The Green Climate Fund has agreed to partner having a Chilean private equity finance firm specialised in wealth management as well as an Indian bank mired in financial instability, despite concerns over research.
Following animated discussions in a board meeting of the UN's flagship climate fund on Wednesday, GCF board members said they were feeling “uneasy” after granting accreditation to four private companies to pitch green project proposals and connect to the fund's resources. The GCF was created to help poor countries curb their emissions and deal with the impacts of global warming.
Civil society actors raised serious concerns over the environmental records and capacity of a few of the applicants to handle the fund's mission.
Fynsa, a good investment company, specialises in managing the portfolio of wealthy clients and high-end real estate in Chile, where raging inequalities have sparked the worst social unrest in decades.
At least 20 people have died in the protests that started almost last month, forcing the cancellation of the UN climate talks and the relocation from the negotiations to Madrid, Spain.
Liane Schalatek, an observer towards the GCF meeting from the environmental think-tank Heinrich B”oll Foundation, said there wasn't any evidence the organization had adequate experience in applying environmental and social safeguards.
The company's “track record catalogues a handful of real estate projects with no particular climate component- nor will it appear the entity has any interests in advancing climate objectives,” Schalatek told the board, warning of the potential “reputational risk” for that fund.
The secretariat pushed back from the idea Fynsa was not interested in climate projects, referencing the firm's experience with carrying out projects for example green building designs.
A subsidiary of Indian bank IL&FS has also been accredited to utilize the GCF. In September 2023, IL&FS, India's leading infrastructure finance company, defaulted on payments to lenders bringing the nation's financial sector to near-collapse.
“It's a bit like accrediting Lehman Brothers after 2008,” Schalatek said. “Not a good idea.”
Since then, the Indian government replaced the bank's entire board of directors, the secretariat told the board, insisting the risk lied using the parent company and never the subsidiary.
“There is sufficient evidence that the applicant can unwind their troubled relationship using the parent company,” a GCF employee said.
The discussions started a debate concerning the fund's accreditation process with several board members questioning why civil society concerns over whether the companies were fit to partner using the GCF weren't received earlier.
“I am feeling a particular unease,” said Swiss board member Stefan Schwager after the applicants were approved. “Is it really an informed consent or just trust?” he said, calling on the procedure to be “tweaked”.
Nicaraguan board member Paul Oquist told the board concerns raised by civil society showed the deficiency of the GCF's own research process and urged for more time for you to be spent approving contentious applications.
“We have made mistakes before,” he said. “We list money launders which have been fined through the appropriate authorities in the EU and the US,” he said, citing HSBC that is a GCF partner.
Board member Ayman Shasly, a consultant at Saudi Arabia's petroleum ministry, disagreed. He warned that decisions affected by civil society were “not acceptable” and should not overrule GCF procedures.
“We don't need to be run by emotions, feelings and reflections that perhaps haven't been examined and aren't evidence-based. We know the issues but we take calculated risk” he said.
