Green Climate Fund 1st executive director Hela Cheikhrouhou, | Credit: Korean Ministry of Strategy and Finance - Photo: 2013

Green Climate Fund Moves Ahead

By Meena Raman* | IDN-InDepth NewsReport

GENEVA (IDN) – The fourth meeting of the UN Framework Convention on Climate Change’s Green Climate Fund (GCF) Board, which began on June 26 in Songdo, South Korea, concluded on June 28 with the selection of its Executive Director as well as the adoption of decisions on the ‘business model framework’, which includes the private sector facility.

A decision was taken to set up three new structures under the private sector facility, to determine the terms of engagement with the private sector, exert due diligence and manage risks, as well as to review investment proposals and instruments.

The GCF Board selected Hela Cheikhrouhou as the Fund Secretariat’s first Executive Director (ED), following a global recruitment process.

Cheikhrouhou is a Tunisian national, and is currently Director of the Energy, Environment and Climate Change Department at the African Development Bank, and has spent the last ten years working in multilateral development banks, first in the Latin America and Caribbean region of the World Bank, and then for the African Development Bank.

The selection of the ED was done on June 26, in a long session of the Board meeting on the first day, which was closed to observers. It was learnt that the final short list of candidates for the ED comprised of three persons, including Cheikhrouhou and two others from the Netherlands and Colombia.

The Dutch candidate was Jules Kortenhorst, the former Chief Executive Officer of the European Climate Foundation (which is a philanthropic organisation in Europe, and according to its website, helps Europe play a “strong international leadership role in mitigating climate change”).

The Colombian candidate was Juan Pablo Bonilla, who was appointed Chief Advisor to the Executive Vice President of the Inter-American Development Bank (IDB) in February 2011. Previously, Bonilla coordinated the IDB’s activities related to climate change.

In a closed informal meeting of the Board held on June 25, the three candidates were presented to the Board members and according to sources, the selection was done the following day via a voting-cum-elimination process.

Business Model Framework

Decisions on the business model framework (BMF) were taken after lengthy and intense debates, with some developing countries taking a cautious approach, with most developed countries wanting swift decisions to operationalise the Fund.

Among the issues addressed on the BMF were the GCF’s objectives, results and performance indicators, country ownership, access modalities, financial instruments, the private sector facility (PSF) and the structure and organisation of the Fund.

As regards the private sector facility (PSF), the meeting began with decisions based on a paper by the co-chairs and the Interim Secretariat with many details and options on how to operationalise the facility. The initial proposals, especially the creation of a separate governance structure detached from the GCF, were opposed by several developing countries. Also opposed was the creation of a powerful Private Sector Advisory Group with vast powers of decision-making.

On the last day of the meeting, a decision was taken to set up three structures under the PSF: an Advisory Group to determine the terms of engagement with the private sector; an Investment Committee that will review investment proposals and instruments; and a Risk Management Committee that will enable the Fund to exert due diligence and manage risks prudently.

The membership and terms of reference of these structures are to be discussed at the next Board meeting in September.

During the discussion on the PSF, several developing countries also raised the issue of how the Fund’s financial resources would be distributed between the public and private sector and how much will be allocated to the PSF.

This issue has yet to be determined and was not concluded.

Generally, developing countries wanted to ensure funds are channelled in the form of mainly grants and some as concessional lending to and through the public sector. They wanted funds to go to and through the public sector (direct access) rather than having to go through “international intermediaries and international implementing entities” such as the World Bank and other international organisations, with developing countries choosing the appropriate entities themselves.

Direct access and country ownership

In fact, the issue of direct access and country ownership were among issues that occupied a significant part of the Board’s consideration.

On a related issue on financial instruments, a debate ensued whether to adopt a decision for the Fund to make use of instruments other than grants and concessional lending. The Interim Secretariat’s/co-chairs’ paper pushed for the use of loan guarantees, equity investments and other instruments. This led to a lengthy discussion on the risks of such instruments, including reputational risks associated with their use.

Eventually, a decision was taken that the Fund would consider the terms and criteria of the grants and concessional lending to be deployed by the Fund for mitigation and adaptation, through accredited national, regional and international intermediaries and implementing entities at its next meeting in September.

However, a decision was also taken under the PSF that the facility will initially focus on grants and concessional lending, and will also draw on a broad range of other financial instruments and modalities to achieve its objectives. What the other instruments and modalities would be was not specified.

On the issue of direct access, the Board decided to consider at its first meeting in 2014, additional modalities that further enhanced direct access (devolution of fund management to the national level), including through funding entities, with a view to enhancing country ownership of projects and programmes.

This issue saw much controversy as the Board member from the United States: Alexander Severens, could not agree to having enhanced direct access, saying that it was “not logical”, given that the GCF had not “experimented with direct access”. He said further that this was a “big decision” for the U.S.

This prompted co-chair Zaheer Fakir (South Africa) to say that if this could not be agreed to, there could be no other decisions on the business model as there was need for balance in the overall BMF decisions. He and other developing country Board members urged the US to be flexible, which eventually led to the final decision being adopted on enhanced direct access.

As regards the issue of country ownership, the Board decision noted that countries may designate a national designated authority (NDA), or mandate a country focal point to interact with the Fund. The NDA/focal point will, among other things, recommend to the Board funding proposals in the context of national climate change strategies and plans and act as the focal point for the Fund’s communication.

Another issue which saw an intense exchange during the final hour of the meeting was about who would be the co-chairs for the next meeting of the Board in September, which will be held in Paris. This was because the term of office of the current co-chairs, Zaheer Fakir and Ewen McDonald (Australia), expires on August 23 following a one year tenure.

The Board member from India, Dipak Dasgupta, notified that there was an expression of interest from Asia for the seat of the developing country co-chair. He also said that there would be four new Board members from developing countries replacing some of the current members who will need to make the decision about their nominee.

The Board members from developed and some members from developing countries wanted the current co-chairs to continue their term for another one year, even when the Governing Instrument of the GCF prescribed the duration of the co-chairs to be for only a period of one year.

Following exchanges among Board members and the co-chairs, it was agreed that the current co-chairs will continue to preside over the September meeting, with the election of new co-chairs scheduled for the end of that meeting.

*Meena Raman is a Senior Advisor of the Third World Network. This article first appeared on July 11, 2013 in SouthNews, a service of the South Centre to provide information and news on topical issues from a South perspective. It is being reproduced by arrangement with the South Centre. [IDN-InDepthNews – July 11, 2013]

Image: Green Climate Fund 1st executive director Hela Cheikhrouhou, | Credit: Korean Ministry of Strategy and Finance.

2013 IDN-InDepthNews | Analysis That Matters

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