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On 25 October, a conference was held in Paris to “replenish” the resources of the Green Climate Fund. 27 countries have made pledges, for a total amount of nearly $10 billion. Good news? Insufficient? For Alice Pauthier of I4CE, the impact of the Green Climate Fund should not only be assessed against this figure. The Fund also has a transformational effect, particularly on the many financial institutions that, in order to access its resources, must follow an accreditation process. A process that may well become more and more demanding.

Nearly $10 billion for the Green Climate Fund, a rather positive signal

Created in December 2010, the Green Climate Fund is the main tool used by the United Nations to contribute to the so-called “100 billion” target. This policy objective aims to support action by developing and least developed countries on climate change mitigation and adaptation through a financial support of $100 billion per year from 2020. This objective was reaffirmed in the Paris Agreement, which defines it as a “floor” to be raised after 2025.

With 111 approved projects and programmes to date, a “replenishment” of the Green Climate Fund’s resources was necessary to ensure the continuity of its operations.  This replenishment was also necessary to ensure the confidence of developing countries in a context where they are called upon, like all countries, to increase the ambition of their national climate policies by 2020.

Following major governance problems and the announcement of the United States’ contribution withdrawal in 2017, the mobilization of substantial contributions was far from guaranteed. However, by the end of October, 27 countries had pledged a total of $9,776 billion to the Green Climate Fund. This represents a level of resources almost equivalent to that initially promised in the first cycle of the Fund’s operations.

While some have welcomed this positive signal from developed countries, others have shown more mixed reactions. And some NGOs such as Oxfam are calling on developed countries that have not yet announced a contribution to do so by COP25.

Beyond the amount, let’s look at the direct and indirect impact of each cent

However, the impact of the Green Climate Fund cannot be assessed solely on the basis of this figure of 10 billion. This Fund is intended to multiply the direct and indirect impact of each cent collected and differs from other climate funds in its vocation to promote a “paradigm shift”. The mandate of the Green Climate Fund is to provide financial support for projects and programs that promote “transformational” impacts.

In concrete terms, this means that its resources are not allocated to simple solar power plant projects that could be financed by other market players, but to projects that have the potential, for example, to create new markets in renewable energies, to create the conditions to attract private financing in energy efficiency or to mainstream adaptation practices. These transformational projects are necessary to achieve the ambitious objectives of the Paris Agreement. It is one concrete example of the idea of ‘transformational impacts’ which is at the heart of the concept of Alignment as defined by I4CE in a recent report.

Figure 1: The Paris Alignment ‘Bulls Eye’ proposed by I4CE: actively support national and international transformations across all activities

To focus on transformational projects, the Green Climate Fund has already included among its project assessment criteria the “Paradigm shift potential” and is currently testing an indicator for a one-year pilot phase. The indicator(s) that will finally be selected could have a significant influence on the desired impact of projects financed by the Green Climate Fund in its second phase.

An influence on all operations of 88 financial institutions

The Green Climate Fund’s influence also lies in the accreditation process that financial institutions must follow to access its resources. Indeed, the Green Climate Fund does not directly finance projects. Projects are carried out through intermediaries: public or private, local, regional or international banks. Among the 88 accredited financial institutions are for example the World Bank, the West African Development Bank, or the National Development Banks of Fiji, Brazil or South Africa – but also Crédit Agricole, BNP or HSBC. To access the Green Climate Fund resources, these financial institutions must follow an accreditation process to ensure that they meet certain social, environmental and other standards.

This procedure is perceived by some actors as long and tedious. But it has an advantage: it makes it possible to initiate or strengthen climate mainstreaming processes in the strategies and operations of financial institutions, as demonstrated by CDG Capital – the Moroccan investment bank, subsidiary of the Caisse de Dépôt et de Gestion of Morocco – in a case study on the development of its climate strategy.

This accreditation to the Green Climate Fund is valid for a 5 years period, at the end of which the institution has to carry out its “re-accreditation”. No financial institution has yet had to be reaccredited, and at this time no specific criteria have been adopted for this reaccreditation procedure. Given the importance of this procedure in engaging financial institutions in the integration of climate change considerations, let us hope that the Green Climate Fund will define criteria that are sufficiently ambitious, but also operational and relevant to the wide range of accredited institutions and activities they undertake. The 5 voluntary Principles of the Climate Action in Financial Institutions initiative, for which I4CE is the Secretariat since 2016, could serve as a basis for such criteria. They had been defined by public and private financial institutions to guide their efforts in climate mainstreaming and are already supported by 44 institutions representing more than 14 trillion of assets.




Contact


Alice PAUTHIER

Research fellow - Finance, Investment and Climate

Alice research areas currently focus on mainstreaming climate in financial institutions. Alice contributes to I4CE’s role of holding the Secretariat of the ‘Climate Action in Financial Institutions’ Initiative. 
Before joining the I4CE team, Alice worked for a development NGO and was highly committed member of the board of the youth NGO CliMates. She holds a Master degree in Energy, Finance, Carbon from the University Paris Dauphine and a Master degree in Geoeconomics from IRIS Sup’ and Grenoble Ecole de Management. 
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