Cover of Green Climate Fund Private Sector Finance in Focus Briefing 1: A Critical Review of Key Trends

Green Climate Fund Private Sector Finance in Focus Briefing 1: A Critical Review of Key Trends

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The Green Climate Fund (GCF), established by and accountable to the United Nations Framework Convention on Climate Change (UNFCCC), is the world’s largest multilateral climate fund. A core part of its remit is to encourage private sector investment in mitigation and adaptation measures that address climate change in developing countries. The GCF has arguably probably the strongest private sector focus of the multilateral climate funds and this is seen by many countries, including several developed country contributors, as a core feature that differentiates it from other public actors in the global climate finance architecture. GCF private financing should be “consistent with a country-driven approach,” with a particular focus on “local actors, including small- and medium-sized enterprises and local financial intermediaries” as detailed in the GCF’s Governing Instrument. On paper, the GCF can accept considerable investment risks in order to achieve impact and innovation, while maintaining rigorous fiscal standards, environmental and social safeguards. However, various evaluations by the GCF's Independent Evaluation Unit have identified shortcomings in policies and practices that have so far prevented the GCF from achieving this goal.

To date, the GCF’s Private Sector Facility (PSF), a specialized organizational division of the GCF Secretariat, has mostly supported energy generation and energy efficiency, which account for 85 percent of its financing. The vast majority of this finance is channeled through large international intermediaries, including multilateral development banks (MDBs), publicly-owned development finance institutions and private multinational banks. Any GCF project or program can have a private sector component, while those that receive a majority of their financing from the private sector are administered by the PSF. These private sector-led activities as of mid-2021 account for a third of all GCF financing.

This is the first in a series of short briefings that will evaluate GCF private sector engagement several years into the Fund’s full operationalization. This analysis and review by civil society observers to the GCF comes at a time when the effectiveness and future of the GCF’s existing private sector engagement strategy are under internal review.

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Date of Publication
October 2021
Heinrich-Böll-Stiftung Washington, DC
Number of Pages