A decade old, the world’s largest climate fund receives its first pulse-check

Nearly a decade after the world’s largest climate fund, the Green Climate Fund (GCF), was established in 2010 under the U.N. Framework Convention on Climate Change (UNFCCC), the first comprehensive performance review of the Fund’s effectivity, functionality and impact was published in late 2019.

Is the Fund responding to the needs of developing countries? How are its funding decisions actually supporting adaptation and mitigation? Where and how can the Fund improve and grow? Here, Jyotsna Puri, also known as Jo, who leads the GCF’s Independent Evaluation Unit that ran the review, discusses what answers were found.

How would you summarize the main findings of the review?

It was a really ambitious performance review in terms of the credibility that we were striving for, the rigor, as well as the scope of the evaluation. We also felt it was an enormous responsibility – to help in course correcting the trajectory of the GCF at its early nascent stage was both an obligation and an honor.

There were four key takeaways. The first is that the GCF must make itself more speedy, predictable and transparent. This means that it has to focus far more on its business processes, and it has to work toward building solutions that are best for countries it is designed to serve. It has to do lot more in these areas especially because the evaluation found that the lack of transparency, predictability and speed are an important contributor to the GCF’s reputation and perceptions around it.

The second is that we asked the GCF to refocus its intentions and investments on adaptation. Currently, in U.S. dollar values, the GCF spends one-third on adaptation and two-thirds on mitigation. But if you look at developing-country needs, most are focused on adaptation. To do this, the GCF has to be a leader in thinking about how it can use its very diverse set of instruments that it currently has – which are far more diverse than any other climate fund – for adaptation – which it’s not doing. For instance, most of GCF’s adaptation work uses grant-based instruments, which means many other instruments are underutilized. The GCF should be looking at loans and guarantees and impact investing as well, and using these to leverage an otherwise untapped private sector through instruments such as resilience bonds.

Then in mitigation, the GCF should be striving far more in de-risking mitigations where the private sector is not coming in. It should be a market shaper and leader. Currently the GCF works a lot in renewable energy markets and energy efficiency markets. But the traditional private sector works here already. So that’s not a space that GCF should be playing in. It should be playing far more in areas that are far more innovative.

All of these things need to be shown in a new strategic plan that should have targets and should be part of a longer term strategy for 20 years.

And the last thing is that the GCF Board needs to start to think about delegating far more authority to the Secretariat. Currently, it’s not as delegated as it should be for a mature institution.

What are some of the more innovative, risky areas you mentioned, in which the GCF should become more involved?

One great example of that is impact bonds and crafting what could be resilience bonds or public bonds. The way impact bonds work is that there is a government or an organization, such as the GCF, that is keen to pay for outcomes or results that have been realized. But it wants to see those results. There’s a private-sector investor who’s happy to take on risk, but needs the reward for that risk. So, it wants to be paid far more, say at 12 percent interest, or in taking the interest if the results have been achieved.

The problem in today’s world is that although green bonds and blue bonds have been structured, there has been no verification of their results. There needs to be an independent evaluator that comes in to verify that those results have actually been achieved as a consequence of investments.

But it would work really well for the GCF. because GCF doesn’t work on the ground itself. It doesn’t have country offices. And currently the GCF hasn’t exploited this. If the GCF would come into this space, it could galvanize more than USD 23 trillion – the global value of impact investments. But it hasn’t taken leadership yet, and it should.

In terms of working on the ground, how has the issue of rights been taken into account in the GCF’s portfolio?

We are currently working on an evaluation of how GCF has committed itself or not to environmental and social safeguards. And this is exactly where my thought about impact bonds comes in. The GCF committed itself to building a structure where you are going to be able to realize environmental and social rights, and definitely the rights of Indigenous peoples. We have a policy.

But currently, the GCF has a very traditional view of how Indigenous peoples are considered, and we work through capital-centric models. We, the GCF, will basically go to the institutions that are located in the capitals of the countries that we are working in, the ministries, and to the extent that they are responsible for further engaging with Indigenous peoples, we leave it to them. That’s a fairly hands-off way of working, and so we are trying to provoke the GCF to do far more with Indigenous peoples in a direct way. The institution has been set up but the processes need to be turned more in that direction.

The GCF should also be moving away from the Hippocratic do-no-harm paradigm in the environmental and social space. It has to be far more positivist. For example, it should be targeting positive environmental and social benefits in each of its investments.

We also think that the GCF should be looking at equity in an upfront and manifest way. This is something that our newest evaluation is also examining and recommending.

Another recommendation of the review is positioning the GCF as a thought leader. How will this be achieved?

It’s really about building structures where people own the decisions. This is what we are getting to understand from behavioral science today, right? People don’t change behavior just because they have information or knowledge. Climate change is your best example of inaction of those who have all the knowledge. People change behavior when you set up the incentives and when you set up the infrastructure to make it possible. Smoking is a very good example of that.

I think where GCF and where the Independent Evaluation Unit can and should come in, in a very strong way, is to think about, well, what should this infrastructure look like so that people start to feel like these are their decisions, and they take action?

One example of that is country ownership. It’s a very oft-repeated, almost boring phrase that is used by most multilateral organizations: that they have committed themselves to be “country-owned.” Frankly, most organizations don’t do a very good job of it, and that’s because they haven’t set up the structures that can enable countries to totally lead and own the pathways that they want.

So we must think far more about incentives. One way in which this can be enabled is that the GCF could be asking accredited entities to ‘co-develop, co-implement’ between international and national accredited entities. That will also enable a two-way exchange between the two types of accredited entities. Another way is to think internally within GCF to build solutions-based teams rather than providing solutions to countries that are based on the expertise of the individual to whom the investment proposal has come to.

We must think far more about framing. We must think far more about engagement and who should the messenger be. How should you make messages far more salient? How should you appeal to egos? Because funnily, that’s what creates changes in behavior as well. How can you, therefore, change mindsets? And with all that, how can you better advocate? Once we start to embrace all of this, we’ll learn to communicate and lead far better.