Design of a Private Sector Window for the Green Climate Fund

GBRW Consulting, GBRW Group, Green Finance, Sustainable & Development Finance

GBRW was requested by the UK Department for International Development (DfID) to prepare a Study of the options for the design of a Private Sector Window (PSW) for the Green Climate Fund (GCF).

The GCF is a global fund created to support the efforts of developing countries to respond to the challenge of climate change. It was set up by the 194 countries who are parties to the United Nations Framework Convention on Climate Change (UNFCCC) in 2010, as part of the Convention’s financial mechanism.

From the point of view of maximizing private sector mobilisation, the Study recommended the PSW focus on scalable opportunities on a sector and geographical basis, with a view to catalyzing major flows of investment. In terms of instruments, the Study found that the PSW should focus on equity (later, development stage rather than venture capital for innovation), bonds, infrastructure, concessional programme loans to CFIs, hedging products, sharply focused Climate Change (CC) related TA, and partial guarantees.

Instruments involving grants, sovereign risk, credit guarantees, large infrastructure lending and broader TA should be left to existing institutions, although the PSW may need to become expert at advising and arranging these on behalf of investors.

The Study stressed that confidence in a country’s general business climate, and in policy stability and longevity are necessary conditions for most mainstream institutional investors, who are constrained by risk averse mandates, to invest. In the long run, TA which helps countries to build or restore a trusted environment generates the most leverage.

Deliverables included:

- Assessment of long-term Foreign Exchange (FX) risk products;

- Assessment of options for structuring, arranging, pricing and trading bonds;

- Advice on application of partial credit and performance risk guarantees;

- Assessment of practicality of Carbon Credit Market enhancements; and

- Position paper and presentation to DFID Climate Change department.