Songdo, Republic of Korea. 31 March 2023. An independent review of the Green Climate Fund (GCF) has found that the Fund made notable progress in its governance procedures during its first financing replenishment period (GCF-1, 2020-2023). However, the review urges the GCF to examine how it can improve other areas, including risk management, alternative programming pathways and innovative opportunities for accessing GCF funds.

Produced by the GCF’s Independent Evaluation Unit (GCF-IEU) and adopted by the GCF Board at its thirty-fifth meeting, the Second Performance Review not only assesses the Fund’s operational performance but will also inform its second replenishment (GCF -2, 2024-2026). In its review of the Fund’s performance, the report notes a number of significant improvements in the GCF’s governance since 2020. The review finds that the GCF has steadily evolved and matured as an organization during GCF-1, working to fulfil its Governing Instrument’s (GI) mandate and its Updated Strategic Plan’s (USP) operational priorities and actions. Its work on institutionalizing policies and processes is beginning to reap benefits, including higher-quality funding and readiness proposals, increased programming volumes and modestly improved process efficiency. The size of the portfolio doubled in the first two years of GCF-1 and now exceeds USD 11 billion.

Despite COVID-19’s impact, the GCF encountered no insurmountable operational challenges. Its levels of transparency and integrity keep it accountable. The Board effectively fills its key functions of approving funding proposals, endorsing entities to work with the GCF and clarifying and improving the Board’s operations. The GCF’s non-state representation compares well to other organizations, with civil society groups and private sector associations institutionalized in the GCF governance structure. Nevertheless, the ability of observers to meaningfully influence GCF Board decision-making needs reviewing.

The review finds access to GCF financing and accreditation of partner entities overburdened, suggesting they could be better achieved through other channels. These include other forms of GCF partnerships, country capacity-building and access mechanisms. Alternative means for accessing GCF support have not been sufficiently effective or deserve more attention in the GCF’s USP-2 for 2024-2027. GCF could consider access models used by trust funds such as the Global Fund to Fight AIDS. These funds use mechanisms consisting of government and non-government actors determining program priorities, identifying implementing partners and overseeing implementation. Such a model appears feasible under the GI but is underexplored within the GCF context.

The review highlights the GCF’s uncertainty regarding entity and project risk management. Although the GCF has identified different levels of due diligence responsibility, it is unclear when the GCF or its partners should manage risks. Also, the GCF’s oversight does not seem readily scalable for the Fund’s rapidly growing portfolio of funded activities. Many GCF areas are involved in risk management, but the interactions and accountabilities are poorly understood, often leaving risk ownership unclear and risk culture diffident. The review argues that the GCF’s underdeveloped approach to managing project risks places the Fund at risk. On the other hand, it finds that some GCF staff members and external partners characterize GCF’s risk management as excessive, stalling funding proposal processes and causing inconsistencies in how other risk parameters are applied.

Regarding the impact of GCF investments, many project results are pending. Given the long-term nature of climate impact and the relatively young age of GCF projects under implementation, few projects report significant greenhouse gas emissions reductions or adaptation impacts for beneficiaries and asset resilience. The IEU’s projections indicate the Fund’s portfolio will likely exceed its revised initial resource mobilization benchmark for mitigation but not adaptation. The GCF will also likely meet its target for funding channelled through direct access entities. A relevant and significant finding is that results management has been underdeveloped to serve the GCF’s need to demonstrate results as its portfolio matures.

According to the Head of the Independent Evaluation Unit, Mr Andreas Reumann, the review demonstrates that while the GCF plays a central and successful role in global efforts to combat climate change, it is still a learning institution optimizing how best to deliver low-emission and climate-resilient activities in developing countries.

“The Second Performance Review’s evidence and data demonstrate that the Green Climate Fund is critical in supporting developing countries’ transition to low-carbon, climate-resilient development. But this is not to suggest the GCF’s approach is in any way perfect. After all, the GCF is a learning institution, and as the review shows, the Fund needs to up its game in a number of areas, including risk management, access to funding and results management,” Mr Reumann said.

“Nevertheless, the improvements noted by the IEU review and the Secretariat’s largely positive response to the review’s recommendations show that the GCF is increasingly the deliberate, calculated and coherent climate partner that developing countries need in their fight to survive climate change.”

The review puts forward seven recommendations for the GCF. The IEU will submit a report on the management’s response to the Second Performance Review to these recommendations at the first Board meeting in 2024. The core recommendations from the review are as follows:

1. In updates to the strategic plan, the GCF should clarify the Fund’s strategic positioning, articulate programming and operational priorities, and address long-term and short-term trade-offs. The ambition and strategic direction should align with available resources.

2. At the country level, the GCF should clarify its intended approach, including articulating its ambition to engage strategically in country, widening the GCF’s definition of partnership, mapping each partner’s capacity to engage strategically and clarifying the role of readiness support.

3. The GCF should review accreditation priorities and support and explore other access mechanisms beyond accreditation. It should build capacities for better access, improve country-owned funding proposal development, and enhance the efficiency and transparency of the accreditation process.

4. The GCF Secretariat should continually improve operational efficiency, predictability and relevance, ensuring they reflect policy priorities, strategic objectives, climate urgency, and target delays within the GCF’s control.

5. The GCF should pivot from an approval orientation towards an approach emphasising results and learning, with a coherent results architecture for GCF-2.

6. The GCF should urgently clarify the approach to managing entity and project risks for funded activities and readiness and preparatory support grants.

7. The GCF should strengthen governance processes to provide more effective and efficient leadership for the Fund.

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Interviews are available with the report’s lead author, Dr Archi Rastogi.

For interviews and further details, please contact:

 

Dr Archi Rastogi, Chief Evaluation Advisor, GCF-IEU

E-mail: [email protected]

Yeonji Kim, Knowledge Management and Uptake Specialist a.i., GCF-IEU

E-mail: [email protected]

The GCF Board established the IEU as an independent unit to provide objective assessments of the performance and results of the Fund, including its funded activities, its effectiveness, and its efficiency. The GCF supports developing countries mitigate and adapt to climate change. It was established in 2010 under the United Nations Framework Convention on Climate Change to help channel financial resources to developing countries for climate action.