Accessing climate finance from GCF & GEF: Hurdles and way forward

| Updated: July 31, 2022 20:51:08

Accessing climate finance from GCF & GEF: Hurdles and way forward

Climate change has created and is creating negative impacts for human beings. Global bodies including United Nations (UN), World Bank (WB), Asian Development Bank (ADB), United Nations Development Programme (UNDP) and United Nations Environment Programme (UNEP) are taking various measures to reduce carbon emission. These bodies have also taken various measures to generate climate finance.  Climate finance is necessary to support mitigation and adaptation actions that will address climate change. The United Nations Framework Convention on Climate Change 1992 (UNFCCC), the Kyoto Protocol and the Paris Agreement call for financial assistance from Parties with more financial resources to those who lack resources and are more vulnerable. Developed country parties are required to assist the countries concerned in meeting the costs of adaptation to those adverse effects.

International climate funds such as Least Developed Countries Fund (LDCF), the Special Climate Change Fund (SCCF), Global Environment Facility (GEF) Trust Fund, The Adaptation Fund and Green Climate Fund (GCF) provide finance to support adaptation and mitigation. Among these, LDCF and SCCF are managed by the Global Environment Facility. Developed countries and Multilateral Development Banks (such as WB Group, ADB, the European Investment Bank) contribute to these multilateral climate funds and other climate financing.

The Adaptation Fund is financed with a share of proceeds from the clean development mechanism (CDM) and other sources of funding. There is also a decision that once the proceeds become available under Article 6.4 of the Paris Agreement, the Adaptation Fund shall no longer serve the Kyoto Protocol. This paper discusses the role of GEF and GCF in providing climate finance and the challenges in accessing finance from these funds.

GLOBAL ENVIRONMENT FACILITY: As an operating entity of the financial mechanism of the United Nations Framework Convention on Climate Change (UNFCCC), the Global Environment Facility (GEF) plays a key role in mobilising investments and providing robust financial support for climate change adaptation and mitigation projects. GEF also promotes market-based mechanisms leading to widespread adoption and dissemination of climate-friendly technologies. Focal areas of GEF are: Biodiversity, Climate change (mitigation and adaptation), International waters, Chemicals and waste management and Land degradation.

GEF'S CO-FINANCING: GEF also plays a significant role in mobilising co-financing. Since its establishment in 1991, the GEF has been providing more than $21.1 billion in grants and mobilised an additional $114 billion in co-financing more than 5,000 projects in 170 countries.  Loans from multilateral development banks continue to play a major role in co-financing GEF projects. Private sectors also co-finance in GEF projects but their interests are mostly in Non-Grant Instruments (NGIs) and Impact programmes (IPs). The GEF has a more inclusive definition of co-finance that also accounts for in-kind as well as leveraged and sequenced finance.

GEF'S PRIVATE SECTOR ENGAGEMENT STRATEGY (PSES): In recognition of the wide range of private sector contributions to the GEF projects and programmes, GEF partnership seeks to engage private sector actors through different engagement modalities (such as blended finance, capacity development, technical assistance, and policy development) that can support the private-public and private-public-philanthropic partnerships. GEF's horizontal and vertical approach to working with the private sector extends the reach of GEF funding beyond specific regions and brings a wider range of resources and solutions from all levels of the private sector.

As of June 30, 2021, the GEF has funded 1,035 projects on Climate Change Mitigation (CCM) with $6,813.4 million in GEF funding, including GEF project financing, project preparation grants (PPGs) and Agency fees in 166 countries. Moreover, the GEF Small Grants Programme (SGP) has supported more than 25,000 grants executed by civil society and community-based groups. Bangladesh has a number of projects with GEF-6 and GEF 7 funding. Among these, building climate resilient livelihoods in vulnerable landscapes in Bangladesh (BCRL) is a flagship project approved by GEF under GEF-7.

GREEN CLIMATE FUND: The GCF is an operating entity of the financial mechanism under UNFCCC to assist developing countries in adaptation and mitigation practices of climate change. The Fund aims for a 50:50 balance between mitigation and adaptation investments over time.

GCF funding is important to address the shocks from climate change (for which the country is not responsible) to enhance resilience of the climate vulnerable people. GCF has considerable consideration in addressing climate change. Bangladesh obtained $368.6 million climate finance for 6 projects from the GCF. Moreover, seven (7) Readiness Activities with a readiness support approved of $5.1m are being implemented in Bangladesh with GCF support.

Bangladesh obtained first concessional financing of $256.48 million [Technical Assistance Grant of US$ 6.48 million and concessional Loan of US$ 250.00 million] from the GCF. IDCOL, as the Direct Access Entity (DAE) of Green Climate Fund (GCF), received approval for the aforesaid funding proposal for the mitigation project titled "Promoting private sector investment through large-scale adoption of energy saving technologies and equipment for Textile and Readymade Garment (RMG) sectors of Bangladesh". The objective is to adopt energy-efficient technologies and equipment in the textile and garment sector to reduce 14.5 million tons of carbon dioxide equivalent (MtCO2)   in emissions.

CHALLENGES AND WAY FORWARD: Accessing climate finance from the GCF requires a complex, resource intensive and arduously lengthy process. The GCF funding proposal for "Promoting private sector investment through large-scale adoption of energy saving technologies and equipment for Textile and Readymade Garment (RMG) sectors of Bangladesh" project was a 157-page document. GCF accreditation processes are slow, resource intensive and challenging. Countries willing to access funds often face delay and struggle to fulfil the accreditation criteria (e.g. fiduciary principles and standards, environmental and social safeguards and Gender-sensitive development impact).  In this respect, the head of the Maldives Delegation stated (at the Plenary held on Nov. 12,  2021 of the COP 26) that it takes years to access climate fund from the Green Climate Fund (GCF). the delegation also added, "for one project, we were asked to provide scientific proof dating back 30 years that our islands are actually eroding and losing land due to impacts of climate change". GCF, however, claims that it made significant progress in accelerating access to climate finance. As per GCF the adaptation project "SAP008: Extended Community Climate Change Project-Flood (ECCCP-Flood) (launched by the executing entity (EE) for the project Palli Karma-Sahayak Foundation-PKSP) progressed with near-record speed, in only about a quarter of the time expected.

Despite GCF's claim of significant progress in this project financing, it still took 6 months (against about 2 years taken for KfW project to help mainstream climate-resilient infrastructure in Bangladesh) in getting the Funded Activity Agreement (FAA) approved from the date of approval of the project by the GCF Board. The Infrastructure Development Company Limited (IDCOL), one of the DAEs in Bangladesh, reported that accreditation had taken almost two years and involved the upload of 188 documents.

Inadequate fiduciary system of Bangladesh is another hurdle in accessing climate finance from GCF. Although public sector entities follow Generally Accepted Accounting Principles (GAAP) in maintaining their accounts, they 'do not maintain accounts of assets and liabilities at the organizational level and as such fails 'in producing Annual Financial Statements (Income Statements and Balance Sheets) at the organizational level which is 'a must for getting accreditation of GCF (Hossain, 2017).

Bangladesh lacks historical data/statistics of climate parameters. In the absence of historical data on climate pattern, it becomes difficult to substantiate whether an incident such as flood in haor area is caused by climate change or it is a regular phenomenon. (countries such as Egypt are getting big funds from GCF, we have to develop our system and capacity like Egypt to attract more from climate funds)

One of the features of GEF fund is that the project to be implemented by GEF fund has to be processed and approved by UN agency (e.g. UNDP, UNEP, FAO). Another feature is that the project has to be executed in a country-driven manner. But some projects are not consistent with country-driven objectives. For example, Green Brick Project was implemented during 2004-05 and the UNDP directly executed it. Execution by Direct Execution Arrangement/Organ (DEX) deprive National Execution Arrangement/Organ (NEX) of the authority in finance and management choice. Project is country-driven if it is based on national priorities and the activities and objectives of the project are compatible with the country's climate policy, and objective. Execution of project through NEX instead of DEX seems preferable.

Although we have requisite capacity in Water Development Board, LGED to develop projects regarding climate shelter, flood shelter, embankments, we may consider capacity enhancement and retention of skilled officials in the ministry/department level to draft high-quality projects (i.e. projects are tailored to national and local contexts). An explicit link is to be made between the country's context and the purpose(s) for which the funds will be used. For instance, a request for funds to launch a National Adaptation Plan (NAP) process should articulate how adaptation planning support will respond to and advance Nationally Determined Contributions (NDCs). More important, we need institutional mindset and motivated officials to gain skills to develop climate projects.

Bangladesh needs to develop a comprehensive Measurement, Reporting and Verification System (MRV) not only for adaptation and mitigation but also to get access to finance from international sources. MRV provides a clear and robust mechanism for ensuring transparency and accountability needed to access finance for NDC implementation. MRV system can perform multiple functions, such as collating and reporting on information on (a) progress towards 2030 targets, (b) projections of future GHG emissions and other key parameters. A comprehensive science-based MRV system will aid meeting transparency requirements (Article 13) of the Paris Agreement.

Last but not least, it will be expedient for Bangladesh to explore and negotiate alternative/new international sources of climate funds such as funds from Multilateral development Banks (MDBs), bilateral sources and private sector to undertake climate projects.  Engagement of private sector seems critical for mobilisation of adequate finance for climate change to implement NDC and necessary adaptation projects. For many businesses, investing in climate resiliency is essential for business continuity and the avoidance of climate-based losses.

It is a matter of happiness to note that the global fashion brands and philanthropic donors have agreed in Copenhagen Fashion Summit 2022 to contribute to establish a Fashion Climate Fund (worth $250 million) to help decarbonise and modernise fashion industry supply chains.


Dr Mohammad Abu Yusuf is Climate finance analyst and an Adjunct faculty, AIUB, Dhaka Bangladesh. [email protected]

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