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World Bank seeks expanded role in climate finance despite civil society protests

5 April 2011

As civil society organisations line up to demand a minimal role for the World Bank in the new Green Climate Fund (GCF), the Bank is pushing its Climate Investment Funds (CIFs) as a model for the GCF, despite criticism and protest at CIF projects flaring up in recipient countries.

There is intensive speculation that the Bank, which already holds the interim trusteeship of the GCF, is also angling to serve as the fund’s secretariat (see Update 74). Some of the first confirmed members of the transitional committee responsible for designing the GCF are World Bank climate staff. As Liane Schalatek of the Heinrich Boell Foundation notes on the Climate Equity blog, this World Bank team “was previously involved in setting up and managing the Bank’s own Climate Investment Funds and are certainly ready to suggest that the CIFs would be a good ‘best practice’ model for funding windows under the GCF.”

In April, a group of over 50 NGOs and global civil society networks, including Institute for Policy Studies and Jubilee South, wrote a letter to the United Nations Framework Convention on Climate Change (UNFCCC) secretariat and members of the transitional committee warning against an expanded and influential role for the Bank in the GCF. The letter states that although the Cancun agreements allow for multilateral development banks (MDBs) to second staff to the transitional committee, “the World Bank was not given a mandate to lead any process in the design of technical aspects of the Fund.” If this is the case then “the work of the transitional committee may be prejudged and the legitimacy of the committee may be undermined.”

The letter also argues that “The Green Climate Fund was created because existing climate funds, such as the World Bank’s [CIFs], have been unable to meet the needs of communities in developing countries to address the climate crisis.” It cites the long track record of the Bank in increasing indebtedness in low-income countries, funding fossil fuels and supporting projects with “devastating social and environmental impacts”.  Because of this the Bank “is not suited to advise in the design of a Fund that must ensure fair and effective long-term financing based on the principles of environmental integrity, equity, sustainable development, and democracy.”

A briefing paper due to be published in early April and endorsed by at least 30 civil society organisations, including ActionAid and Bolivian Climate Change Platform, contains a set of recommendations to the transitional committee of the GCF, including limiting the role of the Bank as trustee and ensuring financial transparency. The paper asks that the transitional committee restrict the role of the trustee “to holding the financial assets of the [GCF], maintaining appropriate financial records, and preparing financial statements and other reports required by the [GCF] Board.” It also stresses the importance of transparency and public reporting of financial records and disbursement.

With one eye on the Bank’s recent controversial energy lending (see Update 74, 73, 70), the paper also recommends that the GCF “should adopt responsible investment practices to ensure that its assets are not invested in environmentally harmful or risky sectors, companies and activities — particularly those that exacerbate climate change, such as fossil fuel investments.”It warns against any opaque and risky financial practices by the trustee, asking for regular reports on “ (i) the use of lightly regulated private pools of capital, such as derivatives and hedge funds, (ii) the remuneration structure of intermediaries for the purpose of asset management, and (iii) prevention of conflicts of interest.” The paper also asks that the “the Fund and its asset managers are not domiciled in offshore financial centres, which enables the avoidance of tax and financial regulations.”

On the CIFs, the paper recommends that in order to “streamline the multitude of funding mechanisms that currently exist and ensure that the GCF receives the majority of climate finance,” it is vital that the CIFs activate their sunset clause once the GCF is operational. The clause requires the CIFs to close operations once a new financial architecture for climate change is effective under the UNFCCC.

CIF programmes cause uproar

The Pilot Programme for Climate Resilience (PPCR), one of the CIFs, has programmes in Bangladesh, Tajikistan and Nepal (see Update 73) that are approaching implementation this year, and are already provoking protests in recipient countries. In Bangladesh, 11 civil society organisations formed a human chain in Dhaka protesting against the fact that financing for the PPCR programme is heavily loan-based. The project consists of $50 million in grants and $60 million in loans from the PPCR, which are tied up with loans of $300 million from the International Development Association (IDA), the Bank arm for low-income countries, and $215 million in loans from the Asian Development Bank.

Prodip Kumar Roy of NGO Campaign for Rural Sustainable Livelihoods said that the loans are “imprudent and premature as the multilateral climate financing process of UNFCCC is going to take shape by 2012”. He added: “It is the conspiracy of developed countries to avoid the multilateral process of UNFCCC and also to continue exploitation by debt and domination through the World Bank.”

In Nepal, 11 civil society organisations released a statement demanding that the government only accept the grant component of its PPCR package. The statement supports a polluter-pays approach to adaptation finance, based on the fact that although Nepal has historically contributed a negligible amount of global carbon emissions, it remains one of the most vulnerable countries to the effects of climate change. Echoing sentiments from Bangladesh, the statement says that “We oppose the World Bank on pledging of loans for adaptation and resilience to the nations that needs immediate financial support to adapt to the adverse effects of climate change … This is intended to devalue and defame the ongoing climate funding process under the UNFCCC mechanism.”

A January report by international NGO Oxfam details serious flaws in the PPCR process in Tajikistan. It collates the perspectives of local stakeholders and documents a range of criticism over how the PPCR strategy has been developed. These include concerns amongst local NGOs that consultation was limited to government agencies and a shortlist of civil society organisations, “meaning that the voices and perspectives of affected communities were not considered at the critical design stage”. There was limited access to Bank and other MDB staff, to project information and to documents in local languages. The report also states that “It was felt by a range of commentators … that the PPCR analysis lacked sufficient gender analysis and that the chosen projects have not, so far, been designed to take account of the different needs of women and men in relation to climate change”. The Academy of Sciences of Tajikistan told Oxfam that their research on opportunities for renewable energy in the country had not been taken into consideration.

The report concludes that the PPCR in Tajikistan is in need of radical overhaul, and recommends that it should be reoriented towards the rural small food producers who are the most vulnerable to climate change, and should support the government as primary actor for ownership of PPCR programmes. It should also include the meaningful participation of affected communities and civil society organisations, make gender equality central to climate funding, and funding processes should be transparent and accountable.

Concerns continue to mount over the lack of transparency in CIF project investment plans, especially over funding to private sector entities and financial intermediaries. In March, Swiss NGO the Berne Declaration wrote to the Bank complaining that it could not access funding information for a project in Turkey overseen by the Clean Technology Fund (CTF), one of the CIFs. The project is a credit facility for renewable and energy efficiency projects in the private sector, and is implemented by two Turkish banks, both of which claimed it was not their policy to provide information on funding. The Bank energy team also then failed to provide “even basic information” on projects funded by the banks. The Turkish Consumers’ Association has also warned that money disbursed to Turkish banks is likely to only go to the hydropower sector, and not to more environmentally friendly projects.