The vast caravanserai that is the GCF Board pitched its tents in Cairo, Egypt for its 18th meeting (“B.18” in GCF jargon) last week. According to the GCF’s press release, “more than 300 participants took part in the meeting, including observers from civil society and private sector organisations, National Designated Authorities (NDAs), Accredited Entities, and GCF Delivery Partners.” NDCi.global watched it from afar, on the live video feed.
Headline news from the Board was that 11 funding proposals were approved, totalling some $393 million in GCF investment. The number of projects reflected the backlog from the decision to use the entirety of the previous Board meeting to debate policy rather than funding proposals. But while the Board made progress on this front – and a $500 million new initiative was launched on REDD+ – with the effects of hurricanes Irma and Maria still unfolding, climate justice tensions were never far from the surface.
They manifested themselves in the debate over one of the 11 approved projects – climate-resilient rehabilitation of the port on the Pacific island of Nauru – which faced strong pushback from developed country Board members, and in the failure to approve two adaptation projects after resolute objections from the UK that investment criteria had not been met.
Where’s the money, though?
The new approvals bring to 54 the projects in the GCF portfolio, with Fund commitments now totalling $2.6 billion. Actual disbursement, however, at the time of writing, remains at a fraction of this sum – $88 million for mitigation, adaptation and private sector projects by the end of September 2017, and a further $10 million for readiness projects, so less than $100 million in all. The slow pace of disbursement (less than 4% of the total funding approved) results mainly from accreditation and conditionality issues, discussed further below. As far as I could tell, this failure to disburse was not discussed by the Board, at least in the public proceedings, nor reported on per se in the documentation for the meeting. And nor will you find these figures in the public “GCF by Numbers” document advertised on the website
This is the third GCF Board meeting I have “attended” for NDCi.global, and it remains a source of bafflement that standard practice for Boards these days doesn’t seem to be followed. This is to have a “dashboard” of key performance indicators to highlight for (presumably time-pressed) Board members the effectiveness of the Fund they are overseeing (we provide some thoughts on what metrics this dashboard might feature in the Box).
Given that the first projects were agreed two years ago now, the fact that only 3.8% of the funds approved had actually been disbursed by the time of the last Board is surely an astonishing and disturbing number. Certainly, a commercial operation disbursing at such a rate would have lost all its customers and gone bust long ago.
A GCF “Efficiency” Dashboard?
We propose these elements for an efficiency KPI dashboard (as opposed to climate or social effect KPIs) to assist in tracking the Fund’s performance. We would urge that these are published on the website:
- Number and $$ of projects approved to date
- $$ disbursed to date and projected time to full disbursal for projects approved more than one Board previously
- Metrics for project conditions imposed / met / unmet and projected time to full meeting of conditions for projects approved more than one Board previously
- Metrics for Accredited Entity pipeline and approval timescales (for example, average time to approval and signature of master agreement)
- Metric for leverage achieved (in blended finance projects)
- All-in costs as a % of project costs (costs to all parties)
- Metric for person-days per $ million of projects approved
Leave a comment if you have other ideas on how the efficiency of the GCF’s operation might be reported!
Also not discussed as far as I could see was a principal cause of the disbursement bottleneck, the failure to meet the conditions attached to projects. A report on this matter was put before the Board, and revealed that some 250 conditions had been attached to the 43 projects approved prior to B.18. A table at the very back of this report listed a subset of these conditions (for which specific time-frames were available). Of the 114 conditions listed, just 13 had been satisfied to date. One project, approved 15 months ago, had 10 conditions attached, of which none had yet been satisfied.
This report was simply noted, without any debate.
More urgency was apparent over the issue of the escalating backlog in dealing with Accredited Entity applications. This had now reached 92 entities in the pipeline, with a report from the co-Chairs noting that, unless something was done, it might be 5 years before some entities received accreditation. To address the issue, the Board was to ask the Secretariat to to make recommendations for “other modalities for institutions to work with GCF” – i.e. (presumably) giving them the ability to handle GCF projects without accreditation.
If enacted, this would be a welcome development – we have pointed out before what a rod for its own back the GCF has created with the accreditation system. One of the Private Sector Observers pointed out during the meeting that “To outsiders, this [the accreditation system] seems an impossibly bureaucratic process and one that is very difficult to navigate, and we do know of private sector entities that have significant expertise in developing countries that are not applying for accreditation and not submitting responses to RFPs. We need Nationally Designated Authorities [the GCF country contact points] to have more flexibility to team up with executing entities at the national level. We also need to use 3rd party benchmarks for accreditation, especially with regulated entities such as banks.”
GCF is at risk of becoming a funding source mainly for large development banks and other multilateral institutions
The 5 new entities accredited at the Board were all what are called “Direct Access Entities” (DAEs), that is, local organisations as opposed to DFIs or international banks, and their approval made DAEs a majority (by one) of Accredited Entities. This is again a welcome development, as localisation of funding is an important aspect of climate finance, as numerous thinktanks (especially the IIED) have been pointing out. However, as one of the Civil Society Observers noted, “It’s good to see that DAEs are now in the majority, but international entities are still getting all the money. GCF,” he said, “is at risk of becoming a funding source mainly for large development banks and other multilateral institutions. Almost three-quarters of GCF funds are being managed by just 5 large international entities, with the EBRD alone accounting for 29% of all approvals thus far, while DAEs have received just 7% of the funds.”
The CSO Observers were also critical of a new pilot programme approved by the Board for a simplified approvals process for certain types and sizes of project, saying that the size of the window could have been double the $80 million agreed, while “the pilot also doesn’t go far enough in terms of risk appetite or simplicity.”
(A curious dynamic of the GCF Board, for an outsider looking in, is that interventions by the various Observers, while often highly relevant, seem to be left to hang in mid-air. They are politely received but rarely discussed, and, when the Observers call for specifics such as conditions to be attached to projects, it is not clear if these are ever actually processed.)
A Step into the Forests – or a Mire?
Another step forward – although, as became apparent, possibly one into a mire – was the approval by the Board of a pilot programme for REDD+ projects. This has been years in the making, and even as the Board was sitting, there was a team of REDD+ experts working till all hours in what one Board member called “an underground bunker” to come up with a final compromise.
The basic issue at stake appeared to be developed countries wanting high levels of “environmental integrity” in projects, which developing countries argued would cut down the number of countries able to benefit. Since the GCF (as a UNFCCC body) resolutely refuses to have a voting system, all decisions must be reached by consensus, i.e. with no member refusing to approve a proposal. The REDD+ decision has probably therefore just kicked some of the underlying arguments down the road, with developed countries saying they would be looking at actual funding proposals “very carefully” and one developing country member responding that many proposals would probably therefore fail. Another member from the same region noted that the carbon price agreed ($5 per tonne) and the size of the RFP envelope were both too low. Watch this space as responses to the RFP start to come in.
Mind the Gaps
How the failure to agree very clear policies for investment criteria plays out later into disputes over funding approvals became clear when the 13 proposals began to be debated. (See the Box also for the Secretariat’s own description of its trials in this respect.)
Before we get to these, however, it’s perhaps worth noting another curious dynamic of the GCF: that when projects do have an immediate consensus, they are approved without any discussion at all – meaning that, unless there is some kind of “offscreen” interaction, Board members and the Secretariat do not get to hear from each other what they liked about the project; surely a lost opportunity for learnings?
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The GCF’s secretariat does not shy away from direct description of some of the difficulties it faces because of the continued failure to nail down policy, though the commentary is well hidden in plain sight. Anyone ploughing through to paragraph 37 of the report of the Secretariat’s activities to the Board would find the following frank analysis.
When competition is limited and project costs are easily covered with available funding, it may not appear overly critical to have in place project eligibility criteria and results area guidance that directly link project requirements to country strategies and the GCF goals. Moving forward 21 months [from the first projects being reviewed], however, the implications of the lack of such guidance, criteria and linkages has become clearer, and during 2016 and 2017 the Board has expressed increasing concerns with the quality and climate impact of proposals submitted to the GCF. This concern has been reflected in both Board member comments and in an increasing number of conditions attached to funding proposals approved by the Board. These are facts on the ground that the Board sees directly.
What may be less visible to the Board is the impact that the paucity of related guidance is having on the work of the AEs and the Secretariat. The GCF now faces a steadily increasing number of AEs and a related increase in the number of proposal submissions. At the same time, the Secretariat lacks the agreed criteria needed to select the most appropriate ones. Further, because the proposals currently under review were developed without the benefit of robust guidance and project eligibility requirements, both their quality and their linkage with country strategies and the GCF transformational goals remain variable. This fact has significant implications for the efforts of both the Secretariat and the AEs. For example, our analysis shows that the Secretariat is spending, on average, approximately 50 person days of review time on each public-sector project submission. During that review, and through engagement with the relevant AE, it often becomes clear that the proposals that were developed and submitted lack viability, resulting in the AE significantly reworking the proposal and/or, in some cases, withdrawing it from consideration. As a practical matter, this means that many work years are currently being spent on the development and review of projects that prove to be unviable. This unproductive effort could be greatly reduced if there were clear eligibility requirements, better results-area guidance, and enhanced Secretariat engagement on project ideas well before the development and submission of full projects.
Three projects ran into difficulties. The first, a climate resilient rehabilitation of the port on the tiny Pacific Island of Nauru, was objected to by a number of developing country members because of the assumptions that had been used for the “incremental cost” of adapting the port for climate change. This issue was open for debate because the GCF (which is not alone in this, it must be said) has no clear definition of what “incremental cost” means, while in this instance the Fund was being asked to give a grant which amounted to 73% of this cost. With emotions understandably close to the surface among delegates affected by the recent hurricanes, some very personally, what developed in the ensuing debate was a re-run of the endless discussions at the UNFCCC itself over climate justice. For developing country members, Nauru hadn’t caused climate change and the purpose of the GCF was to correct such injustices; while developed country members argued that the investment criteria established by the GCF were not being followed.
In the end, the Nauru project got through – partly because, as one member put it, it might actually be “a matter of life and death” for the population of the island, a clear reputational issue for the developed country members questioning its adherence to GCF rules.
Benefit of the doubt is not a criterion we use in the British civil service
Two other projects, for adaptation in Argentina and Paraguay, with substantial grants sought from the GCF, were less fortunate, with the UK member refusing to budge from a position that the proposals clearly did not meet a number of the Fund’s investment criteria. Developing country members sought to argue that it would send “all kinds of wrong signals” if they were turned down, not least because one of the projects had come forward as a result of a call for proposals from Direct Access (i.e. local) Entities.
A Latin America & Caribbean delegate pointed out the significant difference in resources available to Board members in terms of reviewing the detail of projects – on my rough count, around 1,000 pages of documentation was submitted to the Board on the projects alone – but asked whether the whole point of calls-for-proposals wasn’t to test new things out. “We need to find a measure on adaptation [effectiveness], and these projects would help us to do that. If we are not going to approve projects with unknowns, why do we call for them?” The UK delegate remained unmoved: “I have listened to the policy points, but this [the project approval part of the agenda] is not about a policy debate, it’s about investment criteria. Benefit of the doubt is not a criterion we use in the British civil service. We have done our homework, we have communicated our reasons, but what I’ve heard hasn’t changed our analysis of the fundamentals.”
That a failure to get through the Board the first time is not necessarily the end of a project was demonstrated by the approval of an adaptation project in Ethiopia that had been rejected two Board meetings previously, though it was now much slimmed down. It was a matter of debate whether the project had been improved as a result of this process, indicating that negotiation rather than clear investment criteria remains the patch for numerous policy gaps that are still unfilled – a point made in a further intervention by the UK member, who also reiterated the UK’s long-standing call for a voting procedure at the Fund.
What’s it all Costing?
What’s the cost of all this in terms of a percentage of funds approved? We don’t know this directly, as it doesn’t appear to be a metric the Board calls for. The GCF budget for 2018 seems to be some $64 million, and if it meets its targets it will approve up to $2.8 billion. On that basis, GCF costs alone would be 2.3% of the amounts approved. If one assumes that Accredited Entities and other project sponsors are incurring at least similar costs, then the costs just for administration are close to 5%’ and that’s before any intermediation costs where projects are co-invested by other parties, which could be a further 3% or more. These are very high numbers by private sector standards, and we would argue it’s incumbent on the GCF to try to publish the all-in costs to public funds of administering its system.
The End of an Era?
The two current co-Chairs of the GCF stand down at the end of 2017, as do a number of Board members for whom this was a final meeting. There was, therefore, something of an elegiac quality to the final moments of B.18. Looking forward, what might be an agenda for the new co-Chairs?
We suggest that the over-riding question is: can the GCF possibly be all things to all people, as it currently seeks to be? Even with a constantly growing budget and staff, there are apparently 36 items in the 2017 Secretariat workplan that remain unfinished, not to mention the myriad policy gaps referred to above. Why, for example, is the GCF doing readiness work when there are many other actors doing this? Would it not be better to rejig the current architecture of the official climate funds to make this a focussed activity for a couple of them, with the GCF then receiving projects from entities whose capacity has already been advanced? The same applies to smaller projects, especially where these are to be supported just by grants.
Instead, the GCF could be concentrating on truly pioneering innovations at scale, in instruments such as REDD+ and hybrid finance, creating relationships built on trust and co-achievement with key partners in such work like the DFIs and investment banks, rather than the box-ticking and burdening baggage of the current accreditation system. For sure, there are many shortcomings and ills in many of these potential partners, which create some reputational risk for the GCF, but others will deal with these – regulators, shareholders, pressure groups. If it regards the likes of investment banks as sinners in some fashion, it is surely better for the GCF to provide them with pathways to redemption through societally useful financings than to join a chorus of detractors that is already well staffed and loud.
 GCF have recently conformed that disbursement has now (October 2017) risen to USD 147 million, including USD 11.7 million for the Readiness programme, some 5.7%
Incheon Forward? – NDCi.global, 15/07/2017
 All parties, even regulated banks and DFIs, have to be accredited by the GCF before they can handle GCF funding proposals
 It seems that 3 proposals of the original 16 slated were dropped by their sponsors at the last moment