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Operationalizing the Private Sector Facility of the Green Climate Fund: Addressing Investor Risk

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Published: April, 2014

This brief summarizes the findings from a project carried out in close partnership with the Netherlands’ Ministry of Infrastructure and Environment that aims to support the Green Climate Fund in its design and operationalization of an innovative and effective Private Sector Facility.

Overview

Global investment in climate mitigation and adaptation has reached $359 billion each year. While this is a start, funds still fall far short of what is needed. According to the International Energy Agency, to transition to a low-emissions economy, the world requires $1 trillion a year from 2012 to 2050 for the energy sector alone. The world is facing a major green financing gap.

The world has high hopes that the Green Climate Fund (GCF) can help to fill this gap through its own funds and by unlocking additional large pools of capital. In light of the need to scale up low-emissions investments and the dominant role the private sector already plays in green investments, incentivizing private investors to encourage investment in low-carbon, climate-resilient development at scale through the Private Sector Facility (PSF) represents a critical element of the GCF’s work.

A wide range of lessons and experiences from existing funding practices can inform the emerging design of the PSF. To support its operationalization, this project, implemented by CPI on behalf of and in close partnership with the Netherlands’ Ministry of Infrastructure and Environment, aims to learn from cases across geographies and technologies how private sector involvement has helped to successfully finance projects and programmes. The objective is to understand how public money can be used most effectively to mobilize private finance, to ensure that the financing of green and low-emission development becomes more than just a marginal phenomenon through the design of an innovative and effective PSF.

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