Creating a Southern Solidarity Fund under the authority of 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 However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments.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: 03/04/2014

Is there anything in the GCF Governing Instrument (or anywhere else) which would prevent the GCF Board (as legal entity) to create a new trust fund in the way the GEF, or rather the Bank created the LDCF and the SCCF (through Trust Fund Administration Agreements)?

Summary: Neither the Governing Instrument of the Green Climate Fund (GCF) nor the following decisions enacted by the GCF Board  contain provisions barring the Board from creating additional trust funds to the existing ‘GCF Trust Fund’ as managed under trustee duties by the International Bank for Reconstruction and Development (IBRD). There are rather strong arguments for interpreting the Governing Instrument as allowing the Board to set up by decision a Southern Solidarity Fund (SSF).

Although a GCF Board decision might be the most expeditious path to setting up the SSF, an alternative solution might consist of the UNFCCC COP establishing the same fund, and then bestowing the Board with the authority to manage it, similarly to the case of the GEF-managed LDCF and SCCF. Alternatively, developing states could by-pass the COP, set up their own SSF, and invite the GCF Board to manage it. 

If a SSF is to be established, the choice of the entity to provide trustee services would again enter within the sole authority of the constituting entity, i.e. either the GCF Board or the COP. However, in the case of the Board creating the Southern Solidarity Fund, a COP decision (Dec. 1/CP16, para 107) might bar the GCF Board from choosing other interim trustees than the IBRD for the interim period of three years, since the establishment of the GCF. 

Advice:

This advice aims to answer some institutional legal issues related to a proposal by the originator for the creation of a Southern Solidarity Fund (SSF) under Green Climate Fund’s (GCF) governance. The rationale for this additional trust fund is to provide institutional and legal arrangements to facilitate South-South climate finance and grant a solidarity-based understanding of such capital streams. Such South-South arrangements should be on a different basis from the existing North-South climate finance obligations which instead stem from the Common but Differentiated Responsibilities principle and other provisions under the UNFCCC. Future SSF developing countries contributors would thus act on a voluntary basis with no recognition of any substantive financial obligation under the UNFCCC.

The question of whether the extant international legal provisions on the GCF would allow or bar the creation of a new SSF is ultimately a matter of international institutional law which can be broken down  under the following issues: i) understanding the different institutional roles in the management of multilateral trust funds; ii) interpreting the delegating of powers conferred by the COP to the GCF Board; and iii) understanding what options are available for setting up the SSF.

Different institutional roles in multilateral trust funds

To provide but a simplified and brief outlook, multilateral trust funds are a widely used type of international institution for finance transfers from contributing states to entities selected by the trust fund rules.

The typical institutional setting of multilateral trust funds hinges on two separate entities: an executive entity created by the participating states, and a trustee, whose sole task is to carry the administrative duties and financial management of the fund. The executive entity, often named Board, is the decision-making and regulatory body of the multilateral trust fund, while the trustee carries its activity only under delegation by the executive entity and according to specific agreements.

Interpreting the delegating of powers conferred by the COP to the GCF Board

The GCF shows the following characteristics: a) it has been created by a decision of the UNFCCC COP;[1] b) it has a Board composed by states representatives with executive and regulatory functions; and c) the International Bank for Reconstruction and Development (IBRD) has been appointed as an ad interim trustee for a three-year period.

It is important to highlight that, although the name might lead to confusion, the GCF is an international institution which only subsequently has recognised a trust fund, the ‘Green Climate Fund Trust Fund’,[2] currently managed by the IBRD according to an agreement between the GCF Board and the IBRD. This distinction sheds light on the fact that the GCF is institutionally distinct from its trust fund.

With such premises, it is sufficient to interpret the constitutive legal instruments of the GCF and its Board to clarify whether the Board has the delegated powers from the COP to create an additional SSF, in parallel to the GCF Trust Fund. Such legal instruments are i) the COP decisions related to the GCF;[3] and ii) the Governing Instrument of the GCF, as approved by the COP. In addition, the various decisions of the GCF Board should be interpreted, in order to understand whether the Board has already set limits on its own capacity to create new trust funds.

An analysis of these legal sources found no provisions explicitly barring the Board from creating additional trust funds to the existing ‘GCF Trust Fund’. There are rather strong arguments for interpreting the same legal sources as allowing the Board to set up by decision a SSF.

In particular the Governing Instrument[4] specifies the aim and nature of the GCF as a “[…] scalable and flexible and […] a continuously learning institution guided by processes for monitoring and evaluation.”[5] Moreover, the Instrument provides that “in order to operate effectively internationally, the Fund will possess juridical personality and will have such legal capacity as is necessary for the exercise of its functions and the protection of its interests.[6]

The creation of a SSF seems to fall under the rationale of these two general provisions. On one side, the SSF would constitute a ‘scaling-up’ of the GCF under a flexible approach of ‘multi-trust fund’ management. Concurrently, the Instrument clearly leaves ample discretion to the GCF to exercise its legal capacity, including the setting up of new entities.

Shifting to the specific powers attributed to the GCF Board under the Instrument, the following should be noted:

“(b) Approve operational modalities, access modalities and funding structures

(h) Establish additional thematic windows and/or substructures to address specific activities, as appropriate

(o) Select, appoint and enter into legal and administrative arrangements with the trustee;

(p) Exercise such other functions as may be appropriate to fulfil the objectives of the Fund.”[7]

Although the meaning of ‘sub-structures’ and ‘funding structures’ is not spelled out in the Governing Instrument, there are no significant reasons why the SSF could not be interpreted as falling into one of the two concepts. Furthermore, even excluding this possibility, letter (p) of the provision confers ample discretion to the Board to exercise functions related to the objectives of the Fund. Hence, the Board could well exercise the ‘function of creating a new trust fund’ if, as it is, this would fulfil the Fund’s objective of scaling-up its activities.

Other options available for setting up the SSF

Although the Board enjoys full powers to create a new SSF, there are still the options of resorting to the COP, or even to a group of developing states. However, the two options are procedurally more cumbersome, if not also politically unfeasible.

As in the case of the attribution of the Least Developed Countries Fund and the Special Climate Change Fund to the Global Environment Facility, the COP could create by decision the SSF and then ‘invite’ the GCF Board to become its operating entity.

Alternatively, developing states could by-pass the COP, set up their own SSF, and invite the GCF Board to manage it. The Board should only accept the invitation by decision, rather than creating a new entity.

Boards limits in selecting and appointing the trustee

To conclude this advice, it must be noted that, whereas the Board can indeed set up new trust funds, it is also limited in selecting its trustee, at least in the short term. In fact, the same COP decision establishing the GCF has ‘invited’ the IBRD to act as an ad interim trustee of the GCF for a three-year period.[8]  Given that the current role as trustee to the GCF of the IBRD can be interpreted as acceptance and agreement with the COP, during the ad interim period the GCF Board might be barred to appoint a trustee of the SSF different to the IBRD, as this would conflict with the COP’s decision. Following such period, the GCF Board could then select different trustees, but according to a transparent bidding process.[9]


[1] Decision 1/CP.16,  para 102.

[2] See the GCF Board decision B.01‐12/06, GCF Rep. GCF/B.01‐12/10, at (d), http://gcfund.net/fileadmin/00_customer/documents/pdf/B.01_10_Report_of_the_first_meeting_final.pdf , the GCF Board has recognised the GCF Trust Fund, which was set up by the IBRD as a financial account open to donations before the Board was operational.

[3] Decisions 1/CP.16; 3/CP.17 and Annex; 6/CP.18; and 7/CP.18.

[4] Decision 3/CP.17, Annex.

[5] Ibid., Sec. I.3. [emphasis added].

[6] Ibid., Sec. II.B.7 [emphasis added].

[7] Ibid., Sec II.D.18 [emphasis added].

[8] Decision 1/CP.16, para 107.

[9] This bidding process is a new practice in the UNFCCC and has been lately stated in Decision 6/CP.18. para 7(e).