Improving Access to the Green Climate Fund: How the Fund Can Better Support Developing Country Institutions

Highlights

• The Green Climate Fund is a globally important source of finance for projects in developing countries that address climate goals.
• Central to the GCF’s formation is an emphasis on providing funds directly to developing country institutions. Through “direct access” it seeks to fund a diverse set of stakeholders including public, private, and non-governmental organizations from developing countries, using a variety of financial instruments including grants, loans, equity and guarantees.
• Despite accrediting 62 developing country institutions, 42 of these entities have yet to receive project funding.
• The GCF has launched several initiatives to support Direct Access Entities with project development and approval including the Readiness Programme, the Project Preparation Facility, the Simplified Approval Process, and the Enhancing Direct Access Pilot, but these are not yet delivering sufficiently to meet the need.
• There are a number of steps the GCF can take to expand the range of entities that receive project funding by improving support to Direct Access Entities.

Background The Green Climate Fund (GCF) is the single largest source of public climate finance today. It is crucial to global efforts to enable developing countries to finance low-carbon, climate resilient development. The Fund allows a wide variety of institutions – governmental, private, and non-governmental – to receive access to finance for mitigation and adaptation. This approach has opened the door to potentially a more equitable, efficient, and transformative use of climate funds. Yet the high level of interest in the Fund, combined with the GCF’s current approach to facilitating access to funding, has led to bottlenecks and frustration for countries trying to access funding. This paper reviews how the GCF has supported the ability of a variety of institutions to access finance through its “direct access” modality and key changes it can make to improve this system. One of the more innovative and notable pieces of the GCF’s funding structure is so-called direct access. Direct access allows entities from developing countries that have met a set of accreditation criteria to access funding directly from the GCF, without going through an international institution as they would need to do at most other multilateral climate funds. Today, the entities that have received direct access accreditation includes both national and regional government, private, and non-governmental entities. Since beginning to accredit entities in 2015, the GCF has accredited 62 (60%) Direct Access Entities and 40 (40%) international entities (international organizations or entities based in developed countries). Despite the relatively large number of Direct Access Entities that have been accredited, 42 of these entities (67%) have yet to receive project approval. About this Working Paper This report is based on interviews with representatives from national, regional and international entities accredited to the GCF, nationally designated authorities, and members of the GCF Secretariat. The authors also reviewed GCF publications including board documents, manuals, and policies along with other academic literature reviewing direct access and the GCF’s operations. All data reported in this paper is as of the GCF 27th board meeting on November 10th-November 13th, 2020. In the direct access category, there is a diversity in size, scope, and type of entities, which means that some of the issues and challenges they face differ. Nonetheless, interviews with entities revealed that there are common problems these entities encountered both internally and with the GCF when trying to get projects approved. Key findings

• The GCF has put in place policies and programs to help ensure that a diverse range of actors are able to access GCF funding. These include the Readiness Programme, the Project Preparation Facility, the Simplified Approval Process, and the Enhancing Direct Access Programme. This paper looks at how these four policies and programs are succeeding – or not – to date and provides recommendations for how to improve their effectiveness. We found:
• The GCF’s Readiness Programme provides needed assistance to entities seeking accreditation and project funding. However, its focus on Nationally Designated Authorities, inability to cover key costs such as staff time, and still somewhat cumbersome approval process make it unable to fully meet the needs of Direct Access Entities.
• The GCF’s Project Preparation Facility provides vital funding to entities developing project documentation. However, the Facility does not fully cover the cost of developing concept notes and is not yet sufficiently reaching entities who have not had previous projects approved by the GCF.
• The GCF developed a simplified approval process for projects under $50 million ($10 million GCF maximum contribution) with low social and environmental risks. This process has yet to be simplified to a point where access is markedly faster or less burdensome than going through a full proposal process.
• The GCF’s Enhancing Direct Access window of finance has not lived up to expectations, with only 2 projects approved during the pilot’s first five years. However, the underlying idea of devolving additional decision-making to the Direct Access Entity and other stakeholders remains very popular.

Key Recommendations for the GCF

• Improve funding to help entities identify and develop projects. This could include providing “kick-off” funding automatically upon accreditation to support project identification and concept note development. It could also include reorganizing the structure of support by combining and streamlining readiness and project preparatory funding. The GCF should also allow Direct Access Entities and readiness delivery partners to cover more of their own costs associated with the time spent on project identification and development. In addition to financial support, the GCF should continue to ensure that Direct Access Entities have access to experts that understand the unique requirements of the GCF.
• Make the simplified approval process more useful by streamlining the review process and reducing proposal requirements. The GCF should also reduce the number of questions in the simplified approval process proposal.
• Restructure the Enhancing Direct Access Pilot by removing the funding cap and clarifying how projects funded through this modality differ from projects funded through the normal project approval process.