Review of the initial modalities of ... - Green Climate Fundstrategy formulation process. A further analysis of a refined sample was comprised of 177 private and public financing entities

ReviewoftheinitialmodalitiesofthePrivateSectorFacility–AddendumVITechnicalnotes

GCF/B.23/12/Add.06

21June2019

MeetingoftheBoard6–8July2019Songdo,Incheon,RepublicofKoreaProvisionalagendaitem18

Summary

Thisdocumentisacompilationoftechnicalnotesandsupportingdata,intwoparts:thefirstpartpresentsthemethodologicalapproachunderpinningtheformulationofthePrivateSectorFacility(PSF)strategy;thesecondpartisacompilationofnotespresentingtechnicaldetailsrelatingtotheproposednewmodalitiesrecommendedinthereviewofinitialmodalitiesofthePSF.

GCF/B.23/12/Add.06Pageb

TableofContents

PartI–MethodologyandapproachforthedevelopmentofthePrivateSectorFacilityStrategy 1

I. Approachfordemandandsupplyanalysis 1

1.1 Approachforthedemandanalysis 1

1.2 Approachforthesupplyanalysis 2

II. Methodologyforscenariodevelopment 3

III. Keyfindingsfromtheassessmentsundertaken 4

PartII–Technicalnotesforthemodalities 13

Modality1:Mobilizingprivatesectorfinanceforadaptationusingtargetedendowmentsatthecountrylevel 14

I. Description 14

II. Strategicfit 14

III. Roleinstrengtheningcountryownership 15

IV. Implementationapproach 15

Modality2:PilotinglocalcurrencyfundingforleastdevelopedcountriesandsmallislanddevelopingStates 17

I. Description 17

II. Strategicfit 19



Modality3:Climate‐focusedcentresofexcellence 21

I. Description 21

II. Strategicfit 21



Modality4:Privatesectorco‐investmentsolutions 24

I. Description 24

II. Strategicfit 24



4.1 TheGCFco‐investmentvehicle(the“Vehicle”or“Fund”) 25

4.2 GCFsyndicationplatformforclimateinvestments 26

GCF/B.23/12/Add.06Pagec

Modality5:Directinvestmentapproach 28

I. Description 28

II. StrategicFit 28



GCF/B.23/12/Add.06Page1

PartI–MethodologyandapproachforthedevelopmentofthePrivateSectorFacilityStrategy

1. ThedevelopmentofthestrategicroadmapforthePrivateSectorFacility(PSF)involvedthemappingandthematchingofcountries’climatechangepriorities,needsanddemands,andprivatesectoractors’intereststoengageinclimateactions.Theseanalysesunderpinthedevelopmentofscenariosfortheidentificationofthreekeypillarsoftheprivatesectorstrategy,asdescribedinthemethodologicalapproachpresentedbelow.

I. Approachfordemandandsupplyanalysis

2. Ademandandsupplyanalysishasbeenundertakentounderstandononehand,theneedofcountriesrepresentedbytheirNDAsandonthesecondhand,theinterestsofprivatesectoractorstoengageinclimatechangeactions.Figure2presentsasummaryoftheresultsofthisanalysisandhighlightspotentialareasofoverlap.

1.1 Approachforthedemandanalysis

3. Thedemandmappingexerciselookedatthetrackrecordofaccreditedentities(AEs)andotherbilateralandmultilateraldevelopmentfinanceinstitutions(DFIs)inmobilizingprivatefinanceinasampleof36countries,inordertoassessgapsandcomplementarity.

4. Theapproachinvolvedthebuildingofasampleof36countriesselectedwiththesupportoftheSecretariat(facilitatedbytheDivisionofCountryProgramming)withparticularemphasisonsmallislanddevelopingStates(SIDS)andtheleastdevelopedcountries(LDCs),andadeskreviewofthePSFpipelineandportfolio:

(a) Thesamplecomprises14countriesfromAsia,11fromAfrica,10fromLatinAmericaandtheCaribbeanand1fromEasternEurope.Thissamplemadeitpossibletoconductadeskreviewandtoengagewithnationaldesignatedauthorities(NDAs)andcollecttheirfeedbackinthemarginofstructureddialogues;

(b) Thedeskreviewprovidedaccesstoadditionalinformationrelevanttoidentifiedcountrydemandpatternsandmadeitpossibletoexamine,indetail,alargesetofclimatepoliciesanddocuments,includingGCFprogrammes,thelow‐emissionsdevelopmentofthesamplecountries,theirnationallydeterminedcontributions(NDCs),andtheiradaptationstrategies,includingnationaladaptationprogrammesofaction,nationaladaptationplans(NAPs)andothermajorclimateplans,suchastheClimateInvestmentsFundsinvestmentplans;

(c) Theassessmentwascompletedbyananalysisofinformationcollectedthroughanonlinesurveysharedwithall146NDAsandtheadditionalstakeholdersconsulted,ofwhich44NDAs(30percent)providedaresponse;

(d) SixteenNDAsselectedfromthesamplecountrieswereinterviewed;and

(e) Thesurvey,whichwasundertakenviatelephoneforthevastmajority,wascomprisedof22questionsfocusingonprivatesectorengagementindomesticclimateactions,thehurdlesidentified,andtheroleforGCF/PSFinsupportingnationaleffortstomobilizeprivatesectorresourcesforclimateactionsindevelopingcountries.

5. Thefinaldemandanalysishasbeenderivedafterthecollationandanalysisofallinformationgathered,aswellasacross‐checkoftheinformationcollectedagainstthetrackrecordofprivatesectorengagementbyinstitutionscomparabletoGCF,mainlyDFIs.


1.2 Approachforthesupplyanalysis

6. Thesupplyanalysisinvolvedtheidentificationandsamplingofkeysourcesoffinance,coveringatotalof441privateandpublicfinancingentities,includingprivatesectorfinancialentitiesinLDCsandSIDS,consideredinthecontextofamacrolevelanalysis.Figure1presentsabroadviewofthedifferenttypesofprivatesectoractorsinterviewedintheprivatesectorstrategyformulationprocess.Afurtheranalysisofarefinedsamplewascomprisedof177privateandpublicfinancingentitiesfrom7differentregionsandsubregions.Thesampleprovidedthebasistoobtaininformationontheseentities’balancesheetsize,investmentproductsandtools,aswellasreturntargetappetite.

7. Over60privatefinanceactorsfromdifferentregionsandtypeswereinterviewedbytelephoneandin‐person.Theinterviewsfocusedontheunderstandingofcurrenttrendsandchallengesinclimatefinance.Thisapproachhasprovidedcriticalmarketintelligenceacrosssubregionsanddifferenttypesofprivatefinance.

8. Thefinalanalysiswasbasedonanevaluationofthecriticalmarketintelligenceacrossallsubregionsandtypesofprivatefinancesources,aswellastheinsightscollectedfromintervieweesonbarriers,gaps,andopportunitiesforclimateinvestment,aswellasanassessmentoftheopportunitiesforGCFtoengagewitharangeofprivatesectorfinancialactors.

9. Tocomplementthemarketintelligenceonthesupplyside,theteamalsoconductedadditionalinterviewswithnon‐financialactors,namely:theGCFSecretariat,includingmembersofthePSF,expertsandBoardmembersofthePrivateSectorAdvisoryGroup,theCurrencyExchangeFund(TCX),theUnitedStatesTradeandDevelopmentAgency,theSelfEmployedWomen’sAssociation(SEWA–India)andGCFstrategicadvisers.

Figure1:Privatesectoractorsinterviewed,bytype

10. Theinterviewobjectivesweretogathermarketintelligencewithconsiderationtothefollowingprioritizedareas:

(a) PerceptionsandviewsoftheGCFasaclimatefinancepartner;

(b) Overviewofmarkettrends,initiativesandprivateinvestmentactivitythatintersectsGCFtargetareas;and


(c) Insightsontheneedsoffinancialactors,theirbarriersandpotentialGCFinterventions

thatcanbeusefultocatalyseprivateinvestments.

Keyfindings

11. Deploymentoffinancialinstruments:ofthe177entitiesinterviewed,24percent,mostlyfamilyfoundationsandphilanthropicbodies,deploygrant‐basedinstruments,56percentusedebtinstruments,namelyseniordebt,projectfinanceloansandsubordinateddebtsand73percentoftheseinstitutionsfinanceclimateinvestmentsthroughequity,ofwhich50.2percentprovidequasiequityormezzanine.Only10.7percent,mostlyDFIs,offerguaranteestoborrowersandprojectdevelopers;

12. Riskappetiteandreturnrequirementslevels:75percentoftheseinstitutionsprovidecommerciallyorientedfunding,especiallyforprojectsatinvestmentreadystatus,throughdebt,equity,guaranteeandmezzanine;30percent,mostlyimpactfundsandDFIs,provideconcessionalfunding,includingguarantee,firstloss,creditenhancement,andearly‐stageequity.Theyapplysoftertermsthroughprice,tenor,rankandsecuritytoreduceprojectrisk.Finally,22percentprovidegrant‐based,philanthropiccapital.

II. Methodologyforscenariodevelopment

13. Afive‐stepapproachwasusedtodevelopandassessthethreescenariosconsideredfortheprivatesectorstrategy:

(a) Step1:identifypotentialscenarios:

(i) Reflecttheconsultationswithstakeholders(NDAsandprivatefinancialactors):surveys,interviews,andpublishedpolicies;

(ii) Proposetheprinciplesforacountry‐drivenandprivate‐sectorresponsiveapproach;

(iii) BrainstormthesevenpotentialkeyelementsofthestrategywiththeSecretariatduringmid‐pointmeetings;and

(iv) Identifythreescenariostodevelop:reflectingconsultations,analysisandneedforcomplementaritywiththewiderarchitecture;

(b) Step2:Furtherdevelopthethreescenarios,including:

(i) Developalogicmodeltoshowhowdifferentfinancingapproachesachievethedesiredimpacts;

(ii) Accountforthefactthattheyarenotmutuallyexclusive,butreflectdifferent“vectors”fortheprivatesectorstrategythatmightnotbefullyinter‐changeable;

(iii) FocusonincrementalactivitieswithregardtoexistingPSFsupport;and

(iv) ProvideopportunityforthePSFtointeractdirectlywithprivatesectoractors;

(c) Step3:Identifythegaps,barriersanddecisionsrequiredtogiveeffecttothethreescenarios:

(i) Gapsinfinanceprovisionandbarrierstoeffectiveengagementwiththeprivatesectororinfinanceprovisiondecisions;

(ii) Operations:suggestingchangeinpracticetheleveloftheSecretariat;

(iii) Policy:signal,directionandguidanceundertheBoardpurviewforpartners,includingcountries’NDAs,AEs,privatesectorpartners;


(iv) Businessmodel:considerationsforpotentialareasofenhancementorfurther

clarityinsomeprovisionsoftheGoverningInstrument.TheseconsiderationscouldpotentiallyinvolveapoliticalorotherprocesswithrelevantlinkagestotheConferenceoftheParties(COP);

(d) Step4:Describethescenarioimplications:

(i) CharacterizethemodelportfoliotoillustratethescenariosinrelationtothecurrentPSFportfolioandestimatedpipelineasofthetwenty‐secondmeetingoftheBoard(B.22);

(ii) Illustrateimpacts:suchasleverage,resultsareas,prioritycountries;

(iii) Identifystakeholderconcerns:doesthescenarioaddressthese,includingforkeygroupssuchasLDCsandSIDs;

(iv) Identifyrisks:financial,reputational;and

(v) Costs:bothunitandaggregate;and

(e) Step5:Synthesizetherecommendations:

(i) Financingapproachesthatcanbeaffectedthroughoperationalchanges,thatcanbeimplementedwithapolicychangeatBoardlevel,orthatrequirechangestothebasicbusinessmodelthatcouldrequireareviewoftheGoverningInstrument;

(ii) PolicyreformsandmodalitiesthatmaybenecessaryforthePSFtodeliversupporteffectivelyandefficiently;and

(iii) Headlinerecommendationsandindicativebusinessplanelements.

14. Thelogicmodelofthescenarios,aswellastheirpotentialimpacts,arepresentedbelow.Thelogicmodelsarenotmeanttobecomprehensive.ThescenarioattheportfoliolevelillustrateshowapplyingthescenariowouldaffectkeyparametersofthePSFbaselineportfolio,namelyapprovedprojectsplusprojectstargetedforthetwenty‐firstandtwenty‐secondmeetingsoftheBoard.Finally,theimpactsarebroadlydescribedwithrespecttofundlevelresults,aswellasimplicationsforspecificresultssuchascarbondioxidereductions.

III. Keyfindingsfromtheassessmentsundertaken

15. Thissectionsummarizesthefindingsfromthedemandmappinganalysis,organizedaroundfourthemesandcompletedbyasummaryofkeyregionalhighlightsfromAfricaandLatinAmericaandtheCaribbean,aswellasanunderstandingoftheperspectivesofcountriesrepresentedbyNDAs,regardingdemandfromprivatesectoractorstosupportclimateactionsindevelopingcountries.

Understandingtheroleoftheprivatesectorinsupportingclimateactionsindevelopingcountrieswithafocusonthecontextofimplementationofnationallydeterminedcontributions

16. Almosthalf(50percent)ofthecountriesrepresentedbytheirNDAsinterviewed,indicatedhavingincludedintheirintendedNDCs,whichwerecommunicatedinthecontextoftheParisAgreement,areferenceabouttherelevanceofprivatesectorinvolvementduringNDCimplementation.Duringtheinterviewprocess,mostofthem(72percent)acknowledgedakeyrolefortheprivatesectorinNDCimplementation;however,mostareunclearonhowtomobilizetheprivatesectorfromstatus(generalframeworksandsectorpriorities)toaprivate


sectorpipelineandinvestments.Mostsurveyrespondents(93percent)indicatedhavingcompletedanNDCimplementationroadmapthatspellsoutthecommitmentsandinvestmentsitwouldtaketoachievetheNDCtargets,withthenextstepbeinganinvestmentplan,includingprivatesectorengagement.However,themajorityofthoserespondentshaveonlygeneralideasaboutspecificactiontoengagetheprivatesectorandhowtodevelopapipelineandlackacompletepictureoftheclimateflowsintheircountrytodevelopacomprehensivestrategy,particularlyofprivateflows.18outof44NDAsoversee,bythemselvesorincooperationwithotheragencies,climatefinancefromGCFandfrommultilateralinstitutionssuchasmultilateraldevelopmentbanksandregionaldevelopmentbanks.However,regardingprivateclimateflowsatthedomesticlevel,NDAsindicatednothavingagoodpictureofprivateinvestmentintheircountries,andprivateflowsarestillmostlyunknownforNDAs.

17. InthecontextofNDCimplementation,35outof44NDAsreportedthattheircountryisworkingon,orplanstodevelop,anNDCfinancingstrategythatconsidersmultipleclimatefinancesources,includingtheGCF.LackofresourcesandinsufficientcoordinationamongpublicagencieswerethemostfrequentlymentionedreasonsidentifiedbyNDAsasdelayingNDCfinancingstrategies.OverhalfofNDAs(27outof44)hadundertakenanestimationofthefinancegapsforNDCimplementationorareworkingoncalculatingone.However,fewoftheseNDAs(5outof27)reporthavingcalculatedtheamountoffinancerequiredfromtheprivatesector.Thechallengemostreportedaspreventingthemfromundertakingsuchacalculationisinsufficientdataandresources.

Challengesinengagingthedomesticprivatesectorinclimateactions

18. NDAshavesomeawarenessoftheissuesthatarehamperingprivateinvestmentsinclimateactions.Most(86percent)NDAsreportedalackofawarenessofbusinessopportunities,aswellasabsenceofattractivebusinessopportunities,ashurdles.Lowcapacityoflocalfinancialinstitutionswasalsorankedhigh,aswereprivatesectorpipelineandprojectdevelopmentandoriginationaskeyareasforsupport,aswellasthelimitedcapacityoflocalfinancialinstitutions.Theroleofdirectaccessaccreditedentitiesinlocalprivatesectorengagementisreportedtobeessential,asistrainingoflocalprivatecommercialbanksonriskassessmentandclimatechangefinancialstructures.TheNDAsalsoidentifiedarangeofissuesinencouragingprivatesectorproposals.NDAswereconcernedthatAEsarenotfocusedonhighimpact.ChallengesofengagingtheprivatesectorandAEswerealsocommonlyraised.TheyreportedtheneedforAEstobelessfocusedonthe“approvaltendencies”oftheGCF,andmoresupportiveofinnovativeapproaches.

19. NDAsindicatedthatprivatesectoractorsinmanyvulnerablecountrieshavelimitedcapacitytodevelopPSFproposals,exceptsomelocalcommercialbanks,whicharealsotheprimaryprovidersoffinanceformicro,smallandmedium‐sizedenterprises(MSMEs).NDAsareawareofenablingenvironments/policysignalstofosterprivateinvestment,butmoreworkisneeded.OverhalfofNDAsthatansweredthesurveyreportedplanningtoincludeenablingenvironmentsandsignalstodriveprivatesectordecisionsintheirGCFcountryprogrammes.

ChallengesinaccessingGCFresources

20. NDAsreportedchallengesunderstandingthePSFanditsroleinprovidingnecessaryguidancetoprivatesectoractors:someNDAsstruggletoguidetheprivatesectoronstrategicallytappingintoGCFresources,particularlyforparadigmshift/innovativeinvestments.Theyexpressedconcernsaboutcrowdingout.WhenawareoftheGCF,domesticprivateactorstendtoseeitonlyasasourceof“cheaper‐than‐market”finance,oftencompetingwithDFIs,ratherthanasafinancierofriskierinvestments.TheyalsoreportedthatGCFhaschallengesintryingtoaccessalargesegmentofprivatesectoractorsoperatingindevelopingcountries.The


structureoftheGCFmakesitdifficulttoreachMSMEsandthoseatthe“bottomofthepyramid”.CommunityorganizationsandMSMEslacktheknowledge,timeandcapacitytodealwithcomplexproposalandapprovalprocesses.WorkingwithMSMEsisthebestoptionatthedomesticlevelaseconomicgrowthopportunitiesinmostcountriesdependtoalargeextentonMSMEs.

21. TomakesurethePSFcandeliver,itneedstodifferentiatewhatitcandowithlarge,internationalprivateactorsfromhowitcansupportsmall‐sizeorganizationsthatareessentialtotheeconomy.Eventhoughthelegalframeworksandincentivesexist,itisdifficultforsmallcompaniestoenjoythem.MSMEsmayknowwhattheincentivesareatthedomesticlevel,butknowledgeaboutdevelopingclimateprojectsisseriouslylacking.NearlyallNDAsflaggedreadinessasakeyissue:mostNDAsthatwereinterviewedemphasizedtheneedforbetter‐targetedreadinessfundingforprivatesectorprojectdevelopment,particularlyfocusingonprojectoriginationandideadevelopmentpriortoaccessingtheProjectPreparationFacilityorsubmittingaconceptnote.SupportduringtheearlystagesisessentialtobuildthecapacityoflocalfinancialsystemsandtherealeconomyFinally,theyreportedthatthechallengestoaccesstheProjectPreparationFacilityarehigh.

RolesforeseenfortheGCFanditsPrivateSectorFacility

22. GCFreadinessisneededtobuildthecapacityofNDAssothattheywilllookattherightfinancialinstrumentsandfocusonscalabilityofproject,forideadevelopmentpriortodevelopingaconceptnote.Readinesssupportcanhelpwithprojectdevelopment.

23. Fundingisneededtobuildcapacityatthelocalleveltodevelopprivatesectorproposals,helptranslatewhatNDCcommitmentsmeanintermsofbusinessopportunities.MostofNDAshaveexpressedtheirwillingnesstoreceiveadvicefromthePSFonhowbesttotargetreadinessresourcestoworkwiththeprivatesector.RegardingthecomparativeadvantageofGCF:NDAsreportedthatthereisaneedtomakethecomparativeadvantageofGCFmorecompellingintheclimatefinancelandscape/DFImarketplace,asasourceofcapitalthattakesmorerisktoachievegreaterimpact.

24. TheNDAsalsoidentifiedaneedtopromotinglocalfinancialinstitutions’accesstoGCFresources.

25. HalfoftheNDAsreportedengagingwithlocalfinancialinstitutionswithaviewtonominatingthemasdirectaccessentities.ManyseethemasapromisingopportunitytochannelGCFresourcesforthelocalprivatesector.

26. Only8of43NDAsreportedengagingwithothercountriesinsouth‐southcooperationtosupportprivatesectorengagement.Aswellassupport,knowledgeplatformswerereportedaspotentiallymostusefulforpeer‐learningandlessonsharing.TheNDAsidentifiedaneedformoreknowledge‐sharingandunderstandingwhathasworkedinothercountries.Theremightnotbetoomanyexamplesforparticularlyinnovativeprojects,butthePSFcanhelpbysharingsuccessfulapproaches.

27. Additionaltablesanddatapointsareaddedbelowtoprovidefurtherinsightsontheresultsoftheanalysis.


Figure2:DemandandsupplymappingforprivatesectorinvestmentsbyGCFresultarea


Table1:Regionalspecificities:highlightsofAfricaandLatinAmericaMarkethighlights‐AfricaBarriershamperingaccesstofinancetoMSMEs(accountingforapproximately90%ofbusinessinSub‐SaharanAfrica)toaccessfinanceforlow‐carbon,climateresilientinvestments

DFIsarestillunsuccessfulinreachingMSMEs,despiteattemptsmadethroughinvestmentfunds,orbychannelingfundsthroughfinancialintermediaries

PerceivedrisksassociatedwithMSMEs,limitedaccesstoequity,andlimitedcapacityoflocalfinancinginstitutionstofillthe“financinggap”

HightransactionandduediligencecostswhichmakeaccesstoformalfinancialinstrumentsprohibitiveforMSMEs

Challengesforprivatesectorproposaldevelopment

Lackofawareness/interestfromtheprivatesectortoengagewithGCF Difficultyfinding/engagingwithAEswiththecapacitytodevelopprivatesectorproposalsinthecountry Insufficientunderstandingofprivatesectorneeds/prioritiesbyNDAs Lackofstaff/expertswithintheNDAtoengagewiththeprivatesector

Focusbeyondusualbeneficiariesofclimatefinance

MostDFIsoperatingintheregiontendtohaveacoupleoftokenprojectsinalimitednumberofLDCs ThereisagaptheGCFcouldfillinhelpingbuildlocalmarketsforabroadersetofLDCsandAfricanStates,

particularlythosethatreceivelessDFIattention Targetedreadinesssupporttocreateconduciveenablingenvironmentsincountrieswithincipient

marketsMarkethighlights–LatinAmericaandtheCaribbeanMiddleincomecountriesinLatinAmerica

Highpotentialforsystemicimpactbygreeningdomesticfinancial/capitalmarkets,whichGCFcouldsupport(e.g.greenbondsissuancesintheregionhaveoftenbeenisolatedinitiativespromotedbyinterestedchampions,hencetheneedtogeneratesystemicconditionsforthesemechanismstotakeoffandattractinvestors

SomeNDAsexpressedinterestinhavingtheGCFsupportcountriesinstructuringgreenbankstodevelopagreenlocalfinancialecosystem,buildingonexistinginstitutions

CaribbeanSIDS NeedgreatersupporttoreachMSMEs.GCFcurrentlytoofarremovedfromlocalsmallbusinesses Climate‐proofingmitigationinvestmentsareahighpriorityintheregion Needextensivesupporttobuild/strengthenenablingenvironmentsandregulatoryframeworksto

promoteprivatesectorinvestmentsLowerincomecountriesinLatinAmerica

NDAshaveprimarilyworkedwithinternationalAEsgearedtowardthepublicsectorandappeartohavehadlittleinfluenceinprojectorigination

NDAsneedextensivecapacity‐buildingsupportandknow‐howtobuildarapportwithAEsandengagethedomesticprivatesector

Abbreviations:AE=accreditedentity,DFI=developmentfinanceinstitution,DMA=DivisionofMitigationandAdaptation,MSME=micro,small,andmedium‐sizedenterprise,NDA=nationaldesignatedauthority,NDC=nationallydeterminedcontribution,PSF=PrivateSectorFacility,RFP=requestforproposal,SME=small,andmedium‐sizedenterprise.


28. Table1abovepresentsspecificbarriers,identifiedthroughtheanalysis,thathampertheengagementoftheprivatesectorinclimateactionsinAfricaandLatinAmericaandtheCaribbeanfromtheperspectivesofcountriesrepresentedbytheirNDAs.

Table2:Privatesectorperspectivesandconsiderationsindifferentmarketneeds

Typesofbarriers Specificconsiderations

LatinAmerica

Lackofprojectfinance Trueprojectfinance(nonrecourse)isnotreadilyavailableinsomemarkets

Somecountrieshavemoreactivefinancesectors,butmarketsarenotdeep

Theparticipationoflocalbanksiskeybecausetheyarebestpositionedtoleadconsortia/syndication

Lackoflongertenordebt TheLatinAmericanmarketstrugglestogetlongertenorstomatchthelengthofenergyandinfrastructureprojects

ThelongestpossiblelengthalocalFIcouldofferis7‐10years

Foreignexchangevolatilityisakeyreasonwhyitisdifficulttogetaccesstocross‐border,longertermdebt

“Thereareopportunitiestotaplocalcapitalmarketsforrefinancing,butsuitablevehiclesareuncommon”

Limitedprojectpipeline Earlystageequityforprojectdevelopmentisscarceacrosstheregion.Projectdevelopersmustrelyontheirownbalancesheets,whichisalimitingfactorinthemarket

Investmentlags,particularlyintheearlieststages,wheresmallinfusionsofcapitalarecritical,butwheretheriskstoinvestorsarethehighest

“QualityprojectsthathavegonethroughinitialdevelopmenthavelotsofcompetitionamongbanksandDFIs”

Caribbean

Lackofcreditworthyofftakers

ItischallengingtofindfinancingintheCaribbeanduetoalackofcreditworthyoff‐takers

However,marketparticipantsnotedthatthereisaneedtore‐familiarizelenderswiththestatusofoff‐takers(manyhaveimproved)

Notwithstandingimprovements,lendersstillhaveperceptionsofinefficientandunreliableoff‐takersintheregion

Difficultytofindbankableprojects

ForREprojects,thechallengeofachievingtargetIRRsisamixofPPAquality(off‐taker+terms)andthecostofdebt

AkeybarriertomoreREinvestmentsintheCaribbeanislowprojectedratesofreturn

Duediligencecostsandlenderfeedsareamajorissueforsmallerprojects

Asaresult,“smalllocalbanksarebestsituatedtofinancesmallprojects–cheapermoneyandmorereasonableterms”

Government/regulatorychallenges

Regulationisanotherkeybarriertoinvestment.“Thetimelinesthattheregulatorybodiesbuildintoauctionsdonotmatchwithwhatisalwaysrealisticintermsoftimingforarrangingfinancing”



EasternEurope

Perceived“DFIsdistortmarkets”

DFIsoperatinginEasternEuropeareseenasacompetitiontolocalbanks

DFIsareoftenseenascompetitorsratherthanpartnersbecausetheirlowratesdistortfinancialmarketsandcreateunfaircompetition

InCentralAsia,DFIsareoneofthelargestsourcesofcapital

Priceoff‐takerrisk“DFIsdistortmarkets”

Priceoff‐takerriskisoneofthebiggestissueslimitingREadoptioninEasternEurope.ManyprojectsinEasternEuropewillhaveaguaranteeforfeedingpowerintothegrid,butnotforthepowerprice

Asaresult,developerstakeonalotofriskbuildingprojectswithuncertaincashflowsover15–30years

Additionally,REcostshaveincreasedinrecentyearsandthecostsarepassedontoconsumers,whichislimitingREadoptionacrosstheregion

Small/mediumdeveloperslackaccesstocapita

LocalbanksdonothavethefinancialproductstoofferloanstoSME(1–10MW)developers.Consequently,localprojectdevelopersstruggletogetfinancing

CentralAsia

Nocapitalmarkets CapitalmarketsarelimitedornonexistentinCentralAsiaandEasternEurope:“EssentiallynocapitalmarketinKyrgyzstan.”“StockmarketinTajikistanistinyanddifficult.”“ThereisgeneralexcitementaboutUzbekistan,wherethereisastockexchange,butverylittleliquidity”

PPPsarelimitedbylocalstakeholdercapacity

InCentralAsia,investorshighlightedthat“PPPsaretoosophisticatedforlocalstakeholders.”Thereareproblemsaroundimplementationandalackofinternationalbestpractice.EvenwithlargeDFIsparticipatingincertainPPPstherehavestillbeenstructuralproblems.“DFIswerehopingtosimplyimplementprojectsfromacoldstartbutlocalpartiesdidn’tunderstandthem,andtheyfellapart”

LimitedgovernmentsupportforRE

DevelopmentofwindparksinCentralAsiahasnotbeenverysuccessfulbecausetherehasnotbeenmoneyforgridintegration.Governmentsareinterestedinreducingcosts,andstateguaranteesareveryhardtogetforREprojects.Privatesector‐ledprojectsinsolarpanels,climateinfrastructureanddesalinizationplantshavefailedduetolackofgovernmentsupport.DFIsarethelargestsourcesofcapitalintheregion

Africa

Lackofaffordablelong‐tenorfinancinginlocalcurrency

AcrossAfrica,privatesectorstakeholdersexpresseddifficultyinaccessingaffordable,long‐tenorfinancinginlocalcurrency.Localbanksoftenrequire100%securityevenifitbackedbyalineofcredit.Localbanksfrequentlylendatratesthataretoohighforasmallormedium‐sizeddevelopertoaccessloans

Lackofbankableclimateprojects

Localdevelopers(>10MW)areoftenundercapitalizedandlackthecapacitytodevelopprojectsthatcanattractinvestor



capital.Investorslackenoughpipelinesofqualityprojectstofinance

Lackofgovernmentcapacitytoincentivizeprivateinvestment

Governmentssetartificiallylow/noncommercialtariffs,whichcreatenegativeequityIRRforprojectdevelopersanddeterprivateinvestment.Governmentslackcapacitytodeveloplong‐termenergystrategiesincludingdevelopingandmanagingtenders,creatingappropriateregulatoryenvironmentsandbuildinginvestorconfidence(e.g.upholdingMOUsandPPAswithdevelopers).Developersexpressedthatthereisoftenalackofclarityfromgovernmentsintermsofpolicy,procurementandplanningaroundtheirenergystrategies

Asia

Foreignexchangevolatilityandcapitalcontrols

LocalcurrenciesarevolatileinmanycountriesinSouthernAsia.India’scurrencyhasdepreciatedby78%inpast6months,whichcausesalotofuncertaintyinprojectsandmakesitdifficulttogetprojectandworkingcapitaldebt.InPakistan,expatriationofforeigncurrencyisachallengeduetostrongcapitalcontrols.“Cangetmoneyintothecountrybuthardtogetmoneyout,whichisachallengefortheprivatesector”

Sophisticatedmarketslookforspeedandadditionality

InChinadealsmoveandclosequickly.Dealsfromduediligencetoclosein2–3months.Chineseinvestorsneedtoseemorethanjustcapital;proposalsmustoffervalueaddedincludingnetworkaccess,expertassistanceorcomplimentaryskillsthatwouldallowthemtoenternewsectorsandmarkets

Projectpreparation ProjectpreparationisamajorgapinLDCs,includingtheLaoPeople’sDemocraticRepublic,MyanmarandNepal

IdentifiedgapsinSoutheastAsiaincludegovernmentcapacity,regulatoryenvironments,andsupportforlocaldevelopersfromprojectdesigntoenvironmentalandsocialinclusion

PacificIslands

Lackofaliquidmarketforprojectexits

Pacificislandprojectslacksuitableliquidmarketscapableofvaluinganddeliveringappropriateriskadjustedreturns.Thelackofaliquidmarketforinvestmentexitsrepresentsachallengetotraditionalprivateequityexitstrategies(tradesalesandIPOs)

Lackofscaleandvolumeofprojects

RenewableenergyprojectsacrossthePacificaretypicallyinthe1‐10MWrange

Privatesectorinvestorsintheenergyspaceareaccustomedtostructuring,modellingandinvestinginlargeprojects

Fortheirsize,Pacificenergyprojectsfailtoprovideadequaterisk‐adjustedreturns

Lackofoff‐takerriskisamajorbarriertoREdevelopment

Thestateistheenergyoff‐takerformostPacificIslands

ExceptforTongaandFiji,theseagenciesoftenrunatalossandsubsidizepower

Forprivatedevelopers,theoff‐takers’paymentisthebiggestriskbecausetheStatemaynothonoritsPPA


Abbreviations:DFI=developmentfinanceinstitution,FI=financialinstitution,IPO=initialpublicoffering,IRR=internalrateofreturn,MOU=memorandumofunderstanding,MW=megawatt,PE=privateequity,PPA=powerpurchaseagreement,PPP=public‐privatepartnership,RE=renewableenergy.

Table3:Marketfeedback–breakdownforAfricansubregions

Africansubregionalhighlights

South DFIscrowdouttheprivatemarkets“DFIsinSouthAfricadoagreatjobofgettingmarketanddealsstartedbutoncethemarketisestablished,theydonotopenitupandonlycrowdoutprivatesectorlenders.”Politicalriskcoverageisabigissueforinvestorsandoftenrequiredfortenorextensions

North MajorityofenergyandinfrastructureprojectsarePPPs,whichrequiresovereignguarantees.Lacksbankableprojectpipelinefromprojectdevelopers.“Itisnotaproblemtoclosedeals;theproblemisthatbanksdonothaveenoughbankableprojectscominguptotheirdesks.”Strongtrackrecordofblendedandprojectfinance

West Lackofcapacityforprojectdevelopment.“Generally,projectsinWestAfricarequiremoreworkbecauselocaldevelopersarelessexperiencedandlesscapitalized,andtheregulatoryandpolicyenvironmentsarelessdeveloped.”TransmissionlinesarebeingbuiltacrosstheregiontoincentivizeIPPs

East Lackofprojectfinance.Thereislimitedupsideonreturn;alldependentonoff‐takerinPPA,utilityrisk.Collateralisinsufficient.NeedabetterreturnonREbecausethereisanopportunitycostforalternativeloans

Abbreviations:DFI=developmentfinanceinstitution,IPP=Independentpowerproducer,PPA=powerpurchaseagreement,PPP=public‐privatepartnership,RE=renewableenergy.


PartII–Technicalnotesforthemodalities

1. TheSecretariatproposesfiveevolvingmodalitiestoaddressthechallengesexperiencedinimplementingtheinitialmodalitiesofthePSF,withtheaimsofenhancingthebusinessmodelandfurtherengagingprivatesectoractorsforclimateactions.Thesemodalities,asindicatedintable1below,canbecategorizedintotwogroupsaccordingtotheirlevelofBoardconsiderationsrequiredforoperationalization.

Table4:Summaryofproposednewmodalities

# Modalities Considerations

1 Mobilizingprivatesectorfinanceforadaptationviatargetedendowmentsatthecountrylevel

Tobepiloted,withlimitations,bytheSecretariatwithinexistingBoardmandates

2 Pilotinglocalcurrencyfunding,withparticularattentiontoLDCsandSIDS

3 Climate‐focusedcentresofexcellence

4 Privatesectorco‐investmentsolutions

5 Directinvestmentapproach RequiringBoardconsiderationandbusinessmodelenhancement

2. Therestofthissectionexplainsthebroadprinciplesandapproach,permodality.Thefinalstructuresofsomeofthesemodalitieswillbebasedonamoredetailed,in‐depthassessmentofeachmodality.


Modality1:Mobilizingprivatesectorfinanceforadaptationusingtargetedendowmentsatthecountrylevel

I. Description

1. Inresponsetoseveralvulnerablecountries’requests,thePSFisconsideringsupportingtheestablishmentofanEndowmenttosupportadaptationinareaswithlimitedincentivesfortheprivatesector.TheEndowmentestablishedbyGCFandothercontributorswillinvestinclimaterelatedinvestments,whichgeneraterevenuesaswellascapitalgains.Theincomefromtheseinvestmentswouldbeutilizedtosupportadaptationprojects.Theprincipaldesignandstructuralcharacteristicsaredefinedasbelow:

(a) TheproposedEndowmentcouldconsistofmultipleindividualfunds,whichcouldbeeither(i)trueendowmentfundswheretheinflationadjustedprincipalvalueismaintainedor(ii)fundsfunctioningasendowments,wheretheprincipalvalueiseventuallyexpendedtowardsadaptationtoclimatechange.EachendowmentfundwithintheGCFEndowmentwillbeestablishedwithspecificclimateobjective:

(i) ThiswouldbejointlydefinedbyNDAs,AEs,andanyphilanthropiccontributor(s);and

(ii) Thespecificitycouldalsodeterminepotentialcountry(ies)orregionswheretheintendeduseisproposed,oraspecificadaptationarea;

(b) TheGCFcontributiontotheEndowmentcouldbeused:

(i) ForestablishingaspecificendowmentfundwithintheEndowmentwithaco‐contributionfromaphilanthropicinvestor;or

(ii) Forestablishinganunrestrictedendowmentfund(GCF’sinitialcontributiontotheEndowmentisexpectedtobeinthisform).

(c) Figure3belowdepictshowdifferentendowmentfundswouldfitintooneEndowment.

Figure3:ProposedstructureoftheEndowment

Abbreviation:FFE=fundfunctioningasanendowment.

II. Strategicfit

2. GCF’ssupporttotheadaptationendowmentfundswillenablegreatereffortstowardsinvestmentinadaptationprojectsinthemostvulnerableregionsbygeneratingconstantsourcesofrevenuebyreinvestingtheproceedsfromtheinitialinvestmentsinconcreteadaptationprojectsontheground,withafocusonthemostvulnerablecommunitiesatthebottomofthepyramid.


III. Roleinstrengtheningcountryownership

3. TheproceedsfromtheEndowmentwillbeinvestedinthemostvulnerablesectors,regionsandcommunitiesthroughnationaladaptationfundsnominatedbythecountries,throughtheNDAs.Thenationaladaptationfundswillactasaunifiedpooloffundstowardssupportingadaptationprojectsincountriesinlinewiththeirnationalpriorities.

4. Theproposedstructure,asdescribedinFigure4,wouldprovideopportunitiestomobilizeadditionalcontributionsthroughdomestic,bilateralandalternativesourcesinthenationaladaptationfunds,therebypromotinggreatercountryownership.

IV. Implementationapproach

5. TheEndowment,byadoptingamultilayeredapproach,aimstomobilizeandcrowdinfundsforadaptationatmultiplelevels:

(a) Endowmentlevel–theGCFcontributionissupplementedwithcontributionsfromphilanthropicinvestors;

(b) Nationallevel–TheEndowment’scontributiontothenationaladaptationfundsmaybesupplementedwithcontributionsfromcountriesthemselvesandfrombilateraldonors;and

(c) Projectlevel–thecontributionfromthenationaladaptationfundswillbecatalytictocrowdinprivatesectorcapitalatprojectlevel.

(d) Irrespectiveoftheintendedpurpose,thefundswouldbecommingledintoaninvestmentpool;

(e) TheEndowmentwillbebuiltovertime,andtheindividualendowmentfundswillbeestablishedovertime;and

(f) TheEndowmentwillhaveitsowninvestmentandspendingpolicy;

Figure4:ThecumulativepotentialimpactoftheEndowment


6. TheOversightoftheEndowmentwillbemanagedinthefollowingways:

(a) Governanceandreportingrequirements:TheBoardoftheEndowmentwillincludearepresentationfromtheGCF,besidesrepresentationfromotherphilanthropicinvestorsandindependentinvestmentandadaptationexperts.ThegovernanceoftheEndowmentwillbesuchthatitensureseffectivedecision‐making,adherencetomissionoftheEndowmentandaccountability.Anappropriatemonitoring,evaluationandreportingframeworkshallbeestablishedandreportingoftheactivitiesoftheEndowmenttotheBoardoftheGCFshallbemandatoryateveryBoardmeeting.Allmaterialchangestothestrategy,investmentorspendingpolicywillrequireGCFconsent.

(b) Approvalprocess:TheGCFcontributiontoanindividualendowmentfundforaspecificpurposewillbesimilartoasubmissionofafundingproposalandwouldbeapprovedbytheGCFBoard,onacase‐by‐casebasis.1Forcontributionstoanunrestrictedendowmentfund,stringenteligibilitycriteriausingtheprinciplesofaprogrammaticapproachshallbeemployedandthenthefundingproposalwillneedtobeapprovedbytheGCFBoard.TheEndowmentwouldbesetupinpartnershipwithoneormorephilanthropicinstitutionsanddonors.Hence,adirectinvestmentapproachwillberelevant,asseverallargephilanthropicinstitutionsarecurrentlynotaccreditedwiththeGCF.

(c) Management:Itispreferablefortheinvestmentprocessandthespendingdecisionstobemanagedin‐housebytheEndowment.However,initially,owingtoinadequatestaffing,theinvestmentprocessmaybemanagedbyareputedclimateinvestmentmanager.Thesedetailswouldbeworkedoutinduecourseasdetailedassessmentisdoneonthemodality.

1ThemechanicsofworkingwithdifferentAEsintheEndowmentwouldneedtobefurtherdetailedasthefundsmaybecommingledintoacommoninvestmentpool.


Modality2:PilotinglocalcurrencyfundingforleastdevelopedcountriesandsmallislanddevelopingStates

I. Description

1. TwocomplementaryapproachesareconsideredbytheGCFtopilotthelocalcurrencyfundingmodality.

2. ThefirstproposedapproachtolocalcurrencyfinancingistoenableGCFtohedgeagainstpotentialcurrencyfluctuationsbytransferringtheforeignexchangerisktotheCurrencyExchangeFund(TCX),whichisafundspecializedinnon‐commercialhedges.TCXcoversmorethan70currenciesandisusedbymanyDFIs.TCXhasinvitedGCFtobeanaffiliatedmembertosupplyhedgesinlocalcurrencies.GCFwillexploreuptothreehedgingsolutionsandconfirmthebenefitstoitsclientswhoneedlocalcurrencyproducts.ThispilotisapartoflargerinitiativebytheSecretariattoexplorelocalcurrencyinstrumentsthatcanexpandGCF’scatalysingrole,asillustratedinfigure5.

Figure5:Illustrationofthepilot’sproposedlocalcurrencyhedgingmechanism

Abbreviations:FX=foreignexchange,LCY=localcurrency.

3. Thesecondapproachaimsatestablishinglocalcurrencyclimateinvestmentvehiclestode‐riskandmakeavailabledomesticinstitutionalcapitaldenominatedinlocalcurrency.Throughthisapproach,GCFwillseedlocalinvestmentvehiclesalongwithexistingAEsandotherFinancialInstitutionsthroughequityandequity‐likeinstruments.TheAEswillhavelocalandregionalexperienceandestablishedtrackrecordintheclimatespace.

4. ThevehiclewouldinitiallybeseededbyGCF,theAEandopportunisticallyotherdomesticorinternationalFinancialInstitutions.Overaperiodoftime,thevehiclewouldhavethepotentialtosupplementitsinitialcapitalwithadditionalcapitalfromdomesticcapitalmarketsanddomesticinstitutionslikepensionfunds.Whilesomeofthedomesticinstitutionshavecapital,theyhaveexperiencedchallengesininvestingdirectlyintheclimatespaceonaccountofregulatorychallengesandlackofcapacitytoinvestintheclimatespace.


5. Theapproachpresentspotentialtoincreasetherisk‐absorptioncapacityandsignificantlyunlockandmobilizefinancingfromlocalbanksandFinancialInstitutionsbyaddressingspecificfinancingbarriers,besideslackingcapacitytofinanceprojectsintheclimatespace.Thebankstypicallyfacebarrierswhichincludelimitationsoftenor,whichisaconstraintinallmarketsduetotheinherentasset–liabilitymismatchofbanks;requirementsofadditionalcollateralandsecurity;andgeneralhigh‐riskperceptiontowardsclimateprojects.

6. Sincethevehiclewillraiselongtermlocalcurrency“patientcapital”,itwillhaveasignificantlyhigherrisktolerancerelativetothedomesticbanks.Consequently,thiswillenablethevehicletooffertailor‐madede‐riskinginstrumentssuchtakeoutguarantees,longtenorcreditguaranteeandsubordinatedinstruments.Thiseffectivelyovercomesthechallengesdomesticbanksexperience.

7. Overaperiodoftime,asbanksgetfamiliarwithclimateinvestmentsandenhancetheirinternalcapacity,theriskperceptionofclimateinvestmentswillreduce,thusreducingtherequirementofsupportorriskcoverfromtheclimateinvestmentvehicle.Thiswillhaveamultipliereffectonmobilizationofcapitalforclimateprojectsandcantherebyproduceagreaterclimateimpact.

8. Theevolutionofthevehicleandtheunlockingeffectofthevehiclearedepictedinfigure6.

Figure6:Proposedstructureofalocalinvestmentvehicle

Abbreviation:AE=accreditedentity.

9. GCF’sinvolvementingovernanceofthevehiclefromtheinceptionstagewillensureavailabilityoffinanceforcriticalareaslikeclimateadaptation,whicharecurrentlyunabletoattractfinanceotherwiseinabusinessasusualscenario.


II. Strategicfit

10. ThesemodalitieswilladvancethePSFmissiontoengagelocalprivatesectoractorstosupportclimatechangeadaptationandmitigationinterventionsandbusinessopportunitiesindevelopingcountries,therebyaddressingcurrencyfluctuationrisksassociatedtofundsprovidedinhardcurrenciesaslendinginstrumentstolocalinvestors.


11. Thelocalcurrencyfundingmodalitystrengthenscountryownershipinvariousaspects:

(a) GCFwillbeabletosupportthecountry’sclimateambitionsbyensuringGCFconcessionalityisnoterodedbyforeignexchangefluctuations.Itwillalsoaddressariskthatisparticularlyprevalentfordirectaccessentities,therebyempoweringthemtosubmitproposals,whilereducingtheassociatedtransactioncosts;

(b) Thismodalitysupportstheparticipationoflocalfinancialinstitutionsinthecapitalisationofthevehicle.Italsoencouragestheirinvestmentalongsidethevehicleinde‐riskedprojects,whilefacilitatingcreditenhancementforclimateactions;

(c) Byhelpingtocrowdincapitalfromlocalmarketstosupporttransformativeprojectsinthecountry,thevehicleactsasanenablerandmakesacompellingbusinesscaseforlocalinvestors.Overthelongerterm,astransformativebusinessmodelsareprovenandgeneralriskaversionsubsides,accesstolocalcapital,whichisstructurallyalignedwithprojectneeds,willgraduallyceasetobeaprincipalconstraintthatpreventsclimateinvestment.


12. ForTCX:TheGCFpilotwillbedrivenbyacross‐divisionalteam,whichwillmanagetheprogramme,obtainlegalclearance,signanInternationalSwapsandDerivativesAssociationAccountControlAgreement,andopenanyrelatedaccounts.ThisrequiresGCFtoconfirmitscapacityfortheimplementation,andtoprovidecounterpartycollateralsfromtimetotime.GCFwillselectthreeprojects–bothpublicandprivatesector–forthepilotprogramme.Afterthreehedgingtransactionsarecompleted,thecross‐divisionalteamwillevaluatethepilotprogrammeandreporttotheBoardforitsconsiderationandanynecessaryfollow‐upactions.

13. Forthelocalcurrencyinvestmentvehicle:thismodalitywillcatalyseco‐participationoflocalbanks–byderiskingtheirparticipationeitherthroughtakeoutguaranteesorcreditenhancementsthroughsub‐debt,juniordebtpositionsorcreditguarantees.Thespecificimplementationapproachforthismodalityispresentedbelow:

(a) Implementation:TheproposaltoestablishthevehiclewillbesubmittedunderaregularsubmissionwindowbyanAE.Ifneeded,theGCFProjectPreparationFacilitywillbeusedtopreparearobustfundingproposal,whichwillincludedetailsaboutthemarketandthesectors,aswellastheproposedstructureandco‐investors.Itmaybepertinenttonoteherethatadirectinvestmentapproachmaybeappropriateincountries/caseswheretheanchorinvestorisnotanexistingAEbutastrongfinancialinstitutionthathasasolidtrackrecordofinvestinginthelocalmarkets.Usingtheprinciplesofaprogrammaticapproach,stringenteligibilitycriteriashallbeemployed,andsucheligibilitycriteriatoscreenclimateprojectswillbeingrainedintheconstitutionaldocumentsofthevehicle.


(b) Governanceandreportingrequirements:Theinvestmentwillbemonitoredand

reportedasperexistingpoliciesoftheGCF.Additionally,theBoardofthevehiclemayincluderepresentationfromtheGCF,besidesclimateexpertsandlocalfinancialexperts.Further,certainrightsmaybeenshrinedinthecharterofthevehicle,asthiswillbedetailedinthetermsheetsoftheproposals.

(c) Prospective:Overaperiodoftime(i.e.3‐5years),theseinvestmentvehicleswilldevelopamatureportfolioofexposuresindifferentareasandsectors,thusleadingtoriskreductionthroughdiversificationandseasoning.This,alongwiththeequity‐heavycapitalstructure,willpotentiallyleadtoasuperiorinvestmentgradecreditrating,enablingthesevehiclestoraisefundsbyissuinglocalcurrencyclimatebondsinthelocalmarkets.


Modality3:Climate‐focusedcentresofexcellence

I. Description

1. Theproposedclimate‐focusedcentresofexcellence2focusonaddressingtheneedforearly‐stageincubationandacceleration.Theyplaceastrongemphasisontheneedtostrengthenpoliciesforanenablingecosystematthecountrylevel.Thisistobesupportedwithadequatefundingandappropriatecommercialstructuringofearly‐stageincubatorsandacceleratorswhichwillresultingreaterimpact.TheproposedmodalityisexpectedtosupporttheworkthatiscurrentlybeingundertakenbytheSecretariatforthedevelopmentofatargetedRFPasrequestedbytheBoardindecisionB.18/03.ItisexpectedtodosobyremovingbottlenecksandbarriersinthemarketthatareotherwisethoughttohinderthelevelofimpactexpectedfromissuinganRFP.TheywillprovidealearningexperiencethroughthedeploymentofaninitialpilotprogrammethatcoulddemonstrateGCF’sadditionalityanditscrucialroleinremovingmarketbarriersforclimateinvestments–amodelthatisbothreplicableandscalable.

II. Strategicfit

2. Acceleratinginnovationandaccesstotechnologiesindevelopingcountriesrequiresastrongenablingenvironmentandecosystem,backedbyadequatefundingforaneffectiveresponsetoclimatechange.TheGCFisstronglypositionedtobridgethegapthroughthevarietyoffinancialinstrumentsavailable,thestrongcountryreachandthewidepoolofpartnersbywhichthedesiredimpactscanbeachieved.ThroughthePSF,GCFisalsopositionedtoplayacatalyticrolethatwouldopenmarketstonewinvestmentsinclimatechangeaswellasmobilizingprivatecapitalatscale.Throughtheclimate‐focusedcentresofexcellence,thePSFwillbeabletounlockthepotentialforprivatesectorcapitaltoflowintowhatisforeseentobearatherriskymarketandprovideinnovativesolutionsthatwouldde‐riskprivatesectorinvestmentsforearly‐stageclimateinnovationsandtechnologies.ByworkingcloselywithAEs,NDAs,theClimateTechnologyCentreandNetwork,thesecretariatoftheUnitedNationsFrameworkConventiononClimateChange,theprivatesector,fundmanagersandothers,GCFaimstoaccomplishanimpactfulsolutiontoearly‐stageclimateinnovationsandtechnologies.


3. CountryownershipiskeyincoordinatingGCFengagementswithincountries.Theproposedmodalitywillenablelocaldeveloperstodriveprojectsthroughoutthelifecycleoftheincubationandaccelerationofclimateinnovationsandtechnologies.Therefore,theSecretariat,throughthePSF,hasbeenengagingwithandconsultingNDAsontheirinvolvementandinputsincetheearlydesignofthepilotprogrammetargetingearly‐stageclimateinnovationsandtechnologies.Byaddressingthelackoflocalprivatesectorfundingatscaleforearly‐stage

2TheCOPoftheUNFCCCinvitedtheBoardoftheGCFbydecision7/CP.21toconsiderwaystoprovidesupportforfacilitatingaccesstoenvironmentallysoundtechnologiesindevelopingcountryParties,andforundertakingcollaborativeresearchanddevelopmentforenablingdevelopingcountryPartiestoenhancetheirmitigationandadaptationaction.Respondingtothis,theBoardatitseighteenthmeetingtooknoteoftheoptionsoutlinedindocumentGCF/B.18/12fortheGCFtosupportcollaborativeresearch,development,anddemonstrationprojectsincluding(1)climatetechnologyinnovationssystems;and(2)targetedclimatetechnologyresearch,developmentanddemonstrationsupport.Relatedtothis,theBoard,bydecisionB.18/03,alsorequestedtheSecretariattodeveloptermsofreferenceforarequestforproposal(RFP)tosupportclimatetechnologyincubatorsandacceleratorsforconsiderationbytheBoard.AspartofawiderinstitutionalefforttoaddresstherequestbytheBoard,aworkinggroupwithintheSecretariatwasestablishedtoaddressthematterthroughaholisticapproach,coveringpolicyandcountryneeds,aswellasoperations‐relatedmatters.


climateinnovationandtechnologiesandcreatingastrongecosystemforenhancedcountryownership,thesecentreswillultimatelyenabledevelopingcountriestoenhanceandaccelerateinnovationandclimatetechnologiestosupportadaptationandclimatechangeresilience,reducegreenhousegasemissions,andpromoteeconomicgrowthandsustainabledevelopment.


4. TheGCFproposesatwo‐stageapproachinordertotestthemarketthroughaninitialpilotprogramme,thendocumentlearningandfollowupwithadirectinvestmentmodality:

(a) Firststage:establishclimate‐focusedcentresofexcellence,followingthealreadyestablishedGCFfundingchannels:

(i) ThePSFisexploring,withinterestedNDAsandAEs,apotentialstructureforclimate‐focusedcentresofexcellence,withthepurposetosourceearly‐stageclimateinnovationsandtechnologystart‐upsfromdevelopingcountriesaroundtheworld,withaspecificfocusonSIDS,LDCsandAfricanStates.Theclimate‐focusedcentresofexcellencewillfocusonstart‐upsoperatinginareasconsistentwiththeGCF’seightstrategicresultsareas.Thepotentialstructureisasfollows:

Regionalincubator:Tobeestablishedintheformofhubstostrengthencountryownership,andstimulateparticipationbylocalstakeholders(universities,theprivatesector,governmentagenciesandothers)inthebuildingofastrongenablingecosystem;

Globalaccelerator:Tobeestablishedwithindustrypartnerswhohaveexperienceintheearly‐stagestart‐upcycle.Theacceleratoraimstoprovidegreatertechnicalsupportandaccommodatethedifferentinvestmentneeds,withastrongfocusonstart‐upsoriginatedthroughthecountry‐basedincubators;

Globalgrowthfund:Asstart‐upsprogress,largerinvestmentneedsaretobeaccommodatedfor.Theglobalgrowthfund,therefore,aimstoaddresstheseinvestmentneedsandtofillinsomeofthefinancinggapslinkedtothegrowthofclimateinnovations;

(ii) AfundingproposalsupportedbyanAE,targetingthetwenty‐fourthmeetingoftheBoard,willofferafirstopportunitytopresentaschemeunderthispilotprogramme.ItwouldenabletheGCFtolearnfromthisexperiencewiththeviewtoreplicateandscaleatalaterstage;

(b) Secondstage:EstablishmodalitiesthatwillenablethePSFtoconsideradedicatedapproachtoearly‐stageclimateinnovationsandtechnologies,basedonthelessonslearned.

5. AdirectinvestmentmodalitywouldenablethePSFtobridgethefinancinggaprequiredtonourishearly‐stageclimateinnovationandtechnologiesthroughincubatorsandacceleratorsaroundtheworld.ThiswillalsoenablethePSFtoleveragecurrenteffortsbyotherinternationaldevelopmentinstitutionsintheareaofincubationandaccelerationofclimate‐relatedstart‐upsandscaleupthesizeofopportunitiesavailableinthissphere.Undersuchamodality,theGCFcouldestablishadedicatedteamwithinthePSFthroughfund‐typestructurestoworkwithincubators/acceleratorsaroundtheworldandsubsequentlysupporttheidentificationanddevelopmentofearly‐stagestart‐upsandclimatetechnologies.


6. Generalchallengesthatareoftenexperiencedintheimplementationofearly‐stageclimateinnovationsandtechnologiesinclude:

(a) Thescarcityoffundingatscale:duetothehighrisksassociatedwithearly‐stagefundingingeneral,andclimateinnovationandtechnologiesinparticular,ithasbeenobservedthatthereisimmensedifficultyinattractingcapitaltoinvestinthislineofbusiness.Therefore,privatesectorfundinghasbeenmorefocusedonbothlaterandgrowthstages.Inaddition,duetohighcostsandthelengthyincubationandaccelerationprocess,facilitiesaroundtheworldstrugglewiththeavailabilityofcapitaltocarrytheiroperations;

(b) High‐riskperceptionbyinvestors:theperceptionofhighriskisabarriertoprivatecapitalinvestmentsforearly‐stagetechnologiesandincubationandaccelerationofstart‐upsingeneral.Therefore,GCFinterventionwouldenableinvestorstohaveenoughcomfort,intermsofriskmitigation,toenablethemtodeploycapitalinthisarea;and

(c) Lackofinstitutionalframeworksandweakecosystems:thelackofinstitutionalframeworksandincentivestoencouragethedevelopmentofnewclimateinnovationsandtechnologiesareamongthemainbarriersthatneedtobeaddressed.TheGCFiswellpositionedtohaveacombinationofbothpublicandprivateinterventionsthatwouldenablecountriestobuildastrongerecosysteminrelationtoearly‐stagestart‐upsandclimatetechnologies.

7. LimitationsrelatingtotheGCFbusinessmodelareasfollows:

(a) Accreditationmodel:thecurrentbusinessmodelrequirestheGCFtoworkonlythroughAEs.Asaresultoftheperceptionofhighriskassociatedwithearly‐stageincubationandacceleration(andstart‐upsingeneral),aswellasliquidity,itisdifficultunderthecurrentbusinessmodeltohaveaneffectiveapproachthatwouldimprovetheecosystemforearly‐stageincubationandacceleration;and

(b) Non‐objectionletters:theeffortsofGCFinworkingwithincubatorsandacceleratorsforthedevelopmentofearly‐stageclimatetechnologiesandstart‐upswouldstrengthencountryownership.However,becauseNDAsrequirevisibilityonthepipelineandfundmanagersbeforeissuingnon‐objectionletters,thisrequirementrepresentsabarrierfortheGCFtobeabletoworkwithearly‐stageclimatetechnologiesandstart‐ups.


Modality4:Privatesectorco‐investmentsolutions

I. Description

1. TheGCFprivatesectorco‐investmentsolutionsaimtobringinstitutionalinvestorsintoclimateinvestmentopportunitiesthattheytypicallywouldnotbeinvolvedin,withtheriskmitigationtheyseek,andtheinvestmentreturntheylookforindevelopingcountrieswithstronggrowthprospects.Theco‐investmentsolutionsareenvisionedtoachievethefollowingobjectives:

(a) FulfilakeymandateofPSFbymobilizinginstitutionalinvestorsatscaleforclimateaction;

(b) Unitelike‐mindedinstitutionalandimpactinvestorstojoineffortsintoclimateinvestmentthemesindevelopingcountries;

(c) Provideinstitutionalinvestorswiththeopportunitytoco‐investinclimateinvestmentprojects,alongwiththeGCF,byde‐riskinganddeployingconcessionalandblendedfinancetools;

(d) Eliminatebarrierstoinvestinclimate‐relatedassetclassesbyinstitutionalinvestorsinemerginganddevelopingcountries;and

(e) Establishasolidinvestmenttrackrecordthatwouldpositionclimateinvestmentsindevelopingcountriesasanattractiveassetclassforinvestors.

II. Strategicfit

2. AkeypillarinthestrategyofPSFismobilizingcapitalfrominstitutionalinvestorstoco‐investinGCFprivatesectorprojectsandaccelerateclimateactionindevelopingcountries.Institutionalinvestorsincludingpensionfunds,sovereignwealthfunds,insurancecompanies,familyoffices,endowments,philanthropicinvestorsandfoundationshaveexpressedagrowingappetiteforclimateinvestments.ItisestimatedthatoverUSD131trillionisadministeredbytheseinstitutionalinvestors,yetonlyanegligibleportionischannelledintoclimateinvestmentsindevelopingcountriesduetothefollowingbarriers:(a)High‐riskperception;(b)Lackofinvestmentaccessandvehicles;(c)Informationasymmetry;and(d)Lackofcapacity,originationbankableopportunities,andmarketknowledge.ThispresentsanopportunitywherethePSFcanhelpbridgethegapbycreatinginvestor‐ledco‐investmentinitiativesthatwillconnectinstitutionalinvestorstoclimateinvestmentopportunitiesindevelopingcountries.


3. Thismodalitywillcontributetofosteringcountryownershipandsupportingthemobilizationofprivatecapital,therebyhelpingdevelopingcountriesinmeetingtheirNDCs,providingvisibilityonopportunitiestomobilizecapitalatscaletodrivelongtermandtransformationallowemissionandclimateresilientdevelopment,basedonnationalpriorities.


4. PSFhasundertakenasignificantamountofgroundworkindevelopingeffectivemodalitiesthatwouldenableinstitutionalinvestorstoco‐investwiththeGCF.PSFhasengagedwithseveralinstitutionalinvestorsincludingpensionsfunds,insurancecompanies,sovereign


wealthfundsandassetmanagerswhohaveexpressedstronginterestinpartneringwiththeGCFonstrategicinitiativesasoutlinedinthisproposal.

5. TwokeyinitiativeswhereastrategicpartnershipcouldbeestablishedbetweentheGCFandinstitutionalinvestorsaredescribedbelow.

4.1 TheGCFco‐investmentvehicle(the“Vehicle”or“Fund”)

6. Thefirststrategicinitiativeisenvisagedtobeaco‐investmentvehicleseededbytheGCFandotherinstitutionalinvestorsincludingpensionfunds,insurancecompanies,andsovereignwealthfunds.TheparticipationofGCFintheFundwillbestructuredtode‐riskinstitutionalinvestorsusinginnovativeblendedfinanceinstrumentssuchassubordinatedequityanddebt,andfirstlosscatalyticcapitaltomobilizeinstitutionalinvestorsatscaleforclimateinvestmentsindevelopingcountries.Theco‐investmentvehiclewilltargetthemobilizationofatleast4–5timesthecatalyticcapitalseededbytheGCF.

7. TheGCFco‐investmentvehiclewillprimarilyinvestinprojectsorsubprojectsofprogrammesapprovedbytheGCFandclimateprojectsthatareinlinewithGCFinvestmentcriteriainallaspects.TheCo‐investmentVehiclewillbringtogetherlike‐mindedinvestorsaroundarenownedassetmanagementfirmthatwillbeselectedtomanagetheco‐investmentvehicleincoordinationwithadedicatedco‐investmentteamwithinthePSF(seefigure6below).Theassetmanagementfirmwillrunaseparateandindependentinvestmentdecision‐makingprocesstoinvestalongsidetheGCF,owingitsfiduciarydutytoitsinvestorsandaimingtobuildadiversifiedportfolioofclimateinvestmentsindevelopingcountries.

8. ThePSFwillplayakeyroleinoriginating,de‐riskingandcoordinatingthesharingofitspipelineofclimateprojectswiththeco‐investmentvehicletoattractco‐financingatscale.Adedicatedco‐investmentteamwithinthePSFwillmanagetheinvestmentprocessandworkcloselywiththedesignatedassetmanager,followingtheGCFinvestmentcriteriaandotherprojectscreeningcriteriaestablishedbytheGCF.

9. TheassetmanagermaybeanAEwithstrongassetmanagementexpertise,trackrecordandfiduciarystandards.Therefore,thefundingcommitmentofGCFintothevehiclecouldtaketheformofeither:(1)adedicatedfundingamounttobeapprovedbytheBoardtoseedtheco‐investmentvehicle;or(2)aspecialfundingproposaltobeapprovedbyBoardforthecapitalizationoftheco‐investmentvehicle.


Figure7:StructureoftheproposedGCFco‐investmentvehicle

Abbreviations:GP=Generalpartner

4.2 GCFsyndicationplatformforclimateinvestments

10. ThesecondstrategicinitiativeaimstoestablishasyndicationdeskorplatformaspartofthePSF.Thesyndicationdeskisenvisagedtobeapowerfuloriginationhubforclimateinvestmentssupportedbyatechnologyorcloud‐basedplatformtofacilitatethesharingofclimateprojectsbetweentheGCFandinterestedpartnersandinvestors.ThesyndicationplatformisintendedtobeaneffectivemarketplacefororiginationandsyndicationwheretheGCFcanshareinnovativeandtransformativeclimateprojectsinitspipelinewithinvestorstoattractco‐financingatscale.

11. TheGCFwillplayanintermediaryroleastheleadsyndicatorthroughitssyndicationdesk,sourcingandscreeninginvestmentopportunitiesfollowingGCFinvestmentcriteria,andcoordinatingthesharingofdealsandknowledgewithinvestorsthataremembersofthesyndicationplatform.AdedicatedPSFsyndicationteamwilloverseethemanagementoftheplatformandworkhandinhandwithinvestorsandAEsintheinvestmentandsyndicationprocess(seefigure7below).

12. Onlyinvestorswhomeetasetofpre‐definedselectioncriteriaandhaveexpressedstronginterestinco‐investingwiththeGCFwillbeselectedasmembers.Investorsareexpectedtoparticipateintransactionsonadealbydealbasis.Priortojoiningtheclubofinvestors,membersofthesyndicationplatformwillpledgesoftcommitmentsandinformGCFoftheirinvestmentpreferencesincludingassetclass,return,risk,regionandsectors.Investorswillhaveaccesstoinnovativeclimateprojectsmatchingtheirpreferencesandwouldberesponsiblefortheirownduediligenceanddecision‐making.

13. InvestorswillbenefitfromaccesstotheGCFpipelineofinnovativeclimateprojectsinmanyways.First,theriskprofileofallprojectspresentedtoinvestorswillbeenhancedbyGCFparticipation,whichcanfeatureinnovativeblendedfinanceinstruments.TheGCFcontributionwillde‐riskdirectinvestmentsinclimateprojectsinemerginganddevelopingcountriesfor


membersofthesyndicationplatform,thusfacilitatingtheirparticipation.GCFconcessionalitycanbeusedtode‐riskclimateprojectsthroughinnovativestructuringusinginstrumentssuchasconcessionalseniorandsubordinatedlong‐termdebt,subordinatedequity,firstlosscreditenhancementandguarantees.Therefore,theGCFisuniquelypositionedtoprovideinvestorswithtransformativeclimateprojectsandofferinnovativefinancialinstrumentstoovercomethebarriersthatusuallyhindertheirinvestmentsintoclimateprojectsinemerginganddevelopingcountries.

Figure8:StructureoftheproposedGCFsyndicationplatform

14. Theoperationalizationandimplementationoftheproposedco‐investmentsolutionsbyPSFcouldpotentiallycommenceinthesecondquarterof2020.TheSecretariatwillseekapprovalbytheGCFBoardofadedicatedfundingcommitmenttoseedtheco‐investmentvehiclein2020.WithsupportfromtheGCFBoard,PSFwilladvanceitsworkontheproposedco‐investmentsolutionsanddevelopafully‐fledgedimplementationplanforoperationalization.PSFwillcontinuetoengageinstitutionalinvestorstosecuretheircommitmentforthecapitalizationoftheGCFco‐investmentvehicle.


Modality5:Directinvestmentapproach

I. Description

1. Asoutlinedintheprivatesectorstrategy,theexperienceofGCFduringtheinitialresourcemobilizationperiodhighlightedtheimportanceofpotentialenhancementsoftheGCFaccessmodalitiestoenabletheGCFtofullyrealizeitscatalyticpotential.Thisisparticularlythecasewithrespecttoprivatesectorinterventions,whichrequirespeedierandmoreefficientduediligenceaswellasaclearpipelineoftransactions.

2. Duringtheinitialresourcemobilizationperiod,onlyaboutUSD170millioninGCFfundinghasbeendirectedtoprivatesectorAEs,representinglessthan4percentoftheFund’stotalportfoliopostB.22(seefigure9).

Figure9:ProportionofprivatesectorAEswithintheGCF/PSFportfolio

Abbreviations:AE=accreditedentity,DB=DeutscheBank.

II. StrategicFit

3. TheBoardhasindicated,indecisionB.04/08,thatPSF“mayovertimeworkdirectlywithprivatesectoradaptationandmitigationactorsatthenational,regionalandinternationallevels”.ThePSFhasevolvedintoamatureinvestmentteamofseasonedclimatefinancespecialistswithastronginvestmenttrackrecord,therefore,complementingthecurrentmodalitieswithsuchadirectaccessapproachseemsrelevant,necessaryandtimely.

4. Atpresent,theaccreditationframeworkisinplacetoassesswhetherpartnerinstitutionshavetheinstitution‐widesystems,policiesandproceduresinplacetosafeguardprojectsandprogrammesfromfiduciary,environmental,socialandgender‐relatedrisks.AlthoughGCFperformssecondaryduediligenceoffundingproposals,itreliesontheAEstoperformthefirstlevelduediligence.Underadirectinvestmentapproach,theSecretariatitselfwouldconducttheprimaryduediligenceandlendorinvestdirectlyintoprojectsandprogrammesontheground.ThiswillrequirethePSFinvestmentteamtoundertakearigorousduediligenceonallaspectsoftheprojects,includingfinancial,technical,environmental,socialandgender‐relatedrisksandclimateimpacts,fiduciaryandintegrityrelatedissues(seefigure9below).

5. AstheGCFBoardisconsideringthereviewoftheinitialmodalitiesofthePSF,itisimportanttoclearlyoutlineanyimplicationsforputtinginplacesuchamodalityandtoassessthebenefitsaswellasthebarriersofitsimplementation.Themodalityhasthepotentialtoofferanaccessmodalitycomplementarytothecurrentaccreditationprocessthatwilleffectivelyandimmediatelyaddressprivatesectorentities’challenges.



6. TheproposedmodalitypresentsthepotentialtosignificantlyenhancetheabilityofthePSFtosupportlocalprivatesectoractorsengagementinclimateactionsinlinewithnationalpriorities.Byinvestingdirectly,PSFhasabetterabilitytofacilitateaccesstocrediblelocalpartners,henceallowingthemtobemoreeffectiveanddecisiveinsupportingclimateactions.Themeritsofthedirectinvestmentapproachrelevanttostrengtheningcountryownershipincludethefollowing:

(a) EnablingPSFtodirectlyengagewiththeprivatesectorandenhancingtheoriginationoftransformativeclimateprojectsinlinewithcountries’NDCpriorities;

(b) SupportingtheGCF’shigh‐riskappetitetoachieveimpact;

(c) Ensuringarobust,speedierandmoreefficientduediligenceprocess,aswellasbetterclarityoftransactionsfromconceptiontoimplementation,monitoringandevaluation;

(d) Allowingmorevisibilityoverdisbursementsandthusenablingquickerrealizationofimpacts;

(e) OpeningupnewopportunitiestopositionGCFasaclimateknowledgeandinvestmenthub;and

(f) SignificantlyimprovingtheabilityofGCFtorespondtofutureRFPs.ThisiscruciallyimportantconsideringtheexperienceofthemobilizingfundsatscaleRFPs,throughwhichtheGCForiginatedmorethan350requestsforfundingtotallingmorethanUSD40billion.

Figure10:Current(secondaryduediligence)versusadirectinvestmentapproach(primaryduediligence)

Abbreviations:AE=accreditedentity,FP=fundingproposal,NDA=nationaldesignatedauthority,NOL=no‐objectionletter,TAP=TechnicalAdvisoryPanel.


7. Inordertosupporttheoperationalizationandimplementationofthedirectinvestmentapproach,theSecretariatwouldneedto:


(a) Setaportfoliotargetandlimit(e.g.uptoUSD500million)forpilotingdirect

investmentsinspecificsectorswithhighinnovationandtransformationpotential;

(b) Mapkeysectorsandcountrypriorityareas(countryprogrammes,NDCsandNAPs)thatwillsupportthedeliveryofhigh‐impactmitigationandadaptationinterventions;

(c) Establishadetailedlistofeligibilitycriteriaforthedirectinvestmentapproachthatmayinclude“medium”environmentalandsocialsafeguardrisks;fundinglimitpertransaction;participationalongsideanexperiencedandcredibleco‐financingpartner;appropriatesponsorcredentialsincluding,butnotlimitedto,compliance;andcredibletechnicalandfinancialexpertise.Thecriteriawillbetargetedtoinnovativeclimateinvestmentsthatcantriggersystemictransformation,suchasinvestmentsinclimatefocusedfieldplatforms(directequity),aswellassupporttounderrepresentedthematicareaswithintheGCFportfolio;

(d) Discusswithcountriesthebestwaytooperationalizecountryownershipinthecontextofdirectinvesting,includingnon‐objectionlettersoranysuitablealternatives.DirectaccessisessentialtomaximizethepotentialofthePSFtocatalysebothdomesticandinternationalprivatesectoractorstofinancetransformativeclimatechangeprojectsinlinewithdevelopingcountries’NDCsandpriorities;

(e) Implement,inpartnershipwithoneortwoco‐financingpartnerswithastronglocalpresenceandtrackrecord;

(f) Createarosterofindependentexpertstoundertaketheintegrity,fiduciary,environmentalandsocialsafeguardsandtechnicalduediligence;and

(g) EnsureGCF’sstreamlinedbusinesspracticesandapproachesareappliedtoinvestmentopportunityduediligence,includingthroughimprovedsystemsandprocesses(seetable2fortheroleofunitswithinGCF).

Table2:EnhancedSecretariat‐widecollaborationtosupportthedirectinvestmentapproach

Unit Role

PrivateSectorFacility

PSFclimateinvestmentspecialistsneedtobecomethetransactionleadsandfocalpointsfromstarttofinish

Atsomestageastrongerrepresentationonthegroundmightbenecessary

DivisionofCountryProgramming

Todevelopcountryprogrammesthatcanbeeasilytranslatedintoaninvestmentprogrammeofmitigationandadaptationimpacts

Tomapkeyentities,bothdomesticallyandinternationally,abletodelivercountryprogrammesandarticulatethedirectinvestmentapproach

Procurement

Tocreatearosterofindependentexpertsforundertakingtheintegrity,fiduciary,environmentalandsocialsafeguardsandtechnicalduediligence(basedonindustrybestpractice)

Rostertoincludetopaccountingfirmsabletoconductaportfolioqualityanalysisofcomplexbanks

FinanceandAccounting

Toensurethatthereisarobustaccountingsysteminplacetoadequatelyfacilitatetheduediligenceprocess

HumanResources Tooverseetheexpeditedhiringofinvestmentprofessionalswithinvestmenttrackrecordandothersupportunitcapacities

OfficeoftheGeneralCounsel

Toestablisharosterofexternalfirms,bothlocalandinternational,thatcouldsupportthelegalduediligenceandlegaldocumentation

Dedicatedlawyerswithprincipalinvestmentexperience


Unit Role

OfficeofRiskManagementandCompliance

Toensurethatchecksandbalancesareinplace(counterbalance)

Dedicatedexpertsofmultipleindustrygroupswithatrackrecordofriskintheseareasandtherequisiteofficerstoundertakechecksandbalances

DivisionofMitigationandAdaptation

ToprovidesectoralguidancenotesontheeightGCFperformanceareasandensureagoodunderstandingofthesethematicgroups(communitiesofpractice)

InformationCommunicationTechnologyandSystems

Toputinplacetherequiredsystems,processesandcapacities(e.g.end‐to‐endsystemsbasedongroupingofindustry)

Systemsthatcouldsupporttheaccountingforallthefinancialinstruments

OfficeofPortfolioManagement

Toensureadequateprojectmonitoringandfinancialreportingcapacities

Theteammayalsoberequiredtohandletheroleofrecoveryinpotentialstressedsituationsunlessaseparateunit/divisioniscreated

EnvironmentalandSocialSafeguards

Dedicatedenvironmentalandsocialsafeguardsandgenderteamtoprovidehands‐onsupporttotheinvestmentteamsupportedbyarosterofexperts

8. TheoperationalizationandimplementationoftheproposeddirectinvestmentapproachbyPSFcouldpotentiallycommenceinthesecondquarterof2020.TheSecretariatwillseekapprovalbytheGCFBoardofadedicatedfundingcommitmenttopilotthismodalityin2020.WithsupportfromtheGCFBoard,PSFwilladvanceitsworkontheproposeddirectinvestmentmodalityanddevelopafully‐fledgedimplementationplan,aspartoftheimplementationoftheprivatesectorstrategy.

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Documents

Review of the initial modalities of ... - Green Climate Fundstrategy formulation process. A further analysis of a refined sample was comprised of 177 private and public financing entities