Current Legal Issues Affecting Central Banks, Volume IV.

Chapter 2 Developments at the International Bank for Reconstruction and Development: The Restructuring of the Global Environment Facility

Robert Effros
Published Date:
April 1997
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In March 1994, 73 countries met in Geneva and agreed to restructure the Global Environment Facility (GEF), created three years earlier as an experiment of international cooperation to finance activities for enhancing the global environment.1 The restructuring of the GEF is the first tangible follow-up to Agenda-21 of the United Nations Conference on Environment and Development (UNCED), held in Rio de Janeiro in 1992.2

The GEF has unique features that make it an interesting case study of an international organization: how existing structures are used to achieve new objectives, how they are modified in the process, and how new structures come into being.

Pilot Phase

The origins of the GEF trace back to the United Nations Environment Program (UNEP), established by the General Assembly as a result of the 1972 Stockholm Conference on the Human Environment.3 In its early work, UNEP started to define the global environmental issues in support of which, 20 years later, the financing mechanism of the GEF was created. More direct precedents are the report of the 1987 World Commission on Environment and Development (known as the Brundtland Report), which recommended the establishment of a facility to finance conservation projects and national strategies, and nongovernmental organization initiatives such as the report prepared in 1989 by the World Resources Institute, Natural Endowments: Financing Resource Conservation for Development.4

At the Development Committee meeting of 1989, a proposal was put forward by the French representative to establish an environment facility. The German delegation presented a similar proposal. At that meeting, the International Bank for Reconstruction and Development (the Bank) was asked “to assess the requirements for additional funding and explore the potential for donor support for addressing global environmental concerns in developing countries.”5

The Bank consulted with the donors, several developing countries, the United Nations Development Program (UNDP), and UNEP. As a result of these consultations, the Bank presented to its Board of Executive Directors a memorandum attaching a formal resolution for approval to establish the GEF. The proposal was approved on March 14, 1991 and later endorsed by the Governing Councils of UNEP. and the UNDP In October of the same year, the Bank, UNEP, and the UNDP signed an agreement on operational cooperation under the Global Environment Facility.6 This agreement detailed the responsibilities of each of the implementing agencies. They were expected to collaborate according to their respective “comparative advantage.”7 The Bank retained responsibility for the Global Environment Trust Fund (GET), the chairmanship of the Facility, and the Secretariat. In terms of the operational responsibilities of each agency, the Bank is responsible for investment operations, the UNDP administers technical assistance, and UNEP coordinates research and provides guidance for selecting and evaluating projects through a group of 15 scientists, the Scientific and Technical Advisory Panel.

Participation was open to all states provided that they contributed amounts equivalent to at least SDR 4 million over eight years. In the case of developing countries, the Bank was prepared to contribute half this amount. During the pilot phase, participants in the GEF met twice a year to review the operations and co-financing arrangements on the basis of reports prepared by the Bank, after consultation with UNEP and the UNDP. The participants reviewed the overall policy framework and the work programs of the three implementing agencies. There was no provision for a voting system in the meetings of the participants: “[i]t was presumed that the Bank, which chairs these meetings, would follow the sense of the meeting as summed up by the Chairman.”8

The GEF finances projects that are deemed to benefit the global, as opposed to the local, environment, in the areas of global warming, pollution of international waters, biological diversity, and depletion of the stratospheric ozone layer from emissions of chlorofluorocarbons and other gases. The GEF had pledges amounting to about SDR 1 billion for the three-year pilot phase (1991–94) from three different sources: the so-called core fund (the GET), associated co-financing arrangements, and the funds provided under the Montreal Protocol to help developing countries comply with its provisions to phase out ozone-destroying substances.9

Interim Multilateral Fund

It is illustrative in the context of the restructuring of the GEF to dwell briefly on the Montreal Protocol.10 This protocol to the Vienna Convention for the Protection of the Ozone Layer11 requires both developing and developed countries to reduce the production and consumption of chlorofluorocarbons, but it does not have a specific mechanism to meet the substantial costs of developing countries that are adopting substitutes for ozone-depleting substances. The issue of financing mechanisms was raised by France in the Development Committee in 1989 at the same time that the proposal for the GEF was first tabled. The ensuing negotiations led to the establishment of a fund for the purposes of the Montreal Protocol, the Interim Multilateral Fund, to assist developing countries in meeting their obligations under the protocol for a period of three years starting January 1, 1991.

For purposes of the operation of the Interim Multilateral Fund, an Executive Committee was established with 14 members, 50 percent of which are from industrialized countries and 50 percent from developing countries that are potential beneficiaries of this fund. The Executive Committee develops policies, plans, budgets, and criteria for project eligibility; it also approves country programs for compliance and cooperates with the implementing agencies according to their respective areas of expertise. The functions of the three agencies are similar to those under the GEF. The parties to the protocol meet once a year, and each of the agencies has entered into a separate agreement with the Executive Committee for carrying out the activities to be financed. The agreement of the Bank with the Executive Committee of the Interim Multilateral Fund provides for an Ozone Projects Trust Fund to be financed out of the Interim Multilateral Fund, which became permanent in 1992.12 The Bank is the trustee only of the funds for the projects for which it is the implementing agency. Funding for the years 1994–96 will amount to approximately $500 million, from assessed contributions by all parties to the Montreal Protocol, based on the UN contribution scale.

The New GEF

As early as 1992, the participants of the GEF agreed that its structure should be adjusted so that it could play a permanent role beyond the pilot phase. For this purpose, a number of principles were agreed providing, inter alia, that “the GEF should build on proven institutional structures, such as the partnership among UNDP, UNEP, and the World Bank, thus avoiding the creation of new institutions,” and that the GEF would be “transparent and accountable to contributors and beneficiaries alike.”13

Agenda-21 of UNCED, the United Nations Framework Convention on Climate Change, and the United Nations Convention on Biological Diversity also called for the restructuring of the GEF as a prerequisite for its designation as the financial mechanism of these conventions.14

The negotiating process, which concluded in March 1993, lasted two years and required seven meetings of the participants. During this drawn-out process, the replenishment negotiations and the changes in the structure interplayed, nearly placing the process in jeopardy. The role of the Bank, the apportionment of the contributions, voting, and the “institutionalization” of the GEF as a distinct entity were among the topics that attracted the most attention. The result is a $2 billion fund entrusted to the Bank and the Instrument for the Establishment of the Restructured Global Environment Facility.15

The GEF has become universal. Any state that is a member of the UN or its specialized agencies may become a party and does not need to contribute to do so. The GEF has an elaborate structure, which may be contrasted to the meetings of the parties and the secretariat in the pilot phase. It has now an Assembly, a Council, and a Secretariat.16 The Assembly consists of representatives of all participants but meets only once in three years, that is, once during the replenishment period. Its function is one of reviewing the GEF’s membership, its policies, and its operation.

The Council will be composed of 16 members from developing countries, 14 from developed countries, and 2 from countries with economies in transition. The Council will meet semiannually. The chairmanship shall alternate from one meeting to another between recipient and nonrecipient Council members. The Chief Executive Officer (CEO) will cochair the meetings. The Council will approve the work program, and individual projects within the program will be developed and approved by each of the agencies. The CEO will endorse each project before final project approval. The Council may review a project prior to final approval by the agency concerned if at least four Council members so request.

The Secretariat is to service and report to the Assembly and the Council. The Secretariat will be supported by the Bank but be functionally independent. The CEO is to be appointed for three years by the Council on the joint recommendation of the implementing agencies.

The implementing agencies continue to be the same and they are expected to make arrangements with other institutions—multilateral, private, or public—for preparation and execution of GEF projects. A new Scientific and Technical Advisory Panel will be established by UNEP in consultation with the other agencies and on the basis of guidelines and criteria established by the Council.

Decisions of the Assembly and Council normally will be taken by consensus. In the case of the Council, if consensus is not reached, any member may ask for a formal vote. A formal vote requires a double-weighted majority: an affirmative vote representing 60 percent of the total number of participants and 60 percent of the total contributions.17

Implications of the New GEF

The negotiating process, the instrument negotiated, the resulting structure of the new GEF, and how they fit in a wider context merit the following comments.

Negotiating Process

The negotiating process was open not only to donors but also to all states, as opposed to the pilot phase negotiation, which was donor driven. The more active participation of the beneficiaries has deeply influenced the results. In this respect, the negotiations reflected the North-South confrontation that has come to characterize the negotiations of environmental conventions in recent years. They reflected the concern for efficiency of the donors, as opposed to the concern for equity of representation of developing countries. The latter consider it their right to develop and to use their own resources, bearing in mind the pollution generated in the North.18 Thus, it is not surprising if the umbrella mechanism of the GEF emerging from these negotiations is not that different in structure from the institutional arrangements established under the various environmental conventions. In this respect, the Executive Committee of the Montreal Protocol can be seen as a starting point for the new GEF and the Conventions on Climate Change and Biological Diversity.19 A noteworthy input in the negotiating process is the independent evaluation of the GEF requested by the participants at the end of 1992, which, completed a year later, had an impact on the later stages of negotiations.

Instrument Negotiated

The instrument negotiated is not a treaty, although the negotiations gave the impression that one was being negotiated. In the end, it is an instrument negotiated by governments, but it will not be ratified by them as a treaty would be. The instrument was formally adopted by the Board of Executive Directors and the Board of Governors of the World Bank, as well as by the Governing Councils of UNEP and the UNDP.20

Any amendment or termination must be approved by the Assembly upon the recommendation of the Council, but it becomes effective only after each of the implementing agencies and the Bank, as trustee, adopt it in accordance with the respective rules and procedural requirements.

Resulting Structure

The resulting structure resembles very closely that of a new international organization, except that the negotiated instrument refrains from specifically saying so and from giving the organs of the GEF the power to contract. This lack of a separate personality is reflected in several of the ways in which the new GEF is expected to operate. For instance, the relationship of the GEF with the Climate Change and Biological Diversity Conventions is to be approved by the Council, but the instruments embodying it in the form of agreements or arrangements are to be formalized by the Bank as trustee.

This raises the question, When does an entity come to exist independently from its sponsors? While the Conference of the Parties to the Conventions on Climate Change and Biological Diversity and the Executive Committee of the Montreal Protocol are considered to have juridical capacity to contract, the GEF Council or the Assembly apparently will not have such power.

In the wider context of international cooperation, the GEF is an interesting experiment to maximize the comparative advantage of existing institutions without creating new ones. While the cooperation has not been perfect, it has worked sufficiently well to keep the GEF as the basic arrangement for financing and implementing environment projects in the future. As restructured, the GEF provides an umbrella for cooperation and consultation to implement the objectives of framework conventions as individual protocols are added. It appears to be a valid counterpoint on the financial side to the treaty-making style that has developed in the environment area. It is sufficiently practical and flexible to adapt to an evolving field while making use of existing structures.

The coordination of the structures set up under each of the conventions and the GEF itself will no doubt be a test of the system. To the extent that the Ozone Projects Trust Fund can be considered a precedent, it has worked reasonably well; however, there might be more of an overlap in the future between the GEF itself and the structures of each one of the conventions.

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