Environment

Analysis

Climate Investment Funds Monitor 14

30 November 2016

Lahendong geothermal power plant, Manado, Indonesia. Credit: Asian Development Bank

Lahendong geothermal power plant, Manado, Indonesia. Credit: Asian Development Bank

Read a pdf version of CIFs Monitor 14

See below for general information about the CIFs

 

‘Sunset clause’ postponed

The June joint CTF and SCF trust fund committees meeting reviewed the May Strategic directions for the Climate Investment Funds document (see CIFs Monitor 13), and “noted the need to support the continuity of climate finance flows at scale in the near term through a diverse set of financing options to support actions in developing countries”. The joint committee decided not to instigate the so called ‘sunset clause’ yet, which requires the CIFs to close (see box), but to instead continue to monitor “the developments in the international climate finance architecture to inform a discussion on the sunset clause in December 2018 at the earliest, and take a decision on this issue in June 2019.” It further agreed on “the need to enhance cooperation between the CIF and other entities and mechanisms in the climate finance architecture, in particular the Green Climate Fund [GCF].” Moreover, the joint meeting asked the CTF trust fund committee to consider the analysis and “discuss the value proposition for a new business model for the CTF, including the new financing modalities.”

In advance of the meeting, a letter signed by 100 CSOs called for the CIFs to sunset and for resources to be directed to the GCF, rather than the CIFs, as the GCF is now operational, noting that: “Since their inception, the CIFs were meant to be interim funds.” Moreover, the letter argued: “Unlike the multilateral development bank-driven CIFs, the GCF was set up according to the principles of the United Nations Framework Convention on Climate Change. With a governance structure evenly split between developed and developing countries, the GCF is founded on a ‘country-driven approach’ accountable to the institutions and people in developing countries, and has placed a premium on direct access to funds by developing country entities. The GCF promotes a gender-sensitive approach to its funding – the first climate fund to do so from the outset of its activities.” While the letter agreed that lessons learned from the CIFs “should be applied to the GCF, efforts to spin the CIFs as complementary to the GCF are disingenuous.” It concluded: “Any effort to raise new sources of finance for the CIFs should cease immediately, and there should be no new investments.”

CIF governance

Following the May 2015 discussion on improvements to CIF governance (see CIFs Monitor 12), a code of conduct was approved in April, applying to trust fund committee and sub-committee members, observers and technical experts. The code addresses “issues of integrity, accountability and conflict of interest”, and states that any member or observer failing to comply would be expected to resign. Moreover, the trust fund committee is expected to appoint a point of contact for advice on implementation of the code.

Prior to approval CSO observer Transparency International (TI) emphasised that in their view a code of conduct “should contain a general requirement that members’ actions should not undermine the public confidence and trust in the Fund’s governance and integrity, and should not involve corruption-related activities. More broadly, consideration should be given to having all members signing a general declaration recognising their obligations under the code and their commitment to abide by its rules and regulations.”

Moreover, TI questioned the use of a point of contact rather than an oversight committee, commenting: “It remains unclear how a finding of non-compliance may be reached and by whom. Also, who would determine whether the violation of the code by the member or observer in question would warrant resignation.”

Finally, TI sought “to highlight our earlier expressed concern about the unequal treatment of CIF observers … in the case of a potential conflict of interest. In para 11, the co-chairs may request certain observers not to participate in the deliberations of, and receive information on, a particular subject manner… We feel there is no foundation for such differential treatment. Ideally, interests of both committee members and observers should be entered in a public registry on the basis of which an ethics committee would assess, in consultation with the member or observer, whether a real or perceived conflict of interest might arise.”

Moreover, the June joint trust fund committee meeting approved a business plan on evaluation and learning, including four priority themes: transformational change; private sector investment; local stakeholder engagement and benefit; and CIF design and approach. Progress on the Enterprise Risk Management (ERM) framework and the development of risk dashboards for CIF programmes were noted (see CIFs Monitor 9).

1.2        CIF resources shortfall

All CIFs continue to struggle with resource shortfalls (see CIFs Monitor 13), which have been exacerbated by the eleven per cent fall in the value of the British pound (GBP) between end of May and end of September, leading to a decrease in the value of unencashed promissory notes (unredeemed pledges). The June meeting confirmed that the CIF Administrative Unit has “explored options for hedging the CIF’s exposure to currency risk resulting from outstanding foreign currency-denominated promissory notes, but that hedging such risk is not possible.” All trust fund and sub-committees have been calling for further financial contributions, and for the funds to continue to design projects and programmes to also attract funding from other sources, such as the GCF.

The November CTF semi-annual operational report estimates that there will be no funding available for projects scheduled for approval beyond May 2017. A CTF pipeline management and cancellation policy was approved in September, setting a deadline of June 2017 for submission of remaining projects and programmes in the pipeline, after which the funding will be released. Moreover, a new paper on the future strategic direction for the CTF, including options for new financing modalities, will be discussed in the December trust fund committee meeting. Pipeline management and cancellation policies are also in preparation for the PPCR. While the PPCR has approved funding for preparation of the SPCRs for almost all new pilot countries, no funding is available for the preparation and implementation of projects. The FIP is also preparing a cancellation policy. In addition, initial assessments are in preparation for an alternative financing model for FIP. As of end June, due to the fall in the GBP, should all projects in the pipeline be submitted for approval SREP resources would only be able to support funding commitments until February 2017.

Gender action plan update

The CIF Gender Action Plan – Phase 2 was discussed in the June joint committee meeting (see CIFs Monitor 13). According to the document the first phase “was intended to support improved performance on gender in the CIF at the levels of fund governance, investment plans, and projects/programmes.” It categorised lessons from the first phase into three areas: “a) scope of gender outcomes envisioned from this programme; b) need for CIF gender policy elaboration; and c) gender programming resources, especially adequate staffing levels.”

The action plan stated that a “key motivation” for the second phase “is to further embed institutionally the efforts of phase 1 on programme review, monitoring and learning, while extending the gender programme through complementary support in policy design, technical assistance, and analytical and evaluative initiatives.” This includes a continued focus on “(i) mainstreaming gender in CIF policies and programmes, and (ii) enhancing knowledge and learning, and technical support on gender in the CIF.” It also plans for “formalisation of a CIF gender policy, scaling-up of gender technical support to individual investment plan and project preparation, and new tools in the form of sector- and programme-specific guidance sheets to support teams.” Moreover, “A large analytical study is planned on gender and renewable energy, with focus on large-scale renewable energy projects, followed by a study on gender and sustainable forest management.”

Phase 2 will also respond to “calls for region-specific learning events in particular sectors to enhance skills and country capacity on sector-specific gender mainstreaming, and specific evaluative efforts on effective institutional approaches to gender mainstreaming from across the CIF programme portfolio.” Other new developments include work to roll-out “gender guidance on investment plan preparation, as well as development of targeted technical support and capacity-building, and advancing the analytical studies begun in FY16. On the policy side, [financial year] FY17 will also feature development of programme-specific gender guidance on investment plan preparation, and preparation of case notes on institutional lessons from gender integration across the portfolio.”

Graph 1: Total number of projects and programmes approved per fund

cifs-monitor-14-graph-1

Source: CTF semi-annual report and PPCR, FIP and SREP operations and results reports, November 2016

 

Graph 2: Total CIF funding pledged, allocated, and approved for projects and programmes per fund (million $)

cifs-monitor-14-graph-2

Source: CTF semi-annual report, PPCR, FIP and SREP operations and results reports, CTF and SCF trustee financial reports, November 2016

 

Update on the Green Climate Fund (GCF)

The 13th meeting of the GCF board was held in Songdo, South Korea, in late June, with real-time webcasting of the meeting available for the first time. Following the Korea Export-Import Bank’s (KEXIM) application to become an accredited entity, concerns were raised over the accreditation of export credit agencies (ECAs). CSOs also pointed out that KEXIM is a major financer of fossil fuels. The board failed to reach consensus and postponed the decision on all applications to the following meeting. Nine funding proposals were approved, despite concerns over the timely availability of all documents, and questions were raised over whether a Chilean solar project warranted climate finance resources. The meeting saw a continuation of the vast majority of the GCF’s resources being channeled through developed country and multilateral institutions, such as the World Bank.

After leaving her post as GCF executive director, Héla Cheikhrouhou in a late August interview with the Thomson Reuters Foundation, called on the GCF to become clearer in its guidelines on what it is seeking to finance. Given the GCF’s objective to promote a “paradigm shift towards low-emission and climate-resilient development pathways”, she argued “we need to find ways to signal clearly what is a project that would change the game.” CSOs have also repeatedly raised concerns about which projects will be funded by the GCF. In a September blog Steve Herz of US-based NGO Sierra Club argued that the problem largely lies with the accredited entities, rather than the GCF per se: “too often, instead of devising innovative and ambitious new initiatives, they have chosen to promote run-of-the-mill projects that are already moving through their pipelines.”

In late September, a statement signed by 106 CSOs called for the GCF board not to consider programmes and projects with high environmental and social risks until appropriate policies are in place. Other asks included an environmental and social management system and a stand-alone Indigenous Peoples Policy. Moreover, in early October, a letter signed by 92 CSOs called on the board to “categorically exclude export credit agencies from accreditation by the GCF”. The letter argued that their accreditation would be inconsistent with the mission of the GCF, given that “ECAs are meant to promote exports and job creation in the home country rather than the recipient country.” Also in early October, a letter to board members signed by 53 CSOs and indigenous peoples groups argued that the operationalisation of the results-based framework needs to be “anchored to a solid rights based framework and approach.” They also called for the GCF to “develop and adopt an Indigenous Peoples’ Policy or an equivalent framework as matter of urgency, in such a way that indigenous peoples are fully engaged, and consulted.”

The 14th meeting of the board was held in mid-October, with the venue changed at the last minute from Ecuador to South Korea. During the meeting the board selected Howard Bamsey from Australia as the new executive director for a four-year term. The board also accredited eight new entities, including GIZ (German Corporation for International Cooperation), the third Germany entity to be accredited, however, KEXIM was not considered as it had withdrawn its application. The board also approved ten projects, with two proposals (Pakistan and a multi-country EBRD project) requiring amendments prior to approval due to objections. The board decided to approve the projects as a package, despite concern over the lack of assessment of each project on its merits. Policy gaps in the project approval process were also discussed, leading the board to state that the process of approval of funding proposals to date should not “constitute a precedent”, however, civil society pointed out that the board has already made such statements multiple times. Additionally, a decision on country ownership guidelines was delayed.

The 15th board meeting will be held in 13-15 December in Samoa. Agenda items include readiness and preparatory support; environmental and social management systems; and matters related to funding proposals.

Climate Investment Funds (CIFs) explained

The World Bank-housed Climate Investment Funds (CIFs) are financing instruments designed to pilot low-carbon and climate-resilient development through multilateral development banks (MDBs). They comprise two trust funds – the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF). The SCF is an overarching fund aimed at piloting new development approaches. It consists of three targeted programmes: Pilot Program for Climate Resilience (PPCR), Forest Investment Program (FIP) and Scaling up Renewable Energy Program in Low Income Countries (SREP).

The CIFs operate in 72 countries worldwide. As of end June 2016, donor pledges amounted to a total of $8 billion to the CIFs: $5.4 billion to the CTF and $2.6 billion to the SCF ($1.2 billion for PPCR, $720 million for FIP and $716 million for SREP). Projects are executed by MDBs: the African Development Bank (AfDB); the Asian Development Bank (ADB); the European Bank for Reconstruction and Development (EBRD); the Inter-American Development Bank (IDB); the World Bank’s middle income arm, the International Bank for Reconstruction and Development (IBRD); and the World Bank’s private sector arm, the International Finance Corporation (IFC).

Under the ‘sunset clause’ the CIFs are due to close once a new climate finance architecture is effective under the United Nations Framework Convention on Climate Change (UNFCCC), through a mechanism such as the Green Climate Fund (GCF).