14 November 2016
After the commitments and headlines of Paris a year ago, COP22 in Marrakesh has to be all about implementation. Faster than anyone expected, the Paris Agreement has already been ratified, but progress on the ground needs to ramp up.
Central to meeting the commitments made by the global community on climate is finance. And the only way that funding will be made available to support investment in low carbon infrastructure and business at the level necessary to meet Paris's 2°C (or 1.5°C) target is if the private sector plays the major role.
The UN Green Climate Fund (GCF), conceptualised at the Cancun COP in 2010 and fully operational last year, has a specific mandate to encourage and facilitate private investment in climate-related activities. It aims to go much further than other public climate finance institutions in leveraging private capital for mitigation and adaptation, and using its own risk bearing capacity to enable innovation and funding at scale.
The GCF has already gone some way towards integrating the private sector into its activities. Five of the institutions which have been approved to receive funding directly from the GCF (which they will onlend or invest in other institutions or projects) are commercial entities, including global banks HSBC, Credit Agricole and Deutsche Bank. Out of around $1.2 billion in GCF funding approved to date, approximately 20% will go to projects classified as private sector.
But the GCF needs to take more action to reach out to the business and investment communities. Outside the rarified world of COPs and climate finance, the level of awareness of the fund and how it operates is lamentably low.
The Climate Markets & Investment Association (CMIA) holds one of two Active Private Sector Observer seats on the board of the GCF. Through its status as an observer, CMIA is able to give the board direct feedback from its membership on key issues that will impact how successfully the GCF interacts with private actors. CMIA, and other business organisations, may also play an important role in communicating the potential for investors and companies of working with the fund.
During a recent CMIA briefing on the GCF, we found that most attendees had not had any contact with the fund secretariat to date, and that there was a great deal of interest in learning about the process of engaging with the fund.
This highlights an urgent mission for the GCF. It has to get its message out to the investment and financial communities which are not already active in climate finance. An enormous amount of capital will be allocated to funding for infrastructure, especially in developing countries, over the next 10-20 years. It is essential that the proportion of this infrastructure that is both low carbon and climate resilient should increase during this period. The GCF can be an extraordinary catalyst for this kind of transition – but only if it expands its private sector networks and works with financial institutions and businesses of all types and all sizes. The "private sector" is not just multinationals. Agricultural cooperatives, microfinance houses and sub-national banks are essential to funding development in emerging markets.
In the same briefing, we also asked members about how, potentially, they would prefer to do business with the GCF. Most of the respondents seemed to be interested in submitting project proposals or teaming up with GCF-approved partners, as opposed to becoming a GCF-accredited entity themselves.
This may well be a good thing. The process of gaining approval for accreditation by the GCF – becoming an institution that can receive GCF funds – is a long and onerous one, and many applicants are already going through the pipeline. Any new candidates are likely to face substantial delays before gaining accreditation, although the GCF board is considering initiatives that may allow certain kinds of institutions in developing countries to have priority.
It is important, therefore, that the GCF makes progress on developing alternative ways to engage with the fund and on explaining to private sector actors what choices they have. One of these is the use of Requests for Proposals (RfPs) for particular types of projects, which may be a good way to encourage responses from financial houses outside the typical climate circles. However, the GCF needs to prioritise better communication with this wider audience to get a strong response to the RfPs it issues.
CMIA will continue to facilitate dialogue with the GCF board and secretariat, as an Active Private Sector Observer. Mobilising private capital is arguably the GCF's most important mission, and this has to start with broader engagement throughout the financial world.
Margaret-Ann Splawn is Executive Director of Climate Markets and Investment Association. Alexandra Tracy is President of Hoi Ping Ventures and CMIA's official Active Private Sector Observer representative at the Green Climate Fund