by GRAIN | 25 Mar 1992


Key to the success of the "Earth Summit" is the funding mechanism. The Global Environment Facility (GEF), run by the World Bank, is the North's candidate to take on this role. In this article we assess the need and possible mechanisms for funding, and conclude that the GEF, in its present form, does not match up to the challenges.


The Secretariat of the UN Conference on Environment and Development (UNCED) reckons that over $100 billion per year of additional funds are needed to finance Agenda 21. Funds will be needed to finance the specific programmes of Agenda 21 on health, agriculture, technology transfer, and so on. Developing countries hope that the UNCED process will usher in a new era of accelerated development and go some way to reversing the current flow of resources from South to North caused by the debt crisis. The developed countries, however, are refusing to promise additional resources on this scale, and they want to keep firm control of the much smaller amounts which they might wish to make available.

Since Agenda 21 will be a non-binding programme of action funding is needed to give it concrete meaning. The two international Conventions currently being prepared for signing at the summit -- on climate change and on biological diversity -- will also require their own funding mechanisms. Apart from how much money will be agreed on and on what it will be spent, an important question is who will control it. The World Bank, supported by several of its donors, is now shaping itself up to gain central control over the environmental funding which will come out of the UNCED process. The proposed mechanism is the Global Environmental Facility (GEF), already in motion on a pilot scale. To really understand whether this option would be a suitable one, it is important to assess the current functioning of GEF and lay it against criteria for proper functioning of any funding mechanism.

The Global Environmental Facility

The Global Environmental Facility is an experimental funding mechanism based on proposals of France and Germany originally made in 1989. It was set up to assist developing countries deal with four main global environmental problems: global warming, pollution of international waters, destruction of biological diversity, and the depletion of the ozone layer.

The fund became operational in 1991 and its initial three year pilot phase will run to mid 1994. During this period the emphasis will be on innovative approaches and projects with demonstration value. Interim arrangements have been made for governance and project execution. In principle, everything can be changed, if and when the GEF is put on a permanent basis. The total funds in the GEF amount to some $ US 1.4 billion -- a very small amount compared to the scale of the problems to be tackled.

Funds donated to the GEF must be additional to regular aid budges of countries, so they are essentially "new" money. On the recipient side, the funds can only be used for projects which give global environmental benefits. This is the GEF's major limitation and has caused opposition from the side of Third World governments and NGOs. GEF officials admit that the areas of funding are clearly politically chosen by the donor governments, and Third World delegations at the last UNCED preparatory meeting complained that the GEF funds only those environmental problems of interest to the North, leaving out many of the problems directly faced by the South such as desertification, soil erosion, and the dumping of toxic products.

While the GEF is administered by the World Bank, two other agencies are involved in its implementation: the UN Development Programme (UNDP), and the UN Environment Programme (UNEP). The GEF is widely seen as a Bank led enterprise but in fact, the other agencies do have important roles. While the Bank runs the Secretariat and provides the Chairman for the Participants ' meetings, UNDP's worldwide network of country and regional offices plays a crucial role in identifying projects and making initial appraisals. UNEP oversees the implementation of about a third of the projects, and the World Bank the rest. UNEP's role is smaller and limited primarily to providing policy guidelines. However, all three agencies play a role on the powerful Implementation Committee, which among other functions, screens all potential projects for eligibility according to the GEF criteria.

Money for what? Controlled by whom?

The structure of the GEF is complex and adds to a general feeling of non transparency. It is really an umbrella for three separate funds. Included is the ozone layer protection trust fund of about $ US 200 million, which provides money for projects which reduce CFC emissions. It is completely independent of the GEF, governed by a separate Convention and controlled by an independent committee. Its inclusion under the GEF umbrella is "more rhetorical than actual" according to the GEF Secretariat, "to keep open the option" of GEF as a funding mechanism for the other global conventions now being negotiated. Another substantial portion of the GEF ($US 324 million) consists of a co-financing scheme, which can be used to augment the funds going towards any particular project at the preference of the donor in question.

The remaining $US 845 million is the true core fund of the GEF. This is multilaterally controlled by the donors, who are referred to, somewhat cosily, as "the participants". Looking at the contributions to this core fund, it becomes clear that it is predominantly a European affair as the USA and Japan prefer to channel all or most of their money through the co-financing scheme of the GEF which provides for more direct control over its spending by each individual donor (see Graph). The strange situation arises that despite non participation of the USA and the minimal contribution of Japan to the core fund, these countries are fully represented at the participants meetings which decide how to spend it. No commitment, but full control!

Recently there have been some moves to increase participation in the GEF. A formal "Participants Assembly" will be set up, with a system of voting rights still to be agreed on. Third World countries have been encouraged to become participants to improve the political profile of the facility and presently the meetings are attended by roughly equal numbers from the developed and developing countries. However, while the participants meetings currently operate on the basis of consensus, the donors, worried that they will be swamped out if a large number of Third World countries join, want to introduce a voting system which reflects the size of monetary contributions. Clearly this would be unacceptable to the developing countries who favour an arrangement where votes are equally divided between donors and recipients.

The question of governance becomes even more critical, if one realizes that a substantial part of the GEF core fund is inextricably linked to other World Bank projects. The Bank's Executive Board has full control over these projects, giving the handful of rich countries which dominate it an effective veto. An analysis of the GEF projects in the pipeline for biodiversity, shows that a full 50% of GEF funds are used to provide additional finances to existing World Bank projects, often to correct some of the environmental implications of those projects. This also adds fuel to many of the NGO concerns about the Bank's leading role in the GEF. Some of its grander projects are infamous for the harm they have done to the poor and the damage they have inflicted on the environment. Given the record of the Bank's work, many worry that its control over GEF and over any funding mechanism which comes out of UNCED, will merely lead to the spending of some extra money as palliatives on what are in essence environmentally and socially unacceptable projects. In response the Bank points to its environmental guidelines which it claims are the best of any development agency. It has yet to convince its critics.

Banking on the environment?

Whatever mechanisms are eventually chosen for funding the Conventions and Agenda 21, they should have at least the following qualities:

•   They must be transparent. Donors, recipients and in particular the intended beneficiaries of projects must have full access to information and NGOs and other public interest groups must be part of the decision making process.

•   The decision-making bodies must have equitable representation of donor and recipient countries.

•   Funding must be mandatory and should be available in sufficient quantities.

•   Funding should be available for all activities under Agenda 21 and to fund all aspects of the Conventions. This must include new and additional resources for sustainable development, and not be limited to the "global environmental issues" of primary interest to the North.

Laying these criteria against the present functioning of the World Bank in general, and the GEF in particular, one immediately stumbles on a series of problems. The question of transparency springs to mind first. During its 45 year existence, the World Bank has developed a system of "client privilege", meaning a confidential relationship between the Bank and the borrowing country. As pointed out by the World Wide Fund for Nature (WWF), this secrecy has been one of the causes of the devastating environmental impact of many of the Banks projects, as the broader public is not given the information to steer the direction of the projects. WWF's conclusion is clear: if the Bank continues with its secrecy approach it "will further erode the public credibility of the institution and continue to degrade the planets's environment". WWF, which is co-implementing some of the GEF projects, has already given notice that it will not respect any confidentiality clauses and recommends others to do the same. What is true for the World Bank, is equally true for the GEF, as many of its activities are directly linked to the Bank's projects. Not only should there be full disclosure of information at all stages and at all levels, but local communities and NGOs should also be an integral part in policy discussions and decision making.

We have already pointed to the problems with governance of the GEF. A body exclusively controlled by donor governments is in no position to take the lead on channelling fund to counter the global environment and development crisis. Developing countries have consistently and rightly argued for equitable North-South control over the results of UNCED. In the case of the Conventions, the control over the funds should be with the contracting parties - a situation which already exists in the case of the ozone trust fund (OTF) which is formally part of GEF.

Also, it is of crucial importance that any funding resulting from the UNCED process is substantial and sustainable. For that, it must be mandatory. If the developing countries are going to agree to implement all areas of Agenda 21 and the relating conventions they must have access, as a right, to the necessary funds, as well as appropriate technologies, for sustainable development.

The last point relates to the type of activities which should be implemented by the funding mechanism. As already pointed out above, GEF funding is currently focused on four environmental issues, and limited to activities with a "global" impact. This has already resulted in accusations that GEF merely funds projects which are primarily of concern of the North. Any result of the UNCED process should be much wider in scope, and also directed to the specific problems faced by developing countries. Additionally, it is important and likely that the outcome of UNCED will specifically integrate environment and development issues, and assign an important role to local communities in solving the problems. In general, the GEF is poorly equipped to handle these questions.

A look at the GEF biodiversity projects in the pipeline reveals that GEF funding is heavily biased towards nature protection. A total of 32 projects in this area worth some $ US 240 million have been put forward. GRAIN grouped the projects on a scale according to the extent to which they incorporate development concerns and give a role to the local communities involved. The result of our rough assessment is that over half of the funds are to be spent on activities with little or no direct benefit to local people. These projects have activities which include institutional support to government bodies, surveys and inventories. Links with indigenous peoples or other local communities are limited mostly to assessing their impact on protected areas, or on assessing the effects of limiting their access. About a further third of projects are also focused on protected areas or the conservation of specific regions, but also include, to a significant degree, matters of concern to local communities. Such projects include within their proposals activities such as promoting participation, or improving the economic benefits to local people. However, the primary aim of such projects is clearly conservation per se and it is difficult to gauge whether the overall effects on local people will be positive or negative. A few projects support national plans on biodiversity, and these also include socioeconomic concerns. The projects which are directly relevant to agriculture or other ways by which local communities can benefit from using biological diversity in productions systems are few in number and small in size, accounting for well under 10% of the GEF funds.

In sum, the GEF does not seem to meet the requirements if one looks at important criteria which any funding mechanism resulting from UNCED should meet: guaranteed mandatory and sufficient financial resources, democratic governance, transparency, equitable control and integrated focus on environment and development. Under pressure from its critics, officials are hurriedly looking for ways to reform the GEF. Indeed change is urgently required to open up the GEF and introduce democratic controls. But even after such reforms, it is unlikely that the GEF will be in a position to organize the funding for sustainable development which result from UNCED.

This article draws upon:

-- the GEF Reports of the Chairman to the 1991 participants meetings; -- the GEF issues and options paper on the future evolution of the GEF;

-- reports in "Third World Economics"; and

-- WWF's report on GEF: "sharing responsibility for the biosphere".

GEF reports can be obtained from the GEF Administrator, Environment Department, World Bank, Washington, DC 20433, USA. Tel: (1-202) 473 1053; Fax: (1-202) 477 0551.

Author: GRAIN