Reflection 1

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MULTILATERAL CLIMATE FUNDS AND
THEIR EFFECTIVENESS: KEY LESSONS
FOR THE GREEN CLIMATE FUND
Sabina Potestio, ICCG

Multilateral climate funds and their effectiveness: key lessons for the
Green Climate Fund
ICCG Reflection No. 25/July 2014
1
Multilateral Climate Funds and their Effectiveness:
Key Lessons for the Green Climate Fund
Sabina Potestio (ICCG)
Abstract
In 2010 the Conference of the Parties (COP) to the United Nations Framework Convention on
Climate Change (UNFCCC) decided to establish a new financial initiative, the Green Climate Fund
(GCF), with the intention of catalysing new additional funds for the most vulnerable countries in
order to help them mitigate and adapt to global warming. To date, this fund is not yet been fully
operational and many issues concerning governance, allocation of resources have yet to be
solved. For this purpose, a brief review of the literature on the effectiveness of multilateral funds
and, in particular, of two of the UNFCCC funds, is provided as food for reflection on important
policy lessons that can be learnt from previous successful experiences within climate finance.

Green Climate Fund
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Introduction
Over the decades, risks due to climate change and exposure to them have risen dramatically as
affecting entire populations around the world. These effects have been felt across different sectors,
which range from human health to agriculture and water resources. As has often been pointed out
by scholars and the international community, the developing countries and, in particular, the Least
Developed Countries (LDC’s), are the ones that run the greatest risks while lacking the necessary
economic resources to effectively mitigate and adapt to our changing environment. This pervasive
exposure of vulnerable populations raises serious questions of responsibility, fairness and
governance1.
For this reason, various climate funds have been set up by regional, national and international
actors to transfer public and private resources from North to South by supporting mitigation and
adaptation activities. Climate finance may therefore be thought of as capital flows targeting low-
carbon and climate-resilient development with direct or indirect greenhouse gas mitigation or
adaptation objectives/outcomes2. Article 4.3 of The United Nations Framework Convention on
Climate Change (UNFCCC) outlines clear commitments for the developed country Parties to meet
the full costs incurred by developing country Parties by providing new and additional financial
resources3. The Parties to the UNFCCC have, in fact, set up a financial mechanism which aims at
providing the necessary financial resources, on a grant or concessional basis, in order to help the
most vulnerable populations to make the transition to low-carbon growth and to reduce the
adverse impacts of climate change.
The operation of the financial mechanism is entrusted to the Global Environment Facility, a
partnership of 183 countries that has co-financed 3,690 projects in 165 developing countries4
focusing on both mitigation and adaptation activities and which administers the Global
Environment Facility Trust Fund (GEF), which was established in 1991. In addition, the Parties to the
UNFCCC have established, over the years, special climate funds with the aim of providing
guidance for the Global Environment Facility. Among these is the Adaptation Fund (AF) and the
Green Climate Fund (GCF). The Adaptation Fund (AF), established in 2009, finances adaptation
projects and programmes under the Kyoto Protocol and is also administered by the Global
Environment Facility. The Green Climate Fund (GCF) was established in 2010 but is not yet fully
operational.
Here a brief review of the literature on the effectiveness of multilateral funds and of the two
UNFCCC funds (the GEF and the AF) mentioned above is provided, with the objective of reflecting
on important policy lessons which may be transferred to the newly established Green Climate Fund.
With limited public resources and expenditures it becomes crucial to understand what is working or
not and what can be done to improve the effectiveness of climate finance.
The Green Climate Fund
The Green Climate Fund (GCF) was established as an operating entity of the financial mechanism
in Cancun, Mexico, during the sixteenth session of the Conference of the Parties (COP) to the
United Nations Framework Convention (UNFCCC) by decision 1/CP 16. The objective was to create
a fund which would make an important and ambitious contribution to the global efforts towards
achieving the goals set by the international community to combat climate change and to play a
key role in channelling new, additional, adequate and predictable financial resources to
1 Adder and Nicholson-Cole, 2011
2 Buchner et al, 2013
3 http://unfccc.int/essential_background/convention/background/items/1362.php
4 http://thegef.org/gef/whatisgef

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developing countries5. The Green Climate Fund addresses both mitigation and adaptation issues
giving access to resources on a geographical balance and by adopting a gender-sensitive
approach. The fund’s work is guided by transparency and by an equal representation of
developing and developed country Parties throughout the decision-making process and is
governed by a Board of 24 members, and by a Secretariat and a Trustee which are under the
supervision of the Board.
The aim of the Green Climate Fund is to disburse funds for projects and programmes both for the
public and private sector (the latter through the Private Sector Facility) and offers two types of
financial instruments: grants and concessional loans. Grants require no repayment while
concessional loans come either with zero per cent interest rates or at interest rates which have yet
to be determined. The submission and approval process of projects and programmes includes the
accreditation of Implementing Entities (IEs), Executing Entities (EEs) and Intermediaries. IEs submits
funding proposals and oversee the approved activity from its inception to its conclusion,
Intermediaries are in charge of transferring funds from the GCF to EEs while EEs receive the funds
and manage and administer the projects6
The GCF will formally begin to operate as soon as it will be capitalised and as soon as the eight
essential operational modalities are implemented. For this purpose, from the 18th to the 21st of May,
the Green Climate Fund Board met in Songdo, Republic of Korea, to discuss important decisions to
finalise its rules and procedures and start mobilising significant funds to tackle climate-related issues.
These included the initial results management framework, the initial process of proposal approval,
the guiding framework and procedures for accrediting national, regional and international entities
and intermediaries for implementation, the financial risk management and investment frameworks
and the structure of the GCF and its Private Sector Facility.
Although the GCF’s Board, during this last meeting, successfully reached, important agreements
on the essential requirements for the fund to become fully operational, various key aspects have to
be clarified and resolved for the Green Climate Fund to ultimately achieve its goal. These revolve
around the leveraging, managing and disbursing of its financial resources. In addition to this, the
objective of the fund to raise $100 billion per year by 2020 has yet to be achieved, since only a
small part of this sum has been pledged and transferred from the developed country Parties to
support the Board’s decisions.
The effectiveness of multilateral climate funds
The first group of articles reviewed here deal with the effectiveness of multilateral climate funds in
general. Two of these, in particular, make a rigorous analysis of the governance aspects of climate
finance. These are A Human Rights-based Approach to Climate Finance by Johl and Lador (2012)
and Beyond the Jargon: the Governance of Climate Finance edited by Dubosse and Calland
(2011). These highlight how many global funds have failed to realise democratic governance and
how the governance of climate finance has crucial implications for human rights. A ‘good’
governance system, they point out, depends on principles and practices of transparency and
accountability, disclosure of information7 and equity concerns. In addition, the core design
elements on which global funds should focus include ownership of authority, public participation,
structures, mandate, membership and representation8. In particular Johl and Lador stress the
importance of public participation in the decision-making process which directly affects the
5 http://gcfund.org/about-the-fund/mandate-and-governance.html
6 http://globalccsinstitute.com/insights/authors/MarkBonner/2014/05/22/green-climate-fund-progress---“road-
paris”-new-york?author=NzU3
7 Dubosse and Calland, 2011
8 Dubosse and Calland, 2011

Green Climate Fund
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legitimacy of climate funds; and the need for climate finance to take into account certain
vulnerable groups so as to address rather than to exacerbate inequities9
On the other hand, in articles such as The effectiveness of international climate finance by
Nakhooda (2013), Going beyond aid effectiveness to guide the delivery of climate finance by Bird
and Glennie (2011) and Improving the effectiveness of climate finance: key lessons by Chaum et al
(2011), the focus shifts from an analysis solely of governance analysis to one centred also on
outcomes of climate financing and what important key lessons may be used to guide the
allocation of climate resources. In the article by Nakhooda, for instance, the effectiveness of
climate funds is assessed by considering its driving objectives, the range of instruments it offers and
the extent to which these objectives are attained. This is analysed by looking at effective spending
and effectiveness of outcomes. As concerns the effectiveness of spending, the article highlights,
among the other things, the importance of transparency of operations, the efficiency of the
decision-making process, the provisions for stakeholder participation, the gap between pledged
and deposited resources, the extent to which funds are managed by national institutions and the
key elements of the results framework of the fund10. As for the effectiveness of outcomes, the article
points out the role of the fund in working at a diversity of scales; strengthening and enabling the
recipient country’s regulatory and political environments; catalysing action by diverse actors,
especially the private one; supporting innovation and fostering national ownership11.
In the paper edited by Bird and Glennie, the authors examine the possibility of using the aid
effectiveness framework to steer climate finance so that it may lead to effective, efficient and
equitable outcomes. Although aid and climate finance are substantially different under various
aspects, important principles of aid effectiveness may be transferred to climate finance. In practice
these concern two areas: country allocation decisions and choosing from among funding
modalities12. Regarding country allocation, it is important to distinguish between different country
contexts and the development of a coordinated approach for climate finance delivery by taking
into consideration the timeliness and appropriateness of disbursement of resources. As for funding
modalities, the authors stress the need to accelerate current efforts of integrating climate finance
with national development spending and the importance of establishing the principle of
complementarity as an important guiding principle which will allow for a differentiation between
development and adaptation spending13.
In the article by Chaum et al, the authors illustrate how climate finance may be enhanced and
made more effective by learning from previous best practices. According to them, climate finance
may become more effective if clear objectives are shared among stakeholders; it supports
activities that have a powerful transformative effect; it promotes a balance between public and
private finance; the projects and programmes it funds incorporate a results-based approach; it
considers cost-effectiveness and funding is predictable and less fragmented14.
The second group of articles analyses the effectiveness of two UNFCCC funds: the Global
Environment Facility and the Adaptation Fund. The paper by Nakhooda (2013), The effectiveness of
climate finance: a review of the Global Environment Facility, a recent study on the performance of
the GEF, and provides an overall picture of this fund’s work highlighting its strengths and
weaknesses. As for its governance aspects, the GEF is a networked institution with multiple and
diverse lines of accountability to the GEF council and Assembly, the UNFCCC COP, and its partner
agencies. It has also established a secretariat to respond to the different needs of different
stakeholders. Both developing and developed countries are equally represented although
9 Johl and Lador, 2012
10 Nakhooda, 2013
11 Ibid.
12 Bird and Glennie, 2011
13 Ibid.
14 Chaum et al, 2011

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5
contributor countries exercise influence through replenishment negotiations15. NGOs are actively
involved and represented within the GEF through a network which also includes only three
representatives from Indigenous Peoples’ organizations, reflecting an as yet poor representation of
civil society. The fund’s work is highly transparent as all documents regarding project finance are
publicly available on the fund’s website. With regard to its investment strategy and allocation, the
GEF is one of the few funds to have a formal criteria-based approach for the allocation of
resources. In particular the GEF uses a System for Transparent Allocation of Resources (STAR)
weighted to reflect the additional funding needed in the poorer countries16. On the other hand,
the GEF does not provide detailed reports on the status of disbursement of funds for project
implementation. Regarding scale, the fund has supported a variety of projects of different sizes and
has engaged with local institutions to formulate investment strategies while also playing an
important role in enabling environments by improving governance and underlying policies in the
recipient countries. Moreover, the monitoring and evaluation process has proven to be quite
effective since it has set up standardised tools to account for GHG emissions reductions. Strictly in
terms of the outcomes of its spending, the GEF has been relatively successful in leveraging
additional investments but has struggled to engage proactively with the private sector due to slow
funding processes. However, the level of success in technological innovation has been strong for
the support of the fund during its early stages, and these technologies have spurred further
investments.
The GEF’s performance is also evaluated in a Climate Policy Initiative (CPI) report by Buchner et al
(2012), in which the authors assess the fund’s criteria for the appraisal, monitoring and evaluation of
projects and programmes. Of particular interest is the reflection on evaluations, which, as the
authors point out, are still heavily dependent on written material and third party assessments17 and
cannot give a realistic and meaningful picture of outcomes. Hence, evaluation assessments should
rely more on fieldwork and national and stakeholder engagement18. The establishment of a
knowledge management officer, though, may improve the dissemination of important lessons and
evaluation findings.
Another interesting paper on the performance of the GEF’s work is edited by Mohner and Klein
(2007), entitled The Global Environment Facility: funding for adaptation or adapting to funds. Here
the authors assess the responsiveness of the existing financial instruments to the adaptation needs
of developing countries by measuring adherence to COP guidance with such indicators as priority
activities, eligibility criteria and disbursement criteria. The main conclusion is that the GEF does not
adequately respond to the adaptation needs of developing countries due to its complex design
and its relationship with the COP. Concerning priority activities and eligibility, for instance, the COP
should give more explicit guidance to the fund by better distinguishing between adaptation and
mitigation activities in the different stages of the fund’s work. As for disbursement, the fund has
created the concept of additional costs, although the programming papers do not specify how
the actual amount is calculated19.
As concerns the evaluation of the effectiveness of the Adaptation Fund’s work, two papers seem
worth reviewing: The effectiveness of climate finance: a review of the Adaptation Fund by Trujillo
and Nakhooda (2013) and Direct Access to the Adaptation Fund: realising the potential of National
Implementing Entities by Brown et al (2010). The former one analyses the AF’s work, from resource
mobilisation to national ownership and sustainability. From a governance perspective, the authors
highlight the fact that the fund gives developing countries a formal voting majority in the decision-
making process although the civil society and the private sector are not actively engaged. As for its
investment strategy and allocation criteria, the AF’s objective was to prioritise the needs of the
more vulnerable countries, but the principle has not yet been made operational, and thus,
15 Nakhooda, 2013
16 Ibid.
17 Buchner et al 2012
18 Ibid.
19 Mohner and Klein, 2013

Green Climate Fund
6
resources are for the moment being allocated on a first-come first-serve basis. Of the approved
financing, only 30% has been disbursed and, as the authors state, information contained in the
Implementing Entities’ annual reports on project performance could easily and usefully expanded
to include fund- level financial reporting20. Furthermore, the monitoring and evaluation of projects is
based on a basic results framework (strongly focused on outputs and adaptive capacity),
established before the funding of these projects which has helped give strategic focus to the
programs. In addition, the AF secretariat itself provides a useful analysis of the progress made and
challenges faced throughout implementation. Strictly in terms of outcomes, the authors describe
how the fund includes in all programs a sub-national focus and seeks to engage sub-national
institutions. Finally, the AF has made an increasing effort to ensure that proposals are well-aligned
with national policies and priorities by making it mandatory for these to document the fact that
they are building on existing national strategies21.
The second article reflects on the potential of National Implementing Entities in enhancing direct
access to funding from the AF. As Brown et al explain, as a first step more emphasis needs to be
placed on overcoming national capacity constraints by focusing on capacity building and
avoiding reliance on multilateral implementing agencies. A positive initiative of the Board has been
to engage bilateral and multilateral agencies to pool their resources for capacity building in the
recipient countries22.
To conclude, an interesting analysis on climate finance and its effectiveness is to be found in the
sixteenth chapter of the recent IPCC report by Working Group III, which provides a comprehensive
overview of cross-cutting investment and finance issues ranging from the scale of financing at the
national, regional and international level to the need for pooling further economic resources to
invest in mitigation and adaptation activities; the role of the public sector in enabling environments
and reducing investment risks so as to unlock private investments and highlighting the existing
synergies and tradeoffs between mitigation and adaptation investments. The authors focus on the
available literature and research to underline the need to fill the gaps in knowledge and data
which are essential for a more effective and efficient use of economic resources. These include the
lack of well-defined concepts; limited availability of quantitative data and of accounting systems;
limited research on the effectiveness of climate finance in general and on the optimal mix
between mitigation and adaptation23.
Discussion and conclusion
Reviewing the literature on the effectiveness of international multilateral funds and that on the two
UNFCCC funds (the Global Environment Facility Trust Fund and the Adaptation Fund) provides
some useful insights on important lessons for the newly established Green Climate Fund that may be
learnt from previous successful and unsuccessful experiences in climate finance. As described in
the second section, the GEF is, in fact, not fully operational, and many issues remain unresolved
and frequently debated within the international community. As for the governance aspect, a
crucial point which has been stressed concerns the role of the civil society, the engagement of
NGO’s, and transparency in the fund’s decision-making process. Although the fund has established
the engagement of the civil society as one of its guiding principles and has laid out basic
arrangements for the accreditation of observer participation, so far the participation of the civil
society and of NGO’s has been poor. As a new financial initiative, the fund should then
concentrate on this aspect which is crucial for making it accountable to those it is designed to
support. An interesting experience, for instance, has been the GEF’s construction of an NGO
20 Trujillo and Nakhooda, 2013
21 Ibid.
22 Brown et al, 2010
23 Gupta et al. 2014

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network which also comprises three Indigenous Peoples’ representatives. Regarding transparency,
an important lesson may be learnt from the GEF, which, as we have seen, publishes on its website
all its documents related to project finance. This could be put into practice by the GCF once it
starts mobilizing resources in order to give its work a high level of transparency.
With regard to its investment strategy and allocation of resources, the GCF has discussed an initial
proposal for an approval process and criteria for programme and project funding but should try to
avoid what happened for the AF, which failed in its initial objective of prioritising the most
vulnerable countries, ultimately allocating resources on a first come, first-serve basis. Funding
projects and programmes in the most vulnerable countries, though, should also take into
consideration efficiency principles and the GCF must focus on strengthening the capacity of
recipient countries to keep investment strategies on track by, among the other things, providing
them with guidance on what is intended as adaptation activities and clearly distinguishing these
from mitigation projects.
As concerns resource mobilization, an important debate has been of whether to engage private
sector finance and to leverage additional funding. Slow funding processes should be avoided
while strong support should be given in the early stages of funding so as to lower risk and spur
additional investments. Another important aspect is that of direct access and National
Implementing Entities. As highlighted in the analysis of the effectiveness of the AF, for example, a
positive initiative has been that of trying to overcome national capacity constraints in directly
accessing financial resources by engaging bilateral and multilateral agencies to pool resources for
capacity building in the recipient countries.
In regard to outcomes, as we have pointed out, scale, enablement of environments and national
ownership are crucial. For the GCF to be successful, it should be expressly designed to support
different-sized projects and not to exclude sub-national level activity. Moreover, as we have shown,
the enablement of underlying policies and regulations decreases risk and allows smooth
implementation of projects while alignment with national priorities makes it possible to meet
national developmental needs. Finally, of particular interest is the reflection on project evaluation.
As soon as the GCF starts mobilising substantial resources, an important aspect will be that of
evaluating of outcomes, and this should rely not only on third-party assessments but also on
fieldwork and national engagement.
References
Adder, W.N., and Nicholson-Cole, S. (2011). “Ethical dimensions of adapting to climate change-
imposed risks”. In Arnold, D.G. (Ed.), “The ethics of global climate change”. New York: Cambridge
University Press pp 255-271.
Bird, N., and Glennie, J. (2011). “Going beyond aid effectiveness to guide the delivery of climate
finance”. Overseas Development Institute (ODI). Background Note August 2011.
Bonner, M. (2014). “Green Climate Fund progress- on the road to Paris via New York”. Retrieved
from http://globalccsinstitute.com/insights/authors/MarkBonner/2014/05/22/green-climate-fund-
progress---“road-paris”-new-york?author=NzU3
Brown, J., Bird, N. and Schalatek, L. (2010). “Direct access to the Adaptation Fund: realising the
potential of National Implementing Entities”. Overseas Development Institute (ODI). Climate
Finance Policy Brief No. 3.

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Buchner, B., Falconer, A., Trabacchi, C., and Wilkinson, J. (2012). “Public climate finance: a survey
of systems to monitor and evaluate climate finance effectiveness”. Climate Policy Initiative Report.
Buchner, B., Herve-Mignucci, M., Trabacchi, C., Wilkinson, J., Stadelmann, M., Boyd, R., Mazza, F.,
Falconer, A., and Micale, V. (2013). “The Global Landscape of Climate Finance”. Climate Policy
Initiative Report.
Chaum, M., Faris, C., Wagner, G., Buchner, B., Falconer, A., Trabacchi, C., Brown, J. and Sierra, K.
(2011). “Improving the effectiveness of climate finance: key lessons”. Climate Policy Initiative.
Dubosse, N., and Calland, R. (2011). “Beyond the Jargon: the governance of climate finance”.
Climate finance governance initiative/IDASA. Retrieved from http://polity.org.za/article/beyond-
the-jargon-the-governance-of-climate-finance-2011-11-24
Global Environment Facility (2014). “What is the GEF”. Retrieved from
http://thegef.org/gef/whatisgef
Green Climate Fund (2014). “Mandate and governance”. Retrieved from
http://gcfund.org/about-the-fund/mandate-and-governance.html
Gupta, S., Harnisch, J., Barua, D. C., Chingambo, L., Frankel, P., Vazquez, R.J.G., Gomez-Echeverri,
L., Haites, E., Huang, Y., Kopp, R., Lefèvre, B., de Oliveira Machado-Filho H., Massetti, E., Enting, K.,
Stadelmann, M., Ward, M., Kreibiehl, S., Carraro, C., Karrouk, M.S., Arriaga, I.P., and Enting, K. (2014).
Cross-cutting investment and finance issues. IPCC Working Group III AR5. Retrieved from
http://report.mitigation2014.org/drafts/final-draft-postplenary/ipcc_wg3_ar5_final-
draft_postplenary_chapter16.pdf
Johl, A., and Lador, Y. (2012). “A human rights-based approach to climate finance”. International
Policy Analysis Friedrich Ebert Stiftung Geneva. Retrieved from http://library.fes.de/pdf-
files/iez/global/08933.pdf
Mohner, A., and Klein, A.J. (2007). “The Global Environment Facility: funding for adaptation or
adapting to funds”. Stockholm Environment Institute.
Nakhooda, S. (2013). “The effectiveness of climate finance: a review of the Global Environment
Facility”. Overseas Development Institute (ODI). Working paper
Nakhooda, S. (2013). “The effectiveness of international climate finance”. Overseas Development
Institute (ODI). Working paper 371.
Trujillo, N.C, and Nakhooda, S. (2013). “The effectiveness of climate finance: a review of the
Adaptation Fund”. Overseas Development Institute (ODI). Working paper, 373.
UNFCCC (1992). “Text of the convention”. Retrieved from
http://unfccc.int/essential_background/convention/background/items/1362.php

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