The World Bank and the Green Climate Fund: “an ironic contradiction”?

20 June 2013 | Guest analysis

Guest analysis by Andrea Rodríguez Osuna, Interamerican Association for Environmental Defense (AIDA)

Since the creation of the UN Framework Convention on Climate Change (UNFCCC) Green Climate Fund (GCF) in 2010, concerns have grown about the World Bank’s potential role in designing policies to determine the allocation of resources for adaptation and mitigation activities in developing countries (see Update 83, 82, 81, 79).

The Bank is criticised because some of its investments have had negative social and economic impacts on populations in countries receiving financial assistance, including affecting the living conditions of indigenous peoples and, in some cases, the violation of human rights. The Bank is also criticised due to conditionalities imposed on borrower countries.

Today the World Bank is the interim trustee of the GCF, meaning it is managing the fund’s financial assets for an initial three years. In this role, the Bank must manage contributions and investments, as well as provide services, including commitment accounting, cash transfers and financial reporting. But it is not responsible for allocating funds or preparing, appraising, supervising or reporting on GCF financed activities.

Ostensibly, the Bank will carry out these duties until a permanent trustee is chosen through an open, transparent and competitive bidding process. Even so, the Bank has expressed interest in playing a larger role than just managing financial assets in the future. The governing instrument for the GCF states that the World Bank, in its role as interim trustee, will be subject to a review three years after the start of the Fund’s operations. However, there is no rule stating that the Bank cannot continue after the review, nor that it could not eventually be selected as the permanent trustee.

For the fourth meeting of the GCF board in late June, the GCF secretariat was asked to prepare six papers on the key issues relating to the Fund’s business model framework (BMF) to facilitate board decisions on the operations of the fund. These papers were written with the support of external consultants, among them former and even current World Bank staff. Having these consultants provide guidance on the BMF will have a considerable impact on the decisions the GCF board must make.

While it is still unknown how the GCF will use intermediaries when allocating resources, it is likely that financial institutions will step in to help the GCF channel money. The World Bank plans to seek accreditation to become an implementing entity of the GCF. If that is the case, the World Bank, in its role as an intermediary, must be accountable for ensuring money is used for what it was allocated. This means that the World Bank will have to take on a decision-making role to fulfill its duties.

It is worth noting that during the third GCF board meeting in March there was exhaustive discussion on the administrative model that the GCF secretariat should adopt. Most board members said the most suitable model would be based on the structure of multilateral development banks (MDBs) – like the World Bank. That is because these institutions apparently attract the most qualified professionals. The board will also make a decision on the structure and organisation of the fund at their June meeting. Before this, an assessment of the structure and organisation of MDBs, including the World Bank, would help the board in considering potential and suitable options for structuring the GCF.

The operational rules of the GCF are yet to be decided. Having the World Bank so close to the fund is a reason for concern. Civil society groups fears that the GCF will end up making the same mistakes as many other financial institutions in funding unsustainable projects that generate negative social and environmental consequences. Lidy Nacpil, the regional coordinator of the Jubilee South Asia-Pacific Movement on Debt and Development said: “The World Bank has been at the forefront of financing fossil-fuel projects that have exacerbated the climate crisis. It is now an ironic contradiction that this same institution that has greatly contributed to the climate crisis is to be entrusted with funds that promise to address the very same problem it helped to create in the first place”. In any event, there’s still no evidence to determine the future involvement of the World Bank, only room for speculation. But it is important to be on our toes and mindful of any moves that could increase the World Bank’s involvement.