Adaptation Fund Review

Legal assistance paper

All reasonable efforts have been made to ensure the accuracy of this information at the time the advice was produced. However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments. They do not constitute formal legal advice or create a lawyer- client relationship. To the extent permitted any liability is excluded. Those consulting the database may wish to contact LRI for clarifications and an updated analysis.

Print Friendly, PDF & Email

Date produced: 17/06/2014

As the Adaptation Fund sits under the Kyoto Protocol and other institutions, such as the Least Developed Countries Fund, under the Convention, how could linkages as envisaged under  Part II of the terms of reference for the adaptation fund review (which is to include the institutional linkages and relations, as appropriate, between the Adaptation Fund and other institutions, in particular institutions under the Convention) be designed?

Summary:

In terms of the potential for direct linkages between the Adaptation Fund and other climate funds established under the COP, it is possible that a review may identify an overlap between the activities that are being supported by the LDC Fund (e.g. implementing projects under NAPAs) and the activities that could be supported by the Adaptation Fund. Where such overlaps exist, one recommendation could be to seek to streamline the delivery of adaptation funding through one institution (other recommendations could relate to sharing of information etc). Any recommendation that involved material changes to the operation of the Adaptation Fund would need to be endorsed by the Adaptation Fund Board and the CMP and likewise any changes to the mandate and operation of the LDC Fund would need to be endorsed by the COP.

Advice:

The terms of reference for the second review of the Adaptation Fund include, under section 2(c) of Part II, consideration of the institutional linkages and relations, as appropriate, between the Adaptation Fund and other institutions, in particular institutions under the Convention. Part III of the terms of reference indicates that the review shall draw upon sources of information which include at (b) the annual report of the Global Environment Facility (GEF) to the Conference of the Parties (COP) on its activities, including information on the Least Developed Countries (LDC) Fund; and (i) the reports of the LDC Expert Group.

The Adaptation Fund has been established under the authority and guidance of the Conference of the Parties serving as the Meeting of the Parties (CMP) and is fully accountable to the CMP. The Fund is supervised and managed by the Adaptation Fund Board which comprises of representatives of Parties to the CMP (with a majority of developing country parties). The World Bank acts as the Trustee of the Adaptation Fund on an interim basis and the GEF provides secretariat, research, advisory and administration services on an interim basis to the Board.

The GEF is also the administering organisation for the LDC Fund (as well as a number of other climate funds associated with the financial mechanism under the UNFCCC). The LDC Fund primarily supports the preparation of national adaptation programmes of actions (NAPAs) which identify priority activities that respond to urgent and immediate adaptation needs in LDCs. Some funding is also available for implementation of adaptation projects on the ground.

The Adaptation Fund is established under the Kyoto Protocol and is accountable to the CMP, whereas other funds, such as the LDC Fund, are established under the UNFCCC and are accountable to the COP. This notwithstanding, it is important to note that the Kyoto Protocol itself is made under the UNFCCC and although there are different fora in which decisions are taken by the COP and the CMP, there is nevertheless considerable synergy between the two legal instruments and the bodies established to implement their mitigation and adaptation objectives.

The reference to “institutional linkages and relations” has to be read in light of the decisions that have been taken to establish the Adaptation Fund and its governing Board and support mechanisms. In this regard, any proposed changes to the Adaptation Fund following on from the recommendations of the review would need to be endorsed by the CMP. We also note that the consideration of those interlinkages is qualified by the words “as appropriate”. This recognises that there may be limitations, either legal or practical, in pursuing certain linkages between the Adaptation Fund and other institutions.

With respect to legal impediments to pursuing interlinkages with other institutions, the first key issue is that the Adaptation Fund is a stand-alone fund with its own governing board. Any proposed changes in its structure or the instruments that govern the operation of the Fund would need to be sanctioned by the Adaptation Fund Board and ultimately the CMP.

We would expect that there are a number of lessons that can be learned from the operation of other climate funds by the GEF. The GEF reports to the COP annually on its performance as the administrator of the financial mechanism of the UNFCCC and the LDC Fund and Special Climate Change Fund. In the past this performance has been criticised by NGOs and some Parties, particularly having regard to the difficulties in getting direct access to funds. Nevertheless, the experiences in sourcing funding from donor Parties and distributing that funding to recipient Parties may be instructive to the Adaptation Fund.

We have not undertaken a comprehensive review of the types of issues that may be relevant to the second review of the Adaptation Fund, however, at a preliminary level, the following issues are potentially relevant:

  • resource mobilisation, including sources of funding to supplement the Adaptation Fund share of proceeds from the CDM;
  • governance of the Fund and the performance of the World Bank and GEF as interim trustee and secretariat respectively;
  • administration of the Fund by the Adaptation Fund Board, including engagement with stakeholders and transparency in decision making processes;
  • investment strategy and allocations, including how funding decisions are being made and whether processes for direct access are working effectively; and
  • risk management and accountability.[1]

We would expect that similar issues arise in the operation of other climate funds. Hence the way in which these issues have been managed by the GEF may provide guidance on what types of options are available to respond to the issue.

In terms of the potential for direct linkages between the Adaptation Fund and other climate funds established under the COP, it is possible that a review may identify an overlap between the activities that are being supported by the LDC Fund (e.g. implementing projects under NAPAs) and the activities that could be supported by the Adaptation Fund. Where such overlaps exist, one recommendation could be to seek to streamline the delivery of adaptation funding through one institution. If such a recommendation were to be made, as noted above, any changes to the operation of the Adaptation Fund would need to be endorsed by the Adaptation Fund Board and the CMP and likewise any changes to the mandate and operation of the LDC Fund would need to be endorsed by the COP .

As the Parties to the Kyoto Protocol and the Parties to the UNFCCC are not the same, which results in, for example, countries such as the USA providing funding to LDCs through the LDC Fund and the financial mechanisms of the UNFCCC, we think it unlikely that a proposal to solely deliver funding to LDCs for adaptation through the Adaptation Fund would be viable. That said, with the support of donor Parties and appropriate decisions of the COP and CMP, it may be possible for funds to be transferred from the LDC Fund to the Adaptation Fund to deliver priority adaptation projects under the NAPAs.

_______________________

[1] for a detailed assessment of issues associated with the operation of the Adaptation Fund see ODI Working Paper 373: The Effectiveness of Climate Finance: A Review of the Adaptation Fund (March 2013).