With the latest Green Climate Fund talks in Songdo, wealthy countries have taken another step toward financializing the world's response to climate change.
Songdo, in short, is a monoculture plantation of skyscrapers, shorn of the diverse ecosystem that characterizes living cities. And the G-Tower is the symbol that tops the lot: a skyscraper with a Pac-Man-like cutaway, as though the institution is running from the ghosts of the World Bank and other multilateral development banks. Like the Fund itself—a centerpiece of the international climate finance regime, designed to fund climate mitigation projects in the developing world—it is currently empty.
A few streets away from the G-Tower, Songdo’s convention center recently played host to the fourth meeting of the GCF’s governing board. There, the GFC’s 24 board members (government officials selected on a regional basis) made several key decisions. These include how the Fund will be managed (should money ever arrive), by whom, and according to what rules.
The key structural decisions taken in Songdo concerned the GCF’s Private Sector Facility (PSF), which was created to encourage private investment in projects that reduce both the causes of climate change (by mitigating greenhouse gases) and its impacts (by adapting to a warmer world). These decisions walked a diplomatic tightrope—advancing the creation of the institution while carefully avoiding debates over which private sector the Fund is actually meant to target.
On one side, the developed countries represented on the GCF board advocate a PSF that appeals to capital markets, in particular the pension funds and other institutional investors that control trillions of dollars that pass through Wall Street and other financial centers. They hope that the Fund will ultimately use a broad range of financial instruments.
There is a troubling circular logic underlying this, however. The complex repackaging of debt to hide systemic risk was a key contributor to the financial crisis in developed countries, resulting in huge bailouts that increased their indebtedness. As a result, many developed countries now claim that they have little money available for climate finance, and that the GCF should look to financial markets to make up this shortfall.
On the other side, many developing countries and non-governmental organizations have suggested that the PSF should focus on “pro-poor climate finance” that addresses the difficulties faced by micro-, small-, and medium-sized enterprises in developing countries. This emphasis on encouraging the domestic private sector is also written into the GCF’s Governing Instrument, its founding document.
The purpose of the PSF remained unresolved in Songdo, but many of the rules needed to start its operations were agreed upon. A major dividing line related to whether or not the PSF would have its own “governance structure.” This was opposed by many developing countries amidst concerns that it would give the private sector the largest voice in determining how this part of the Fund is run—potentially opening the door to both generous corporate subsidies and excessive financial risk-taking.
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Background: What is the Green Climate Fund?