Forests, Land Use and The Green Climate Fund: Open for Business?

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At a glance :

  • In May meeting, GCF board agreed on remaining six essential items to enable capitalization:
    • Accreditation Framework
    • Proposal approval process
    • Risk management and investments Framework
    • Initial Results Management Framework
    • Structure of the Fund
    • Modalities for the Fund’s Mitigation and Adaptation Windows and its Private Sector Facility
  • Technical work to be done specifically on the development of a logic model concerning REDD+ for presentation in October.
  • First meetings with potential contributors to the fund will be held in late June with a further meeting to be held in November 2014.

The Green Climate Fund (GCF) passed a major milestone at the 7th Board meeting in Songdo, South Korea in May.

The 24 member Board have now agreed on the remaining six essential items to enable the capitalization of the fund and have set down a timetable of meetings in June and November 2014 to coordinate financial contributions.

Industrialized countries have committed to provide funds rising to US$100 billion per year by 2020 to support adaptation and mitigation actions by developing countries. These funds are expected to come from a mix of public and private sources.

Although the UNFCCC has called to mobilize the initial capitalization of the GCF at an amount of at least US$10 billion, many seek higher amounts having regard to the US$30 billion of fast-start financing between 2010-2012. The point has been made that the GCF Board should not be low in its ambition.

The GCF has become increasingly important in relation to prioritisation of finance to the land use and forest sectors. A recent study undertaken by CIFOR across twenty-three REDD+ projects in six countries has shown that finance and tenure insecurity are the main barriers to the implementation of REDD+. If REDD+ is to succeed, the issue of finance needs resolution as a matter of some urgency.

The lack of finance available to adapt to and mitigate climate change in the forest and land use sectors should be considered in the context of recent comments made at the Forests Asia Summit in Jakarta, by Mark Burrows, Credit Suisse Managing Director and Vice Chairman. Burrows expressed views that political investment and public policy is required to allow part of the estimated US$225 Trillion of private sector capital to flow into the green economy.

He described the private sector as ‘eager to jump onto green investment’.

GCF Accreditation Framework

As a first step to gaining finance from the GCF, implementing entities (IEs) and intermediaries will require accreditation. The accreditation framework is applicable to both public and private sector, national, regional and international IEs and intermediaries. Funding will flow from IEs and intermediaries to executing entities (EEs).

An Accreditation Committee comprised of 4 Board members was established and tasked with the role of selecting an ‘independent’ Accreditation Panel to advise the Board and be in charge of conducting the accreditation process. The Panel will consist of 6 experts with balanced developed / developing country representation.

All entities seeking accreditation are required to establish that they meet the Fiduciary Standards and Social and Environmental Safeguards as agreed by the Board.

However, specific GCF Safeguards have not yet been adopted. The Board has agreed to a ‘lower standard’ approach and have adopted the International Finance Corporation (IFC) Performance Standards as opposed to Safeguards amidst criticisms from civil society organisations (CSOs) in doing so.

Many CSOs rightly argue that the IFC standards are not ‘best practice’ and are too weak for a fund of this nature. This position is supported within the GCF Board, with one Board member making the point that the Adaptation Fund is stronger on human rights and the Asian Development Bank is stronger on consultation.

Parties and Observers experienced with REDD+ have also raised concerns related to consistency with the Cancun REDD+ Safeguards, which may require further consideration and guidance from the UNFCCC 20th Conference of Parties (COP20) in Lima in December.

In recognition of this challenge, the Board has agreed that the IFC standards are in place on an interim basis and intend to develop GCF Safeguards within 3 years with multi-stakeholder participation and learning from experiences including through the Independent Evaluation Unit and the Independent Redress Mechanism.

It is expected that an upward harmonization of the IFC standards will occur through the development of GCF safeguards. However, it remains unclear as to whether a process will be put in place that will require a new application for accreditation from those entities accredited early, and to what extent a review as to their appropriateness to remain accredited will be undertaken. This is an important matter the Board will need to consider as it has potential to impact on funding cycles, projects and programmes funded by the GCF and may give rise to reputational risks.

The development of the GCF Safeguards will also need to take into consideration concerns about Least Developed Country (LDC) and Small Island Developing States (SIDS) capacities to achieve accreditation. Board members within these constituencies acknowledged that access to other funds has been difficult for LDCs and SIDS and the GCF needs to be different in this regard. Developing countries have asked the board to link readiness support to building capacity for accreditation.

This issue has been highlighted for some time to ensure international multilateral development banks do not gain an unfair advantage over national and sub national entities. It is argued that this approach is consistent with the principles of country ownership and it will be important to build capacity, particularly LDC and SIDS recipient countries to gain direct access.

The flexibility of Fiduciary Standards and Social and Environmental Safeguards required to achieve accreditation will need to be balanced against robust and best practice.

A ‘scaled risk-based approach’ to enable greater flexibility in accessing the fund and avoid over burdening low to no-risk projects has been agreed. This approach seeks to ensure environmental and social requirements and processes are commensurate to their level of risk. IEs and intermediaries will be tasked with screening funding proposals based on risk under the following categories:

Category A: Activities with potential significant adverse environmental and / or social risks and / or diverse, irreversible or unprecedented impacts;

Category B: Activities with potential mild adverse environmental and / or social risks, generally site specific; and

Category C: Activities with minimal or no adverse environmental and / or social risks and / or impacts.

As a means of ensuring a critical mass of accredited institutions as early as possible the issue of ‘fast-tracking’ accreditations became a focus of discussions. The Board agreed to undertake further consideration as to a fast-tracking process. A gap analyses will be provided by the Accreditation Panel at the next meeting, which will identify institutions accredited by other funds, such as the Adaptation Fund together with recommendations as to their potential to be fast tracked.

It was agreed that there would be a call for submissions from IEs and intermediaries for accreditation following the 8th meeting of the Board to be held in October.

Proposal Approval Process

A proposals approval process was agreed as one of the eight elements following an initial objection to the draft decision on the basis that it fails to include an assessment of safeguards implementation and compliance in the context of project and programme impacts.

A seven stage process was agreed which covers the following steps: Country work programmes; Calls for funding proposals by the GCF; Concept development; No-objection and proposal submission; Analyses and recommendations to the board by the Technical Advisory Panel (TAP); the Board’s decision; and Legal arrangements.

An issue highlighted throughout the Board’s approvals process discussion was that of diversity of the funds portfolio and competition, including competition between different funds and competition between potential fund recipients. GCF Board members recognised a need to avoid having countries with high capacity competing against countries with lower capacity for access to funding.

The importance of matters of equity were emphasized by Board members and civil society alike, where large international entities including private sector are to be in competition for funds with small developing countries and local organisations within those countries.

It has been suggested that categories of potential recipients are developed to ensure fair and equitable competition, however no such decision has been made on this issue.

Small-scale activities are particularly at risk of becoming crowded out. Some Board members suggesting the development of a specific approvals process for small scale low risk activities by way of a delegated authority and a more simplified process for approvals.

Board members also agreed that there is a need to avoid a first come, first serve basis for proposal approvals and to ensure competitiveness with other funds such as the GEF and the Adaptation Fund. The approvals process needs to reflect these realities by making the fund accessible whilst creating the ‘paradigm shift’ sought.

Nationally Designated Authorities (NDAs) may contribute to this process of ensuring equity through agreement by the Board that they are to identify who their preferred IEs or intermediaries will be in accessing the Fund’s resources.

Methodologies for project and programme selection will now be developed by the GCF Secretariat.

Investment and Risk Management Frameworks

Investment and Risk Management frameworks have also been agreed by the Board.

The GCF seeks to finance projects and programmes that demonstrate the maximum potential for a ‘paradigm shift’ towards low-emission and climate-resilient development pathways by providing support to developing countries to limit or reduce their greenhouse gas emissions and to adapt to the impacts of climate change.

Criticisms were raised due to the Risk Management Framework having a narrow focus only on financial risks. There is further work to be undertaken concerning other risks such as reputational and other types of risk exposure, for example where REDD+ safeguards are not complied with.

It was agreed that the Fund’s initial set of investment policies would cover “grants, concessional loans and other financial instruments extended by the Fund”.  The GCF will seek to maximize grant contributions and seek to ensure grant contributions significantly exceed loan amounts and there will be no cross subsidization between providers of grants and providers of loans.

This important paradigm shift objective of the fund was emphasised and generated discussion and general recognition that the GCF will fund projects and programmes that are of a high risk as a means to ensure achieving the paradigm shift. The point was made that the GCF should go where other financiers dare not go.

It will be important that project and programme risks are disclosed and considered jointly with the approvals process to enable the fund to gain an overall identification as to the associated risks across portfolios.

The determination as to the ‘risk appetite’ of the fund was a central feature in this discussion. The Board agreed on a process to undertake a series of steps in the form of a stress test during the course of 2014 to determine the level of risk the fund may take and the level of resources that will be required to ‘cushion’ or mitigate the risk in providing grants and concessional loans.

On the issue of risks associated with the flow of funds, the secretariat clarified that funds will flow through IEs or intermediaries, which may or may not be governments.

Investment guidelines were adopted which covered 6 areas, namely: Mitigation and adaptation impact; Paradigm shift potential; Sustainable development potential including environmental, social and economic co-benefits; Vulnerability and financing needs of the recipient country; Country ownership; and Efficiency and effectiveness.

Initial Results Management Framework

A broad set of initial Results areas were agreed in Paris at the 5th Board meeting in October 2013.

Results areas of relevance to land use and forests are: Sustainable land use management to support mitigation and adaptation; REDD+ implementation; Adaptation activities to reduce climate-related vulnerabilities; ‘Flagship’ activities cutting across adaptation result areas; Readiness and capacity building for adaptation and mitigation activities; and Scaling up of effective community based adaptation action.

The negotiations concerning the Results Management Framework (RMF) was one of the more complex issues to be agreed in Songdo as the GCF is moving in the direction of the development of detailed international indicators to measure and monitor funding outcomes, impacts and the desired paradigm shift. It has been noted consistently by LDCs and SIDS however, that the more complexities there are, the more difficulties this creates for their access to the fund.

The GCF takes an interesting approach in this context, as other funds have not undertaken the development of similar frameworks until after some experience had been achieved, for example, the GEF undertook the process of developing such a framework some time after its establishment. Concern was expressed that by setting up a complex framework of this nature, the GCF is setting up a separate MRV mechanism outside of the UNFCCC negotiations process in circumstances where it is a financial mechanism of the UNFCCC and which is accountable to the COP.

The Board have agreed on a logic model intended to create a management framework to meet the ‘paradigm shift’ objectives. The GCF paradigm shift objective for mitigation is to ‘shift to low emission sustainable development pathways’ and in the context of adaptation to ‘increase climate-resilient sustainable development’.  This logic model to be applied across both adaptation and mitigation includes agreed inputs, activities, outputs, outcomes and impacts.

The fund level impacts concerning land use and forests are: to reduce emissions from land-use, deforestation, forest degradation and through sustainable forest management and conservation and enhancement of forest carbon stocks. The relevant project / programme level mitigation outcome is improved management of land or forest areas contributing to emissions reductions, which may be interpreted to include both the forest and agricultural sectors.

It should be noted in this context that wording agreed by the GCF Board differs and could be said to be inconsistent with the Cancun REDD+ agreement. One of the REDD+ activities agreed in Cancun is that of ‘Sustainable Management of Forests’ (SMF) whereas the GCF has agreed to the wording ‘Sustainable Forest Management’ (SFM). Although very similar terminology, they are often the subject of confusion amongst forest policy makers. The terms have different meanings, with the latter being interpreted more broadly as an overall forest sector objective and the former being interpreted as forest management, which ensures maintenance of carbon stock levels.

In a land use and forests adaptation context, the GCF Board has agreed that the fund level impacts are: Increased resilience and enhanced livelihoods of the most vulnerable people, communities and regions; Increased resilience of health and well-being, and food and water security; and Improved resilience of ecosystems and ecosystem services. Synergies with the REDD+ non-carbon benefits discussion should be noted in this context.

Relevant project / programme level outcomes for adaptation agreed in Songdo are:

  • Strengthened institutional and regulatory systems for climate-responsive planning and development;
  • Increased generation and use of climate information in decision-making;
  • Strengthened adaptive capacity and reduced exposure to climate risks;
  • and Strengthened awareness of climate threats and risk-reduction processes.

Core indicators were also developed for adaptation and mitigation. Proposed mitigation indicators relate to carbon and finance and the core adaptation indicators proposed concerned people and finance. The controversy on this issue related to the adaptation core indicators with strong disagreement in the room on whether to include a finance related indicator. There was an agreement that this proposal be deleted and a single core adaptation indicator was adopted related to direct and indirect beneficiaries.

REDD+ became an emphasis of the discussion concerning the RMF. The distinction was drawn between GCF funding and the Warsaw REDD+ Framework in that the Warsaw REDD+ framework is an ex post results based payments framework, meaning the system has been developed to enable payments after results have been verified, whereas in many circumstances the GCF will provide funding ex ante.

It was agreed by the Board that this issue will be further developed at the 8th meeting in October 2014 whereby a logic model and performance framework specific to REDD+ will be presented for consideration.

In terms of gender, the Board decided that the RMF should take a gender-sensitive approach and that the results should be disaggregated by gender where relevant.

Although agreement was reached on an initial framework, the discussion concerning results is not over. Additional adaptation areas are to be considered at the October meeting, which are expected to build on consideration of adaptation mitigation synergies in projects and programmes and further indicators will be developed. Models for specific issues such as REDD+ are yet to be developed and it will be important that the GCF does not hinder project and programme potential by imposing limitations through these logic models and a complex set of indicators.

Structure of the Fund & Modalities for the Fund’s Mitigation and Adaptation Windows and its Private Sector Facility

The least progress was made on these elements.

It was agreed that the structure and the modalities are evolving and reviews will undertaken on both items within three years.

Some confusion arose on the presentation of the draft decision concerning the structure, which failed to include a specific section related to the private sector facility (PSF), which many consider a critical element to the structure of the GCF.

A report was provided from the private sector advisory group too late in the meeting to enable proper consideration as to its contents.

The PSF has consistently been an issue of contention amongst board members and CSOs alike. Leading up to the 7th Board meeting in Songdo, more than 300 civil society organisations from around the world signed on to a letter to Board members seeking an exclusion list to ensure that the GCF will not fund, directly or indirectly, fossil fuel and other harmful energy projects or programs.

Although no agreement was made concerning an exclusion list, it is expected that the matter will be considered further at the 8th meeting. Exclusion lists of this nature are not uncommon and some consideration may be given to how such a list may also be of use to the GCF on the context of finance that could be used for harmful practices in the land use and forests context.

The PSF remains under developed and further work will be undertaken at the 8th meeting of the Board in October. Lack of clarity remains as to the relationship between the adaptation and mitigation windows, and the PSF and private sector international best practice fiduciary principles or standards and environmental and social safeguards will be assessed against those developed by the Board to identify gaps.

Resource mobilisation

There was no disputing the importance felt by the Board members in Songdo concerning the need for resources to be mobilised and the interplay between GCF outcomes and the broader UNFCCC climate negotiations. The decision on resource mobilisation stresses the urgency to reach financial pledges by November 2014.

Having put in place and agreed on the essential requirements, the Board was well placed to discuss resource mobilisation and initiating a process to arrange meetings with potential contributors to the fund during 2014. Criticisms were raised that the process of resource mobilization has been slow and a series of meeting to continue discussing contributions was not enough – real contributions are necessary.

The need for a substantial capitalization prior to the COP in Lima was emphasized and civil society called for clear targets and timelines including timelines for replenishment. The Board agreed to issue open invitations to all potential contributors, including the private sector and philanthropic organisations within a week of the adoption of the decision.

During the course of discussion concerning risk management, concern was expressed as to the independence of the fund to make decisions concerning the use of the funds where contributors seek to impose terms of conditions on finance provided. Such terms and conditions may prevent the fund from having ownership over finances received. This issue will need to be balanced with the need to capitalise the fund as soon as possible to make it credible and operational.

The first meeting of contributors will be held in late June with a further meeting to be held in November 2014. Although many board members sought for this process concerning meetings with contributors to be concluded in November, there was no agreement on this, and it is indicated that the process may take some time longer.

In context: The GCF, Land Use and REDD+

It is widely recognized that significant scaling up of finance is required for the successful and sustainable implementation of REDD+. To date, there has been little private sector investment and funding has come primarily from aid / development monies. The GFC is a combination of private and public funding that is well poised to make a significant contribution.

Due to the long history of development and conservation work related to forests and developing countries through both local and international CSOs as well as multilateral development banks, identifying IEs and intermediaries should not prove difficult. Many likely EEs already exist and are undertaking work that is of relevance and could benefit from GCF funding in both a land use and forests, mitigation and adaptation context.

The GCF will however need to ensure that it’s decisions are consistent with REDD+, LULUCF and Agriculture decisions in the UNFCCC. As each year the COP provides guidance to the GCF, it may be useful to seek guidance on this issue to ensure consistency and no delays in mobilising funding for land use and forests.

In the development of the GCF safeguards, the Board have agreed that it will be important to learn from experiences through the Independent Evaluation Unit and the Independent Redress Mechanism. Many redress mechanisms have been established in the context of REDD+ and many lessons have been learnt. The GCF would benefit from considering these lessons also in developing its own safeguards.

The issue of equity and LDC and SIDS accessibility to the fund should not undermine the GCF safeguards in the context of REDD+. Significant readiness funding has been allocated through such mechanisms as the Forest Carbon Partnership Facility and UN-REDD to assist countries to put in place the enabling environments to meet the Cancun REDD+ safeguards requirements.

When considering investment risks, the GCF should give consideration to REDD+ projects and programmes and non-carbon benefit (NCB) outcomes, as there is support for the notion that more NCB outcomes will give rise to lower risk associated with activities. Giving priority to projects and programmes with high levels of NCBs may be an option. Funding land use and forest activities that are high risk, in particular where there is a potential for breaches and non-compliance with safeguards should be approached by the GCF with caution due to the high potential for serious reputational risks.

On the issue of fast-tracking, as mentioned above, many potential IEs and intermediaries are already experienced working in the REDD+ space. Taking an equitable approach will however be important and in doing so, and creating any categories for funding the GCF should also consider those countries that have high forest and low deforestation rates.

In consideration as to work being undertaken concerning forests, the GCF should also look to the Adaptation Fund as it moves in the direction of adaptation funding for forests over the coming year.

The initial Results areas of the GCF are well established and many of which are applicable to projects and programmes related to land use and forests. It is important to note the emphasis of GCF results areas on synergies between adaptation and mitigation, which is a unique attribute to the land sector and forests. Further consideration to joint mitigation adaptation funding in this context would be useful. Additional adaptation areas are also to be considered at the October meeting, which are expected to build on these synergies.

Perhaps the most fertile area for enabling funds to flow to REDD+ is the work in coming months to develop a logic framework. An inconsistency has already emerged concerning SMF and it is important that the logic model is developed in a way that is consistent, not only with the Warsaw Framework but also REDD+ outcomes from previous COP decisions including Copenhagen, Cancun, Durban and Doha. It is also important that the Board take into consideration decisions to be made this year in Lima. Many lessons have been learnt in REDD+ recipient countries through multilateral and bilateral initiatives and standardisation activities such as the REDD+ SES. These lessons need to be incorporated and reflected in the REDD+ RMF logic model.

The meetings of contributors to be held in June and November should also give due consideration to the potential for resources to flow to land use and forest project and programmes in the short term, and which have high mitigation and adaptation potential and may make a significant contribution to the GCF meeting is paradigm shift objective.

We have the fund, so where’s the finance?

The Board members were forced to focus on what was strictly necessary to secure agreement on the eight essential elements. This occurred at the expense of a significant number of items being deferred to future meetings. There is an increasingly growing list of issues to be resolved by the Board including important matters such as mainstreaming of gender throughout Board decisions, country ownership, direct access and the development of the REDD+ logical framework.

With the essential items now agreed and the ongoing work to secure a new climate agreement in Paris in December 2015, the reputation of the GCF is at stake and dependent on initial contributions to be made by developed countries. Many hope for meaningful financial pledges to be made at the UN Secretary General’s (UNSG) Climate Summit to be held in New York in September, however uncertainties remain as to whether these pledges and financial commitments will eventuate.

Much work remains to be done in setting up a fund of this size and of this unique nature. Financial pledges are ‘wanting’, political will remains low, and the capacity of many recipient countries to access the fund remains in question.

Despite these issues, all eyes will no doubt be focused on the coming months and the upcoming meetings of the UNFCCC, the UNSG Summit and the GCF potential contributors. Whilst Asia can take the credit for hosting the meetings that have succeeded in securing the eight essentials, we will now see what the rest of the world can achieve at meetings spread across Europe, South America and The United States.

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