Adaptation Fund’s accreditation to the Green Climate Fund

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 However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments.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.

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Date produced: 19/12/2016

 Is paragraph 10 of the AF Board Report, encouraging the AFB “to further consider all potential sources of funding;” sufficient as (an affirmation of) a mandate for the AFB to take a decision as to whether to seek GCF funding ?

Summary:

 According to a detailed interpretation of the constitutive rules and the practice of the Adaptation Fund Board (AFB) with the CMP, it appears that the AFB enjoys an implicit delegation to apply for accreditation and later conclude a Master Accreditation Agreement with the GCF. This function, necessary to implement a key option for the resource mobilization strategy, should be seen as additional to the ones enlisted in Decision 1/CMP.3 and is confirmed by the hortatory language of the latest CMP decisions, as well as the relevant permissive practice of the CMP in analogous circumstances.

Advice:

This query follows a previous LRI advice addressing the issues of i) whether the Adaptation Fund Board (AFB) could decide to seek accreditation as a Green Climate Fund (GCF) implementing entity on its own accord or with a mandate from the CMP; and ii) whether an accreditation, once it has occurred, would nonetheless need some form of approval from the CMP. The LRI advisor offered a negative answer to point i), based primarily on a textual interpretation of the CMP Decision establishing the mandate of the AFB (Decision 1/CMP.3). Consequently, it did not consider issue ii).

This query coherently extends the interpretative domain of this issue. In essence, the question of whether the AFB could independently seek accreditation to the GCF concerns the extent of competence that the CMP has bestowed upon the AFB. In the law and practice of international organizations, delegated powers can be either express (in the constitutive instrument of the institution or organ) or implied by reference to the functions that such organ is delegated to fulfil, as well as its practice.[1] The fact that the constitutive instrument of the AFB, Decision 1/CMP.3, does not expressly attribute to the AFB the competence of independently becoming an accredited entity of another multilateral trust fund it is not a sufficient argument to exclude this possibility. Rather, one should carefully look at the following elements: interpreting Decision 1/CMP.3 and all relevant CMP decisions in light of a) the legal nature of accreditation to the GCF under the ongoing discussions on ‘linkages’ between the two funds; and b) the previous practice of the AFB acting in analogous cases independently from of the CMP.

Paragraph 5 of Decision 1/CMP.3 enlists the functions that the CMP has attributed to the AFB. Importantly, the paragraph clarifies that ‘[…] the functions of the Adaptation Fund Board shall include the following functions and any other functions assigned to it by [the CMP]’. Hence, the functions of the AFB are not exhausted by those listed in this decision, but also consist of all those that expressly or implicitly the CMP has attributed to the Board. Within the realm of the relevant listed functions, while the same paragraph gives full domain to the AFB in developing and deciding on ‘specific operational policies’ (letter (b)), it also requires the Board to seek adoption by the CMP of ‘strategic priorities, policies and guidelines’ (letter (a)). None of the two expressions fully captures the legal nature of a process of accreditation by the AFB to the GCF: in the technical language of climate finance institutions, an ‘operational policy’ usually consists of a decision by the executive organ regulating the internal operations of the institution (e.g. access modalities, project approval cycle, environmental and social safeguards). Instead, accreditation requires external institutional engagement and some form of agreement between two entities. By the same token, the expression ‘strategic priorities, policies and guidelines’ appears sufficiently broad to include the ongoing discussion on linkages between the AF and the GCF. Indeed, the recent practice between the AFB and the CMP seems to have followed the structure of a controlled activity of the former by the latter, where the CMP has ‘noted’ and ‘encouraged’ the consideration of linkages with the GCF by the AFB [2]. However, also this language and practice is insufficient to clearly include the accreditation to the GCF within the area of ‘strategic priorities’ of the AF. Rather, a crucial point here is to recognise that different legal options have been identified in the issue of linkages and, among these, it is key to distinguish between two types of options: i) those that are controlled by the CMP as ‘strategic priorities’, so that the latter must eventually adopt them as per Decision 1/CMP.3; and ii) those that could, instead, be regarded as other type of arrangements under full control of the Board. This requires a close analysis of the legal nature of accreditation as one linkage option to the GCF and in light of the AFB’s practice.

Accreditation as an implementing entity is a necessary requirement to directly access GCF’s financial resources. Legally speaking, it is a formal appointment that the GCF Board makes after the applying entity successfully passes the vetting by the GCF Secretariat and Accreditation Panel, according to a detailed administrative procedure and substantive requirements.[3] As well as being formally accredited, an entity must enter into an ad hoc Master Accreditation agreement with the GCF, which details the relationship and operations between the accredited entity and the GCF.[4] Therefore, becoming an accredited implementing entity requires both initiating an administrative process as well as entering into a bilateral agreement with the GCF; it does not entail or require any delegation of authority, governance change, nor any specific ‘strategic priority, policy or guideline’ by the AFB. Moreover, accreditation is but one ‘linkage’ option currently under scrutiny between the AF and the GCF. As both the AF Secretariat[5] and the UNFCCC Standing Committee on Finance[6] noted, there are different levels of institutional linkage that the AF can set up with the GCF. Some of them, such as serving as a specialised funding window of the GCF, might indeed require strategic reconsideration of the authority and the function of the AFB in terms of ‘priorities and policies’ to be later adopted by the CMP.[7]

A final element to consider in understanding the legal nature of accreditation is to fit it within the wider strategic priorities of the AF: it should be not only considered as a ‘linkage option’ to the GCF, but also, and more importantly, as part of the ‘resource mobilization strategy’ that the AFB has been developing due to the low revenue streams from CERs monetization.[8]

It is under this understanding of the nature and rationale of accreditation that one should look at the existing practice of the AFB, particularly regarding analogous engagements with other entities. After the conferral of legal capacity under German Law,[9] the AFB has entered into agreements with numerous entities. Of these, a relevant precedent is the 2012 Framework Agreement between the UN Foundation (UNF) and the AFB,[10]  which sets the conditions and modalities for the UNF’s support to the AFB in sourcing and transferring private donations to the AF Trust Fund. This agreement i) was adopted by the Board in the context of its nascent resource mobilization strategy;[11] ii) it was not recommended to the CMP for approval; iii) it was not included in the following annual report of the AFB to CMP[12]; and iv) the CMP did not give subsequent approval of the agreement.[13] Given these circumstances, it appears that the AFB can institute formal engagements with other entities in the strategic area of resource mobilization without the formal approval of the CMP. Moreover, the adoption of the Framework Agreement with the UNF can be regarded as analogous to contracting an Accreditation Master Agreement with the GCF in the process of accreditation, as they both seek to regulate the cooperative relationship between independent entities in sourcing and transferring resources.

Finally, it is important to contextualise two other relevant practices that might be used to argue for a necessary mandate/approval by the CMP: i) the one between the AFB and the CMP concerning the institutional relationship with the Global Environment Facility as provider of secretarial services to the AF; and ii) the one of contracting trustee services with the International Bank for Reconstruction and Development.[14] It is constant practice that the arrangements, their amendments and extensions between the AFB and the two entities are formally adopted by the CMP. However, this is done in implementation of explicit delegations set out in Decision 1/CMP.3 (para 5(j)) and not under the broader functions under letters (a) and (b) discussed above. Therefore, it is not sound to infer automatically that, because of this practice, all ‘institutional linkages’ by the AFB require approval or adoption by the CMP.

To conclude, according to a detailed interpretation of the constitutive rules and the practice of the AFB with the CMP, it appears that the AFB enjoys an implicit delegation to apply for accreditation and later conclude a Master Accreditation Agreement with the GCF. This function, necessary to implement a key option for the resource mobilization strategy, should be seen as additional to the ones enlisted in Decision 1/CMP.3 and is confirmed by the hortatory language of the latest CMP decisions, as well as the relevant permissive practice of the CMP in analogous circumstances.

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[1] Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion (1949) ICJ Rep. 174, 178; with regards to competence of organs see Certain Expenses of the United Nations, Advisory Opinion (1962) ICJ Rep. 151.

[2] Decision 1/CMP.11, para 4(h); and Draft decision -/CMP.12, paras 10 and 11.

[3] B.07/02, adopting the ‘Initial guiding framework for the Fund’s accreditation process’, 19 June 2014, GCF/B.07/11, Annex I.

[4] Cf. ‘Template accreditation master agreement’,  17 February 2016, GCF/B.12/32,  Annex XXVI , https://www.greenclimate.fund/documents/20182/319135/Accreditation_Master_Agreement_Template.pdf

[5] AF Secretariat, ‘Potential Linkages between the Adaptation Fund and the Green Climate Fund’, 12 February 2015, AFB/B.24-25/1, https://www.adaptation-fund.org/wp-content/uploads/2016/12/AFB-B-24-25-1_Potential-linkages-between-AF-GCF-final.pdf SCF/2015/10/12

[6] SCF/2015/10/12, 12 June 2015, https://unfccc.int/files/cooperation_and_support/financial_mechanism/standing_committee/application/pdf/working_paper_af_institutional_linkages_rev.pdf

[7] Ibid, para 55.

[8] See AFB/B.28/8, 26 September 2016. https://www.adaptation-fund.org/wp-content/uploads/2016/10/AFB.B.28.8_Resource_mobilization_strategy.pdf  Decision B.27/39

[9] Cf. Decision 5/CMP.6, para 3.

[10] Adopted on 5 October 2012, http://www.adaptation-fund.org/wp-content/uploads/2015/01/11.8.12%20Adaptation%20Fund_NP-12-209.pdf.

[11] The strategy was originally conceived as a fundraising activity by the Secretariat and became a formal strategy after the adoption of the agreement: cf. Decision B.16/24, 29 February 2012, https://www.adaptation-fund.org/wp-content/uploads/2015/01/Report16thAFB-Rev1%20final.pdf.

[12] FCCC/KP/CMP/2013/2, 29 August 2013, http://unfccc.int/resource/docs/2013/cmp9/eng/02.pdf.

[13] Decision 1/CMP.9, paras 11 and 12.

[14] Both adopted originally by Decision 1/CMP.4.