund climate resilient development in developing countries. However, we have to ask does the approach of the GCF, consider the capacities of developing countries and the needs of the most vulnerable groups? 

What is the Green Climate Fund?

The Green Climate Fund was established by the 194 countries, who are parties of the United Nations Framework Convention on Climate Change (UNFCCC). Its journey started in 2010, as part of the UNFCCC’s financial mechanism. This fund aims to finance equal amounts of funding for mitigation and adaptation by following the Convention’s principles and provisions.

The GCF funds a diverse range of projects in Developing countries to support adaptation and mitigation to climate change whereas other funding mechanisms focus on specific types of responses. Among counterparts GCF finance large scale projects; For instance, adaptation fund is allocated per country $10 million, as well as the GCF, can finance more investments in the form of grants, loans, equity or guarantees.

The GCF board consist of 24 members divided equally between developed and developing countries. The board has full responsibility to decide on funding and follows the guidance of the Conference of Parties (COP). An Independent Secretariat carries out the operations of GCF. The GCF headquarter is located in Songdo, Incheon City, Republic of Korea. 

How does the Green Climate Fund work?

The Green Climate Fund is unique as it has allocated funds equally for adaptation and mitigation. 50% of the fund is allocated to adaptation while the other 50% of the fund is  earmarked for mitigation. The primary mandate of the GCF is approving new project proposals from developing countries. As member states of UNFCCC, any developing country has access to funds. However, money is accessed through accredited direct access entities, such as National Implementing Entities ( eg National organisation, civil society or private sector agencies). The accreditation process for direct access is a rigorous, time-consuming process. In the least developed countries (LDC), requirements for the accreditation process of direct access to funding is far from institutional and operational capacities. GCF is helping institutions from developing countries to get ready for the accreditation process. It is an operational body of UNFCCC.  GCF is not the creation of the Paris Agreement; instead, it serves the Paris Agreement. GCF is a vehicle to sustain the momentum of the Paris Agreement, with positive development such as low emission development. Decision making is dependent on consensus, however, the 20th board meeting decision-making process was questioned as it is hard to agree on consensus with the mix of Climate negotiators and financiers board members.

Both National and International organizations can access funds from the GCF if they are accredited or qualified for donors’ funding. Which includes direct access for national, subnational and regional entities. These organizations are named National Implementing Entities (NIE). GCF’s country-specific approach encourages national organisations to apply for direct funds. National Designated Authority (NDA) facilitate direct access to funds. 

How does the GCF work in Bangladesh?

In Bangladesh, the National Designated Authority (NDA) secretariats are the Economic Relation Divisions (ERD) and the Ministry of Finance.  The NDA will nominate the NIE for funds, and fund proposals are intended to align with country-specific projects and programmes. International access for international entities such as United Nations Agencies, Multilateral Development Banks (MDB), International financial institutions and regional institutions. These international entities are called Multi-lateral Implementing Entities (MIE). In Bangladesh, an international organisation such as UNDP, KfW, World Bank, ADB, AFD are accredited as MIEs. Developing countries rely on MIEs due to lack of transparency and weak institutional capacity in climate finance mechanism.

Infrastructure Development Company Limited (IDCOL) and Palli Karma Sahayak Foundation (PKSF) are two accredited National Implementing Entities (NIE) in Bangladesh. IDCOL works on mainly mitigation projects such as solar energy projects and PKSF works predominantly on adaptation projects. At the 21st board meeting, 19 new projects were approved worth USD 1 billion and a 16 new accredited entities (nine are government entities from developing countries and three private entities) were approved as partner organisations to implement GCF projects. Bangladesh had not approved any project at that time. 

Has the GCF made a paradigm shift in by considering the needs of the most vulnerable?

The GCF faces some hurdles while implementing projects on the ground. There are some policy gaps as the board is not fully formed on GCF’s relevant policies such as incremental cost, co-financing, and eligibility criteria to approve projects and accrediting entities. GCF always commits $10 billion disposals to program but some factors such as lack of clarity about pledges to fulfil, adverse exchange rate lead to a situation where disposal money is less than $10 billion. GCF first formal replenishment is the most complicated issue as it is a new fund. Replenishment is a political topic, developing countries want a replenishment process  on a needs-based assessment in alignment with the Paris accord, whereas developed countries might not be comfortable with the needs-based process and not realising the urgent need of replenishment. Despite hurdles, in the 22nd Board meeting of GCF has entered its first replenishment to congregate funds to support low emission and climate resilient development in developing countries.

Though the  GCF has promised to allocate half of its fund to adaptation, giving priority to most vulnerable developing countries, at this stage implementation is unfulfilled in practice. Local governments are supposed to benefit from the fund, and they need access to fund and support national agencies. It is recognized there is a need to engage accredited national agencies that are closer to local governments. While accredited agencies are mostly international organizations such as multilateral development banks and banks such as  HSBC, Credit Agricole, Deutsche Bank. Only three agencies in the least developed countries (LDCs) and small island states have accessed finance directly; Centre de Suivi de Écologique (CSE) in Senegal, The Ministry of Finance and Economic Cooperation of the Federal Democratic Republic of Ethiopia (MOFEC) and the Ministry of Natural Resources in Rwanda. Multilateral development agencies may demonstrate better standards in applications of accreditation process but are not appropriate to finance national and local projects that are closer to local communities.  There are many reasons behind it such as; multilateral agencies are expensive, prioritise business and less concerned about environmental and social standards.

Moreover, the best chance to finance adaptation to local actors, who adapt to climate impacts, is by forming pathways that create functional governance channels through local government. Channelling funds to the local level is not easy, if done well It can help in capacity building and sustainable development at the local level. Supporting small - scale projects, agencies and technologies is critical to gain success in accreditation of local agencies in GCF.  The GCF should prioritise national funding agencies that have previously funded smaller scale projects or executive agencies ( eg local or national governments), this might help where large scale projects have failed for decades. Without the inclusion of local agencies having direct access to funds,  GCF may not be able to achieve its goal to support climate resilient adaptation and development in most climate vulnerable developing countries. 

Sharmin Shara Mim is an intern at the International Centre for Climate Change and Development.