A Paradigm Shift At The Green Climate Fund

In her first interview since stepping down as Executive Director of the Green Climate Fund (GCF), Hela Cheikhrouhou offered a candid and spot-on assessment of the organization’s biggest challenge: despite the GCF’s mandate to support highly innovative, “paradigm shifting” actions, it has struggled to fund initiatives that are truly transformational. Instead, the GCF has largely supported relatively conventional projects that don’t aspire to effect broad change.

A solar project approved by the GCF Board at its last meeting in July underscores her point. The Board agreed to provide a $49 million loan to a large solar farm in Chile’s Atacama desert. To be sure, utility scale solar energy projects will be a key component of Chile’s energy transition, but Chile’s solar revolution is already well under way. Grid connected solar power has quadrupled over the last three years. Chile already has a relatively well developed ecosystem of funders and developers who are proposing new projects to take advantage of the Atacama’s world class solar resources. And solar power is already highly competitive in Chile’s energy markets. Just last week, the developer of a similar project in the same region won Chile’s latest energy auction with a world record-setting bid to provide energy at 2.91 cents/kWh. In this context, it is hard to see how any one solar project, regardless of its merits, could transform Chile’s electricity sector. Such projects would be better left to other institutions with different mandates.

The problem is not with the GCF per se; it is mainly with its accredited entities. The GCF relies on these partner agencies to bring it projects for consideration. But too often, instead of devising innovative and ambitious new initiatives, they have chosen to promote run-of-the-mill projects that are already moving through their pipelines. This has obvious advantages for the accredited entity—it allows them to spread risk and frees up their own resources to support other projects. But it’s a bad deal for the GCF. Not only does it tend to generate projects that are not crafted with the Fund’s mandate in mind, it also raises significant questions about the value of the GCF’s contribution. If the partner organization was planning to fund the project regardless of GCF involvement, the additional value of the GCF’s contribution is essentially zero. Nevertheless, every project that has been put before the Board so far has been approved.  

To their credit, a number of GCF Board members have recognized the problem and expressed concern. Zaheer Fakir, a co-chair of the Board, recently implored accredited entities to bring “more ambitious, paradigm-shifting proposals,” and several Board members have indicated that they will not continue to support projects that can’t make a strong claim to effect systemic change.

The problem, however, is not likely to resolved soon, and the stakes are about to be raised considerably. It is one thing for the GCF to support a project such as the Chile solar farm, which may be unexceptional and essentially business as usual, but at least is relatively benign in terms of its potential risks. However, accredited entities are now starting to put forward projects from their pipelines with much higher levels of fiduciary and environmental and social risk.

For example, the World Bank Group is seeking GCF support for two large hydropower projects. Hydropower has a conspicuously poor record of cost and time overruns, development impact, and environmental and social harm. Worse, as an Oxford researcher once put it, proponents of such large projects tend to get those projects built by constructing “a fantasy world of underestimated costs, overestimated revenues, overvalued local development effects, and underestimated environmental impacts.”

It is not clear that the GCF has developed the capability to manage these risks. After all, it does not yet even have a comprehensive environmental and social management system in place. But even if it did, the Board should not consider approving such high-risk projects without first demanding a compelling showing of transformational impact. That will require a kind of paradigm shift on the part of the Board: a newfound willingness to rigorously question its partners on whether the benefits of their proposals are truly systemic and non-incremental and, more than anything, a simple willingness to say no.


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