PoliciesandProceduresforthe
InitialAllocationofFund
Resources
GCF/B.06/05
7February2014
MeetingoftheBoard
19‐21February2014
Bali,Indonesia
Agendaitem9
GCF/B.06/05
Pageb
RecommendedactionbytheBoard
ItisrecommendedthattheBoard:
(a)
TakesnoteoftheinformationpresentedindocumentGCF/B.06/05Policiesand
ProceduresfortheInitialAllocationofFundResources;and
(b)
AdoptsthedraftdecisionpresentedinAnnexItothisdocument.
GCF/B.06/05
Page1
PoliciesandProceduresfortheInitialAllocationofFund
Resources
I.
Introductionandlinkageswithotherdocuments
AtitsOctober2013meeting,aspartofitsconsiderationoftheFund’sbusinessmodel
framework,theBoard,initsdecisionB.05/05:
1.
(g)
“Request[ed]theSecretariattodevelopandpresenttotheBoardatitssecond
meetingin2014aresourceallocationsystem,basedonthisdecisionandtaking
intoconsiderationtheviewsexpressedbytheBoard,thatfacilitates:
(i)
Cross‐cuttingproposals;
(ii)
Aresults‐basedapproach;
(iii)
Acountry‐drivenapproach;
(iv)
Ageographicallybalancedapproach;and
(v)
Privatesectormitigationandadaptationactivitiesatthenational,
regionalandinternationallevels.”
AspartofitsdecisionontheworkplanoftheBoardfor2014,theBoardforesawthe
documenttoaddressthepoliciesandproceduresforinitialresourceallocation
(decisionB.BM‐2013/04,AnnexIII).
2.
ThisdocumentbuildsondocumentGCF/B.05/05andBoarddeliberations,inparticular
itsdecisionB.05/05.Thisdecisionprovidesclearguidance,astheBoard:
3.
(a)
“Decide[d]thattheFundwilladoptatheme/activity‐basedapproachtothe
allocationofresourcesinordertomeettheFund’sobjectives;
(b)
Decide[d]thattheBoardwillkeeptheallocationsystemunderreviewwiththe
intentionofimprovingitovertime;
(c)
Decide[d]thattheFundwillinitiallymakeallocationsunderadaptation,
mitigationandthePrivateSectorFacility,andthattherewillbebalancebetween
adaptationandmitigationandtheappropriateallocationofresourcesforother
activities;
(d)
Decide[d]that,inrelationtoadaptation,resourceswillbeallocatedbasedon:
(i)
theabilityofaproposedactivitytodemonstrateitspotentialtoadaptto
theimpactsofclimatechangeinthecontextofpromotingsustainable
developmentandaparadigmshift;
(ii)
theurgentandimmediateneedsofvulnerablecountries,inparticular
LDCs,SIDSandAfricanStates;
(e)
Decide[d]that,inrelationtomitigation,resourceswillbeallocatedbasedonthe
abilityofaproposedactivitytodemonstrateitspotentialtolimitandreduce
greenhousegasemissionsinthecontextofpromotingaparadigmshift;
(f)
Decide[d]that,inrelationtothePrivateSectorFacility,resourceswillbeallocated
basedonthecontributionaproposedactivitymakestowardspromotinga
paradigmshiftandto:
GCF/B.06/05
Page2
4.
(i)
Directlyandindirectlyfinanceprivatesectormitigationtolimitand
reducegreenhousegasemissionsandadaptationtotheimpactsofclimate
changeactivities;
(ii)
Promotingtheparticipationofprivatesectoractorsindeveloping
countries,inparticularlocalactors,includingsmallandmedium‐sized
enterprisesandlocalfinancialintermediaries,andactivitiestoenable
privatesectorinvolvementinSIDSandLDCs.”
Thisdocumentshouldbereadtogetherwithdocuments:
(a)
InitialProposalApprovalProcess,IncludingtheCriteriaforProgrammeandProject
Funding(ProgressReport)(GCF/B.06/08);
(b)
InitialModalitiesfortheOperationoftheFund’sAdaptationandMitigationWindows,and
thePrivateSectorFacility(GCF/B.06/02)(thatprovidesaframeworkfordocuments
presentedtotheBoardatitsFebruary2014meeting);and
(c)
InvestmentFramework(ProgressReport)(GCF/B.06/11).
Together,theseprocesseswillensurethattheFundremainsflexible,responsiveand
country‐driven.
5.
II.
Generalconsiderations
Availableresources:Aninitialresourcemobilizationisplannedoncetheessential
requirementsaremet.TheBoardwillfocusonworkingtowardsmeetingtheserequirementsat
itsFebruaryandMay2014meetings.Followingthat,theSecretariatexpectsadditional
resourcestobepledgedfromtimetotimebygovernmentsandtheprivatesector,including
throughreplenishments.ThetotalpoolofresourcesavailableforcommitmentbytheFundin
theformofgrantsand/orconcessionalloanswillvaryfromoneyeartoanother.
6.
Definitions:Itisrecommendedthatinitialallocationtargetsbespecifiedandmonitored
intermsofcumulativecommitments,i.e.theresourcescommittedbytheFund,including
throughthePrivateSectorFacility(PSF),tospecificthemes,asapercentageoftheFund’stotal
cumulativeresourcesavailableforfinancingofproposedactivitiesovercomparableperiods.
7.
Grantequivalence:OntheliabilitysideoftheFund’sbalancesheet,theFundmay
receiveresourceseitherascapitalcontributions,grantsorconcessionalloans.Ontheassetside,
theFundmaycommitresourceseitherasgrantsorconcessionalloans.Onbothsidesofthe
balancesheet,concessionalloanswillbeconvertedintogrant‐equivalents(netpresentvalues)
atthesamediscountrate.Thesediscountedgrant‐equivalentvalueswillbeusedtocalculate
allocationtargetsforallcategoriesidentifiedbytheBoard.TheSecretariatwillconsultthe
Boardaboutthechoiceofdiscountrate(s)forreportingpurposes.
8.
Initialtwo‐tierallocationsystem:Followingextensivedeliberations,theBoard
decidedtostartFundoperationswithatwo‐tierallocationsystem:
9.
(a)
Thefirsttierwillsetallocationtargetsrelativetoavailableresourcesfortwothemes
(mitigationandadaptation)andonemodality(thePSF).Additionally,aminimumfloor
targetwillbesetforcountrygroupsidentifiedasbeingparticularlyvulnerabletothe
adverseeffectsofclimatechange:leastdevelopedcountries(LDCs),smallisland
developingStates(SIDS)andAfricanStates;and
(b)
Thesecondtierwillallocateavailableresourcestoproposedactivities.Thesecondtier
iselaborateduponindocumentGCF/B.06/08.Inthissecondtier,therewillbean
elementofcompetitionfortheuseofFund’sresourcesbothfortheprivateandthe
publicsectors.Proposalswillbeevaluatedagainsttheirpotentialcontributiontoa
paradigmshiftandontheirpotentialmitigationand/oradaptationbenefits.
GCF/B.06/05
Page3
10.
TheBoardwillkeeptheallocationsystemunderreviewwiththeintentionofimproving
itovertime.
Rationaleforthefirst‐tierinitialallocationtargets.TheGoverningInstrument
(paragraph50)requirestheBoardto“balancetheallocationofresourcesbetweenadaptation
andmitigationactivitiesundertheFundandensureappropriateallocationofresourcesfor
otheractivities.”Thereare,however,noBoarddecisionsthatprovidemorespecificguidanceor
specifyquantitativetargets.Intheabsenceofanyscientificoreconomicbasisforsettingthese
quantitativetargets,theBoardcanadoptatransparentanditerativeprocessbywhichitwill:
11.
(a)
Setinitialtargets,asproposedinAnnexI;and
(b)
Adjustthesetargetsasnecessary,torespondtothelessonslearnedintheFund’s
start‐upperiod.Thisprocesswillalsoallowforthepoliticalconsensustoevolveover
time.
Interactionwiththeresultsmanagementframework:TheGoverningInstrument
(paragraph51)statesthat:
12.
“Aresults‐basedapproachwillbeanimportantcriterionforallocatingresources.”
Thereportsforeseenintheimplementationoftheresultsmanagementframeworkwill
informtheBoardandtheSecretariataboutthemitigationandadaptationresultsattributableto
theFund’sfinancinginrelationtotheFund’sresultareas.Thesereportswouldnormally
include:
13.
(a)
Performancemeasurementofon‐goingprojectsandprogrammes;
(b)
Ex‐postimpactassessmentofprojectsandprogrammeswhoseimplementationhas
beencompleted;and
(c)
Evaluation,usuallybringingtogetherlessonslearnedfromagroupofactivities
(projectsorprogrammes)overalongerperiodoftime.
Thewealthofinformationavailableatthesethreelevelsoftheresultsmanagement
frameworkwillbeanimportantinputintofutureBoarddecisionsonbothtiersofallocation,
including:
14.
(a)
Whethertochangethebalancebetweenthethematicallocationtargets;
(b)
WhethertochangetheallocationtargetforthePSF;
(c)
Whethertochangetheallocationfloortargetsforcountrygroups(LDCs,SIDSand
AfricanStates)undertheadaptationtheme;and
(d)
Whetherornottoapprovefinancingforindividualprojectsorprogrammessubmitted
totheBoard(i.e.second‐tierallocationdecisions).
III.
Recommendations
Balancebetweenmitigationandadaptation.Atpresent,asignificantmajorityof
climatefinanceworldwidegoestomitigationratherthantoadaptation.Whileitisdifficultto
scientificallyascertain“balance”andsetsuchanallocationtargetexante,theBoardcouldadopt
50/50asthemedium‐termallocationtargetbetweenmitigationandadaptation.Suchatarget
wouldensureasustainedfocusonincreasingtheshareofresourcescommittedtoadaptation.
15.
PrivateSectorFacility(PSF).Separatelyfromthemitigationandadaptationallocation
targets,theBoarddecidedtoalsomakeaninitialallocationforactivitiesfundedunderthePSF.
Overthemediumterm,itisclearthatprivatesectorresourceswillbecomeoneofthemain
sourcesofclimatechangefinancing.Fromthatperspective,asignificantmedium‐termshareof
allocationscouldbebothdesirableandcredible.Fortheshorterterm,theBoardmaywishto
16.
GCF/B.06/05
Page4
approveaninitialstart‐upallocationtargetof20percentforthePSF.Strongresultsfromthe
privatesectorwouldprovideabasisfortheBoardtorevisethePSFtargetallocationupwardsin
future.InreportingbacktotheBoardontheresultsemergingfromthePSFallocations,the
SecretariatwillalsoreportonthePSF’sprogressinpromotingtheparticipationofprivate
sectoractorsindevelopingcountries,inparticularlocalactors,includingsmalland
medium‐sizedenterprisesandlocalfinancialintermediaries,andactivitiestoenableprivate
sectorinvolvementinLDCs,SIDS,andAfricanStates.
17.
that:
Particularlyvulnerablecountries.TheGoverningInstrument(paragraph52)states
“Inallocatingresourcesforadaptation,theBoardwilltakeintoaccounttheurgentand
immediateneedsofdevelopingcountriesthatareparticularlyvulnerabletotheadverse
effectsofclimatechange,includingLDCs,SIDS,andAfricanStates,usingminimum
allocationfloorsforthesecountriesasappropriate.”
18.
DecisionB.05/05,paragraph(d)(ii),alsostatesthat:
“…inrelationtoadaptation,resourceswillbeallocatedbasedon:theurgentand
immediateneedsofvulnerablecountries,inparticularLDCs,SIDSandAfricanStates.”
Inresponsetothesemandates,thisdocumentdoesnotattempttoidentify“particularly
vulnerablecountries”butseekstoestablishanallocationtargetwithintheadaptationthemefor
thefollowinggroupofcountries:LDCs,SIDSandAfricanStates.TheBoardmayapprovean
initialfloorallocationtargetof10percentforthisgroupofcountries.Atanytime,theBoard
mayreviewandrevisetheworkingdefinitionofthisgroupofcountries,asappropriate.
19.
20.
Geographicbalance.TheGoverningInstrument(paragraph52)stipulatesthatthe
“Boardwillaimforappropriategeographicbalance.”WhilethereisnofurtherGoverning
InstrumentorBoardguidanceongeographicalbalance,theBoardmayintroduceauniversal
single‐countrylimittoensurethatFundresourcesaredeployedequitablyacrosseligible
developingcountries.ThisceilingwouldcaptheFund’stotalcumulativecommitmentstoone
country,ingrant‐equivalentterms,atfivepercentoftheFund’stotalcumulativecommitments.
Usinggrant‐equivalenceforthistargetwillallowcountriesthatarebetterpositionedtoincur
newdebtobligationstotakealargershareofFund’sloanresourcesatundiscountedfacevalue.
Thesingle‐countrylimitisanimportantpartoftheoverallallocationsystemandshouldbe
reviewedbytheBoardfromtimetotime.IntheeventthattheFundintroducesathird‐tier,
country‐based,allocationsysteminthefuture,thethirdtierwouldreplacethesingle‐country
limit.
Periodicadjustmentsofallocationtargets.TheSecretariatwouldreporttotheBoard
onceayear.Thereportwould:
21.
(a)
Outlinecommitmentoutcomesversuscommitmenttargetsforalltargets;
(b)
Outlineplannedcorrectiveactionstoensuremorerapidprogresstowardsreachingthe
commitmenttargetsinthefollowingyear;and
(c)
RecommendtotheBoardpossiblechangestothecommitmenttargetstoreflectthe
lessonslearnedinthepreviousyear.
GCF/B.06/05
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Figure1:Illustrationofinitialfirst‐tierallocations
GCF/B.06/05
Page 6 AnnexI:DraftdecisionoftheBoard
TheBoard,havingrevieweddocumentGCF/B.06/05PoliciesandProceduresforthe
InitialAllocationofFundResources: (a)
Adoptsanoveralltargetrangeof30‐50percentbetweencumulativecommitmentsfor
mitigationandcumulativecommitmentsforadaptation(including,inbothcases,
resourcescommittedthroughthePSF);
(b)
Adoptsaninitialtargetof20percentoftotalcumulativecommitmentsforthefunding
committedthroughthePrivateSectorFacilityforbothmitigationandadaptation;
(c)
Adoptsaninitialtargetfloorallocationofatleast10percentoftotalcumulative
commitmentsforthefundingcommittedtoadaptationinparticularlyvulnerable
countries;
(d)
Adoptsaceilingoffivepercentforanyonecountry’sshareoftotalcumulative
commitments(ingrant‐equivalentterms);and
(e)
RequeststheSecretariattoreporttotheBoardatleastonceayearontheprogress
towardsreachingthesetargetsforcumulativecommitments,togetherwith
recommendedcorrectiveactionsandpossiblechangestothesetargets,asnecessary.
_________