Chapter 3 The Operations of the Convention

FINANCIAL ARRANGEMENTS AND THE FINANCIAL MECHANISM

Financial arrangements under the Convention cover two very different areas. The first concerns budgetary arrangements for the administration of the Convention itself and the financing of the processes directly associated with it. The second concerns the mechanism by which funds are made available to developing country Parties to enable them to meet their wider obligations under the Convention.

The financing of the Convention

The Conference of the Parties at each of its ordinary meetings approves a budget for the administration of the Convention for the following two-year period or biennium. Funding for activities is provided in three separate trust funds, to which Parties contribute.

The core programme of the Convention is funded by a core budget, known as the BY Trust Fund. Parties are expected to contribute to this according to the UN scale of assessments, a UN-wide system for assessing the relative wealth of each country. Under the Convention, no one Party pays more than 25% of the total contributions of all Parties, and no least developed country (LDC) pays more than 0.01% of the total contributions. The core budget essentially covers staffing requirements at the Secretariat and the servicing of the major meetings under the Convention (ie. those of the Conference of the Parties and SBSTTA). It also covers a 13% programme support charge levied on all activities by the United Nations Environment Programme under direction from the latter's Governing Council and the United Nations General Assembly. The total core budget allocated for 2001 was just over eight and a half million dollars and that for 2002 just over ten million dollars.

A variety of additional activities in the overall programme of work approved by the Conference of the Parties are funded through a special voluntary trust fund (BE), to which Parties and others are urged to contribute. This fund covers a range of items and activities including: additional meetings envisaged in decisions of the Conference of the Parties, such as those of Panels of Experts, regional meetings and workshops on various issues; additional staff posts at the Secretariat; travel of the president of the Conference of the Parties and the chairperson of SBSTTA; and various sub-contracts and consultancies. Items included here will only be funded if the money is made available by voluntary contributions to the BE trust fund. The budget under this fund was just over two and half million dollars for 2001 and just over two million dollars for 2002.

A second voluntary trust fund (BZ) exists to help developing country Parties (particularly least developed countries and small island developing States) and those with economies in transition attend various meetings under the Convention, most importantly those of the Conference of the Parties and SBSTTA. The budget for this fund was just over two million dollars in 2001 and nearly three million dollars in 2002. The Bureau of the fourth meeting of the Conference of the Parties has also allowed the Executive Secretary to use unspent money from the core (BY) fund to help such countries attend meetings.

Financial resources

The Convention recognizes that fulfilling its obligations will impose a financial burden on Parties. This burden is most acutely felt by developing countries, which hold most of the world's biological diversity but have limited financial resources. Under Article 20 of the Convention, developed country Parties are obliged to provide new and additional financial resources to enable developing country Parties to meet the agreed full incremental costs to them of implementing measures that fulfil the obligations of the Convention. Article 21 establishes a system - the so-called financial mechanism - for the provision of these resources.

Article 39 of the Convention determined that the Global Environment Facility, if suitably restructured, would be the institutional structure operating the financial mechanism on an interim basis, for the period between the entry into force of the Convention and the first meeting of the Conference of the Parties, or until such time as the Conference of the Parties had decided which institutional structure would operate the financial mechanism.

At its first meeting, the Conference of the Parties decided on a list of developed country Parties that would provide new and additional financial resources to developing country Parties to allow them to meet their obligations under the Convention. The Convention also makes provision for other Parties, including those with economies in transition, to assume voluntarily the obligations of a developed country Party. To date no Parties have done this.

Table 3.5 Developed country Parties4

Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Greece
Iceland
Ireland
Italy
Japan
Liechtenstein
Luxembourg
Monaco
Netherlands
New Zealand
Norway
Portugal
San Marino
Spain
Sweden
Switzerland
United Kingdom

A Memorandum of Understanding between the Conference of the Parties and the GEF Council (see below) was adopted by the Conference of the Parties at its third meeting and by the GEF Council shortly thereafter. Under the memorandum, the GEF continues to serve as the institutional structure operating the financial mechanism on an interim basis. The memorandum sets out terms for cooperation between the Conference of the Parties and the GEF, in particular specifying the kinds of guidance that the Conference of the Parties may communicate to the GEF. Under the memorandum, the GEF provides a report of its activities to each ordinary meeting of the Conference of the Parties.

Under Article 21 of the Convention, the Conference of the Parties is to review the effectiveness of the financial mechanism not less than two years after the Convention's entry into force and on a regular basis thereafter. The Conference of the Parties carried out its first review at its fourth meeting and decided to carry out such a review every three years thereafter. Terms of reference for the second review were drawn up at the fifth meeting of the Conference of the Parties.

The Global Environment Facility

The Global Environment Facility (GEF) was established in 1991 as a joint programme of the United Nations Development Programme, the United Nations Environment Programme and the World Bank. To begin with, it was a three-year pilot programme whose aim was to provide grants and low-interest loans to developing countries to allow them to implement projects and programmes to relieve pressure on ecosystems. The GEF was restructured in 1994, following the United Nations Conference on Environment and Development (the Earth Summit). It operates in four main focal areas: biological diversity; climate change; international waters; and ozone layer depletion. Projects on land degradation as it is related to the focal areas are also eligible for funding.

There are 166 States participating in the GEF, including some that are not Parties to the Convention. Representatives of all the Member Countries constitute the GEF Assembly, which meets every three years to review general policies and evaluate the operation of the facility. The GEF Council functions as an independent board of directors, with primary responsibility for developing, adopting, and evaluating GEF programmes. Council members representing 32 constituencies (16 from developing countries, 14 from developed countries, and two from countries with transitional economies) meet twice each year. All decisions are by consensus although a voting mechanism is in place if consensus cannot be reached. The Scientific and Technical Advisory Panel (STAP) provides advice to the council. It consists of twelve experts appointed by the Executive Director of the United Nations Environment Programme and can also call upon a roster of experts.

GEF-funded projects and programmes are country driven and respond to national priorities. As determined by Article 20, the GEF funds the incremental costs of these activities needed to meet global benefits. There are currently four operational programmes in the biological diversity focal area: arid and semi-arid zone ecosystems; marine, coastal and freshwater ecosystems; forest ecosystems; and mountain ecosystems. An operational programme on agricultural ecosystems is currently under development. There is also an operational programme on integrated ecosystem management, which embraces three of the focal areas (biological diversity, climate change and international waters). In funding activities related to biological diversity, the GEF follows advice from the Conference of the Parties, both that contained in specific decisions addressed to the GEF and in the more general guidance issued by the Conference of the Parties.

Broadly speaking, GEF-funded projects and programmes can be divided into three categories: full projects, medium-sized projects, and enabling activities. Funding for any given activity ranges from a few tens of thousands of dollars to many tens of millions.

Enabling activities are primarily concerned with capacity-building and are chiefly to allow individual countries to develop comprehensive national biodiversity strategies and action plans. Expedited procedures allow fast track approval for enabling activities requests of up to US$ 450,000. Medium-sized projects (those with up to one million dollars of GEF funding) and full projects may cover one or more countries. The two are chiefly distinguished by the funding approval process, which is much simpler for the former than the latter. As well as normal projects, medium-sized and full projects may also be short-term response measures or targeted research. A short-term response measure is a project that is designed to respond quickly to urgent needs or to seize a promising country-driven opportunity. A targeted research project is a research activity aimed at providing information, knowledge and tools to improve the quality and effectiveness of GEF projects and programmes. It has to be within the context of the operational programmes.

The GEF attaches great importance to leveraging co-financing for projects and programmes wherever possible. Such additional funding may be in cash or in kind. By January 2001, the GEF had allocated over 1.3 billion dollars to 416 biodiversity projects and enabling activities in 136 countries (Annex 3). This was around 40% of the GEF's overall funding allocation during this period. Co-financing for these projects was over 2.3 billion dollars. The main contributors to the GEF's overall budget are the United States of America (a non-Party to the Convention), Japan, Germany, France and the United Kingdom, who together provided two-thirds of funding for the second replenishment period (1998-2002).

Additional financial resources

The Convention also encourages developed country Parties to provide financial resources through channels other than the financial mechanism, to help developing countries implement the Convention. This subject has been a focus of the Conference of the Parties since its first meeting, when it asked the Secretariat to provide a study on the availability of such financial resources. This call was repeated at the second and third meetings, with a request that the Executive Secretary report to the fifth meeting. The subsequent decision of the Conference of the Parties reflected the observations made in the Executive Secretary's report that, although it appeared that a number of funding institutions had increased funding support to biodiversity projects and activities, the absence of standardised reporting systems and the lack of comprehensive information made it extremely difficult to assess just how much funding for biodiversity was available.

In the decision of its fifth meeting, the Conference of the Parties asked the Executive Secretary to further develop a database on biodiversity-related funding mechanisms and urged developed country Parties to establish a process to monitor financial support to biodiversity and to provide further information on this in their second national reports. It also invited the GEF to assist the Secretariat to convene a workshop on financing for biodiversity with relevant international organizations and funding institutions.

Progress on this issue, which has been slow to date, is clearly crucial in order to determine the extent to which the global community shows commitment to meeting the objectives of the Convention. Although funding through the GEF can be clearly monitored, until overall funding for biodiversity-related activities can be identified with precision, it will not be clear to what extent funding through the Convention's financial mechanism actually represents the new and additional financial resources called for under Article 20.


Note:
4 The list adopted by the first meeting of the Conference of the Parties contained twenty-one countries. Belgium, Ireland and Liechtenstein had not yet become Parties. San Marino, although a Party at the time of the first meeting, was not included in the list. Article 20 provides that the Conference of the Parties shall periodically review and, if necessary, amend the list. To date, the Conference of the Parties has not done so. Table 3.4 contains the accepted working list of developed country Parties. For practical purposes, the European Community should also be included.

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