Replenishing the Green Climate Fund

Delivering on a promise to help developing countries meet climate challenges remains critical.

Georgia Hammersley

28 June 20235 min read

The Green Climate Fund (GCF) was established in 2010 as a linchpin for global solidarity between rich and poor countries. Operating under the United Nations Framework Convention on Climate Change, the GCF was a key component of the rich world’s commitment to provide US$100 billion a year in climate finance to developing countries.

Despite a difficult start, the GCF is now the world’s largest climate fund, with a portfolio of approved projects totalling more than US$12 billion with the aim to scale-up. Like many other multilateral financing mechanisms, the GCF relies on periodic replenishments from donor governments to sustain its operations and now aims to secure its funding for 2024–27 by the end of this year.

This leaves an important question for donors, including Australia, which were previously members but have since left. Is it time to prioritise the GCF and re-join?

The question is especially important when there are growing calls for donors to contribute more to various other climate funding mechanisms. These include a potentially expanded climate-related remit for the World Bank, the Just Energy Transition Partnerships being established for larger emerging economies, and a Loss and Damage Fund to support the worst affected countries, to name a few.

TOPSHOT - Aerial view of the Canudos Wind Energy Complex, in Canudos, Bahia state, Brazil, taken on May 5, 2023. A wind farm in northeastern Brazil sounds like a welcome climate-friendly energy solution, but it is causing controversy over another kind of environmental worry: the impact on the endangered Lear's macaw. (Photo by Rafael Martins / AFP) (Photo by RAFAEL MARTINS/AFP via Getty Images) — Aerial view of the Canudos Wind Energy Complex, in Canudos, Bahia state, Brazil, 5 May 2023 (Rafael Martins/AFP via Getty Images)

The GCF only has a short operational history, so evidence to show the positive impact of its work is thin. An independent review, commissioned by the Fund, does however point to important progress in some key respects.

Most notably, changes in governance – especially shifting from consensus to majority-based board decisions – have enabled a major acceleration in project approvals, with a record US$3 billion worth of projects approved in 2021. Its US$12 billion portfolio is supporting more than 216 projects across 129 countries from solar electrification in Pakistan to climate information services in the Pacific.

Substantial improvements in delivery speed have also been made, cutting average project approval-to-disbursement time by nearly half from 19 to 11 months. Many more “direct access” entities from developing countries and regions have also been accredited, with these now outnumbering international intermediary partners (such as multilateral development banks) by almost 2:1.

However, the independent review also identifies several substantial shortcomings.

Whether the GCF is targeting its resources to countries and projects with the greatest impact remains unclear.

Most notably, it is not clear whether the GCF is directing its financing in the most effective ways possible, for either mitigation or adaptation purposes. Currently, the aim is to split financing equally between mitigation and adaptation, with half within the latter going to defined vulnerable country groups – including small island developing states, least developed countries, and African states. This ambitious and crucial principle sets the GCF apart from other climate funds that predominantly focus on mitigation.

But whether the GCF is targeting its resources to countries and projects with the greatest impact within these categories remains unclear. Unlike other multilateral institutions, such as the World Bank, the GCF lacks a formula for allocating its resources based on climate impact. Instead, it relies on an application-based approach, with the GCF board making decisions on a project-by-project basis. According to one study, there has been little correlation between GCF financing amounts and either country emissions or climate vulnerability.

Vulnerable country groups are also disadvantaged by the application-based mechanism. Despite the increase in the number of accredited “direct access” entities, the total volume of GCF financing flowing directly to developing countries remains low. With low institutional capacity and limited technical expertise, access to adequate amounts of funding is only achievable via international intermediary partners (such as multilateral banks or non-governmental organisations), compromising country ownership.

At the strategic level, the GCF still lacks a clear mission. The core goal of driving a “paradigm shift” towards low-emission and climate-resilient development, for instance, remains poorly defined and without a tangible pathway for stakeholders to achieve it. The review also identified a limited risk culture that fails to align with the stated high-risk appetite. Instead, the GCF has adopted a “do it all” approach, ostensibly to appease different board interests and resulting in prolonged operational processes and significant gaps in key policies.

A critical underlying issue is the functioning of the GCF board. A key intention of the GCF is to bolster global solidarity by strengthening its ownership among developing countries. Board representation is therefore evenly split between developed and developing country members, a major differentiating factor with other multilateral development agencies such as the World Bank.

To date, however, this arrangement is yet to deliver. Instead, it has given rise to tense board meetings akin to those seen at UN global climate talks. Effectively, donors are still in the driver’s seat, with unreconciled power imbalances and informal exchanges outside of the boardroom allowing donors to retain excessive sway.

Following the review, the GCF has issued a management response largely accepting the findings though any resulting decisions will only be evident once the GCF releases its next Strategic Plan to serve as a roadmap for the forthcoming programming cycle.

Considering the proliferation of calls on donors to contribute more to various other climate financing mechanisms, it will be essential for the GCF to put forward a credible strategy for addressing the shortcomings identified in the review. Ultimately, that will be a matter not simply for the GCF secretariat but for the Fund’s member countries, especially donor governments.

GCF donors should be prepared to meet the challenge – in particular, by squaring the desire to scale up GCF financing with strong demands from developing countries for far greater direct access. To date, the Fund has only been able to deliver its current scale of financing by channelling funds through international intermediaries. For the GCF to truly deliver, this will need to change.