Resilience through interlinkage: the green climate fund and climate finance governance

ABSTRACT

The Green Climate Fund (GCF) is a significant and potentially innovative addition to UNFCCC frameworks for mobilizing increased finance for climate change mitigation and adaptation. Yet the GCF faces challenges of operationalization not only as a relatively new international fund but also as a result of US President Trump’s announcement that the United States would withdraw from the Paris Agreement. Consequently the GCF faces a major reduction in actual funding contributions and also governance challenges at the levels of its Board and the UNFCCC Conference of the Parties (COP), to which it is ultimately accountable. This article analyzes these challenges with reference to the GCF’s internal regulations and its agreements with third parties to demonstrate how exploiting design features of the GCF could strengthen its resilience in the face of such challenges. These features include linkages with UNFCCC constituted bodies, particularly the Technology Mechanism, and enhanced engagement with non-Party stakeholders, especially through its Private Sector Facility. The article posits that deepening GCF interlinkages would increase both the coherence of climate finance governance and the GCF’s ability to contribute to ambitious climate action in uncertain times.

Key policy insights

• The Trump Administration’s purported withdrawal from the Paris Agreement creates challenges for the GCF operating model in three key domains: capitalization, governance and guidance.

• Two emerging innovations could prove crucial in GCF resilience to fulfil its role in Paris Agreement implementation: (1) interlinkages with other UNFCCC bodies, especially the Technology Mechanism; and (2) engagement with non-Party stakeholders, especially private sector actors such as large US investors and financiers.

• There is also an emerging soft role for the GCF as interlocutor between policy-makers and non-Party actors to help bridge the communication divide that often plagues cross-sectoral interactions.

• This role could develop through: (a) the GCF tripartite interface between the Private Sector Facility, Accredited Entities and National Designated Authorities; and (b) strengthened collaborations between the UNFCCC Technical and Financial Mechanisms.

KEYWORDS:

• Climate change law
• climate finance
• Green Climate Fund
• climate governance
• Paris agreement
• private sector

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The US Administration’s announced withdrawal from the Paris Agreement cannot come into effect until November 2020 due to Article 28 of the Agreement, which provides that withdrawal will take three years from the date the Agreement gained legal force for the ratifying nation (being 4 November 2016) plus another year. However, as suggested by Brändlin (2017), the question of what will happen to the GCF in the interim pushes consideration of this issue into the present.

2 Most Contribution Agreements specify a binding dispute resolution mechanism, e.g. Trust Fund Contribution Agreement among the Grand Duchy of Luxembourg, the Green Climate Fund, and the International Bank for Reconstruction and Development, serving as the interim trustee of the Green Climate Fund Trust Fund concerning the Green Climate Fund Trust Fund (MTO No. 069022), 10 March 2016, par. 10. On the role of arbitration in relation to both the Paris Agreement and the Green Climate Fund, see Levine (2016).

3 Multilateral financing is only one form of climate finance. Overall, more climate finance is raised domestically than internationally, and more funding comes from private rather than public sector sources (CPI, 2017).

4 In both 2017 and 2018, former New York mayor Michael Bloomberg announced that he would contribute funding to the UNFCCC Secretariat to make up for funding cuts by the US Administration, but this funding is intended for UNFCCC Secretariat operations and not for the GCF (Bloomberg, 2017; Bloomberg, 2018). It is worth noting that if philanthropy were to become a significant funding source for the GCF, it would raise questions of legitimacy and accountability that multilateral climate financing instruments have not had to address to date.

5 Part of the reason may be that local authorities cannot meet the standards of the GCF in order to become accredited, which includes high fiduciary standards and social and environmental safeguards. For a deeper discussion of cities and the GCF, see e.g. Junghans, Eckstein, Kreft, Syberg, and Weischer (2016).

6 However there is a notable lack of American commercial and investment banks on the list. Undoubtedly their preference is to declare support for regulatory (not political) initiatives such as the Financial Stability Board’s recommendations on climate-related corporate disclosures: Statement of Support for the TCFD Reccomendations and Supportive Quotes (June 2017), https://www.fsb-tcfd.org/statement-support-supporting-companies-june-2017/.