Photo: Francisco Anzola

Bargaining in Bahrain: Geo-politics comes to the GCF

06/11/2018

Following the meltdown at its previous meeting in July, there was more focus than usual on the latest meeting of the GCF Board (“B.21” in the Fund’s parlance), which concluded in Bahrain on 22 October.  Reporting of the meeting since has generally been of the “well, the wheels are back on the bus, at least they passed the funding proposals” variety.

And it’s true indeed that 19 projects worth just over $1 billion were approved.  16 new Accredited Entities were also approved, and the ‘replenishment’ process (seeking the next tranche of funding for the GCF) was formally launched, as was the hunt for a new Executive Director.

So it could definitely have been worse.  But did we see any real evidence that the functionality of the Fund has moved on?

Here are five things we learned from B21.

1. Basic governance procedures remain stuck

Though required to be adopted under the Fund’s own governing instrument, the issue of how to deal with decisions that don’t find consensus has been deferred no less than seven times previously. The principle of consensus – that is, everyone present has to agree with the decision being taken – underlies the workings of many international bodies, including the UNFCCC; but many others, including other climate funds, have procedures to deal with situations where consensus can’t be reached.

For this meeting, the co-Chairs had produced a proposal that would have introduced voting in the absence of consensus – a solution the GCF’s sister fund the Adaptation Fund has already adopted. This proposal  would have come with the protection of a ‘supermajority,’ requiring the votes of several members to block a proposal.

The problem with consensus is that it effectively gives every member a veto over every proposal, but its defenders argue that this should happen rarely and consensus creates unity. The reality is that it does indeed happen rarely, but that doesn’t mean it doesn’t have pernicious outcomes for the running of an effective financing vehicle.

These are especially prevalent when it comes to funding proposals where – because  it’s seen (understandably) as the GCF’s primary role to pass these proposals, but because the GCF also still has massive gaps in its policies – all too often consensus is achieved by creating fudge.  In the case of the GCF, the usual recipe for this fudge has  been to impose conditions on a project to offset whatever issue the Board has raised –  often, indeed, multiple conditions.

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From the point of view of professional fund management, this is a very bad habit, the result, in very many cases, being to either delay the implementation of the project, or to make it effectively unviable.  The result of this, in turn – as became very apparent during the B.20 meltdown – is that the Fund doesn’t know which projects it has committed funding for might or might not ever actually proceed. And the result of that, finally,  is that it doesn’t really know what resources it does or doesn’t have to hand.

After two hours of fruitless to-ing and fro-ing, the issue of voting was deferred once again.

2. Key policies and methodologies are still on hold

At a rough estimate, as a result of manoeuvrings over disputed projects at least one of the four days of the meeting was consumed by procedural wranglings.  This meant that a huge chunk of the agenda was not addressed, while other matters were not given the attention they needed.

23 agenda items were never reached, with the most important casualties once again being important GCF policies, some of which have now been awaited for literally years. Ironically,  one of these items was an intended discussion of an “integrated approach to addressing policy gaps” – Step 1 of which, of course, might be to find time to talk about them.

Also left till next time (or some time) were a number of matters that sound innocuous or arcane but are actually vitally important for project proposers, especially of adaptation projects that remain under-weight in the  GCF portfolio.  These included the incremental cost calculation (which identifies how much of the project cost relates to climate resilience); enhancing ‘climate rationale’, which underlies a lot of the disputes over whether projects are more than ‘just’ development; and guidance on ‘concessionality,’ which again is critical to many of the arguments over where the GCF should position itself in project structures.

As long as the GCF Secretariat is left without agreed policies and methodologies on these matters, it will remain sub-optimal in terms of both efficiency and independence, and the approval of projects will remain subject to Board whims and politics.  (A cynic might equally observe that the longer as the Board continues to fail to agree these items, the longer it gives itself a critical role in approving or not approving projects, which is the ultimate source of influence in a fund with a politicised structure.)

3. Accreditation doesn’t mean equivalence

When the approval of funding proposals got under way, four projects came under scrutiny where the Accredited Entity received block funding that would then be deployed through sub-projects as yet unidentified.  Here, the issues raised by Board members and the Civil Society Organisations (CSO) observer were mainly to do with how these sub-projects would be assessed and risks attached to them disclosed to stakeholders. This is especially important in developments with high risks of potential environmental or social downsides for local communities (so-called ‘Category A’ sub-projects). The specific bone of contention was the time that affected communities would be given to respond to the risks disclosed.

In order not to reject the proposals, ‘side-room mode’ (see Item 1 above) was engaged and the project proposers and Secretariat and Board representatives were sent off to find a way forward behind the scenes.

And sure enough, as is all too often the case, the result of this exercise in making things up as you go along was confusion . The problem this time was not ill-thought-through conditions but, as the CSO representative Liane Schalatek pointed out, the creation of double standards. In two projects, submitted by EBRD and FMO, she said, 120 day disclosure requirements had been agreed, while in two others, submitted by the World Bank and the French aid agency AFD, only 60 days had been required.  Was it now the case, Schalatek wanted to know, that GCF Board decisions were based on “bargaining power and the star appeal of your attorney” in the off-air negotiation sessions?

The new uncertainties created by this outcome were evidence of the inability of the accreditation system to create what was presumably one of its goals, namely a level playing field for all Accredited Entities (AEs), and the same rule-book for all.

That didn’t prevent a whole new raft of  AEs being admitted by the Fund.  With the agenda in shreds by the time the relevant item came up, all sixteen new members of the GCF club were approved as a package without discussion, even though the CSO indicated that it had comments on nine of them.  These comments weren’t ever heard by the Board given the pressures of time, but related to the proposed AEs policies (or lack thereof) on matters such as access to information and redress by local communities (the very issue where double standards had just been created), and on gender and indigenous peoples.

4. From politics to geopolitics?

It’s often been said that the GCF Board is politicised, but it hasn’t before appeared to be actually geo-politicised, in the sense of the ‘great game’ of major power disputes being played out around its loquacious table.

There were two projects that ran into clearly political hurdles at B.21, one in Bahrain and one in China.  The first, a  $10 million project to improve water resiliency, in part through recycling waste water from the oil and gas industry, became a marathon three-day mud-wrestle over a project submitted, ironically, under the ‘Simplified Approvals Process’ or SAP, intended to speed small proposals through the GCF machine.

The ostensible cause of the dispute was, as usual, lack of clear GCF policy, in this case on the ‘climate rationale’ of the project. The actual cause was reluctance among the developed country constituency on the Board to see funding for what it would consider the day-to-day responsibilities of the government of a rich country, with little connection to climate as such. For developing country members, meanwhile, there was an issue of principle at stake, unrelated to the merits of the project itself:  that any developing country could apply to the GCF, no matter its own economic position.

The eventual outcome of ‘side-room mode’ in this case was the reduction of the application from $10 million down to  $2.2 million. One Board member from Latin America described the way the proposal had been handled as “like bargaining in a flea market.”

Though it was highly unfortunate that the dispute involved Bahrain – the host country for the GCF this time – in an embarrassing public squabble, at heart the dispute was just another manifestation of the ongoing tussle between the developed and developing country constituencies on the Board, played out on a new field.

A US / China dispute was on a much grander scale

On a much grander scale was the dispute over a project submitted by the ADB for new energy generation technologies in Shandong province in China, where trade and other tensions between the USA and China spilled over into the GCF. Here, alongside objections (as with other projects) to lack of transparency on sub-projects, the dispute centred on the finance to be provided under the proposal for research and development of new technologies.  These objections were led by Board members from Japan and the USA, the latter specifically citing fears over intellectual property leakage.  Developing country members, in response, protested – with no little justification – that the GCF’s own governing instrument called for it to finance “technology development and transfer”.

Ultimately, Japan agreed to go along with the funding proposal but the US remained adamant, on this occasion registering an outright objection rather than, as it had with other projects, “abstaining from the consensus”, thus forcing deferral of the project.

5. “Business as usual” for the new Executive Director

One subsidiary agenda item that did survive the near-extinction event for others was a decision to move forward with seeking a new permanent ED for the Fund.  On the Monday after the Board meeting, the job description was published, and it makes interesting reading.

First, the vast array of responsibilities cited somehow summarises the impossible task the GCF has set itself by seeking to be all things to all people – negotiating forum, policeman of good practice across possibly hundreds of accredited entities over time, provider of technical assistance and capacity building to any eligible country that asks for it, seeker after ‘paradigm’ shift in every project it supports, vanguard developer of best practice in every possible area of policy.

That this task is impossible with the resources available is manifestly clear from the persistent inability of the Board, in some cases now over years, to agree fundamental policies and procedures to get it all done.  As this blog has said on many occasions, choices need to be made over what the Fund does, and there is a huge opportunity to rationalise and streamline the climate funds generally so that they all have manageable jobs to do and can focus on better accessibility for their clients and consequently a better flow of money.

Second, apart from a reference at item 5(f) in the JD to a “track record of robust and accountable management of financial resources at a senior level” – which I take to be a reference to management of budgets and so on – there is no reference whatsoever to experience of finance, whether that be running a fund, or just some level of exposure to the global finance industry itself. Since this industry will be a critical partner of the GCF it surely needs to be well understood by the person filling this role.

‘Business as usual’ in appointing another diplomat as ED will be a missed opportunity for the GCF to move on.

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