How The Green Climate Fund Fights Climate Change

How The Green Climate Fund Fights Climate Change

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Insight Summary

  • In response to the growing challenges of climate change, the United Nations Framework Convention on Climate Change (UNFCCC) enacted the Paris Agreement in 2016, where 196 signed countries have pledged to keep average global temperatures below 2 °C (3.6 °F) above pre-industrial levels.
  • The Green Climate Fund (GCF) – a critical element of the historic Paris Agreement – has become the world’s largest climate fund, mandated to support developing countries raise and realize their Nationally Determined Contributions (NDC) ambitions towards low-emissions, climate-resilient pathways.
  • Climate change offers businesses an unprecedented chance to capitalize on new growth and investment opportunities that can protect the planet as well. GCF employs part of its funds to help mobilize financial flows from the private sector to compelling and profitable climate-smart investment opportunities. 
  • As of 2019, contributors have pledged more than USD 9.8 billion for the GCF-1 programming period.

Green Climate Fund Overview

Limiting global warming is still possible and will be determined by the investment decisions we make over the next decade. 

In response to the growing challenges of climate change, the United Nations Framework Convention on Climate Change (UNFCCC) enacted the Paris Agreement in 2016 where 196 signed countries have pledged to keep average global temperatures below 2 °C (3.6 °F) above pre-industrial levels.

The Green Climate Fund (GCF) – a critical element of the historic Paris Agreement – has become the world’s largest climate fund, mandated to support developing countries raise and realize their Nationally Determined Contributions (NDC) ambitions towards low-emissions, climate-resilient pathways.

GCF’s transformative approach

The Green Climate Fund actively invests across four transitions – built environment; energy & industry; human security, livelihoods and wellbeing; and land-use, forests and ecosystems – and employs a four-pronged approach:  

  1. Transformational planning and programming: by promoting integrated strategies, planning and policymaking to maximise the co-benefits between mitigation, adaptation and sustainable development.
  2. Catalysing climate innovation: by investing in new technologies, business models, and practices to establish a proof of concept.
  3. De-risking investment to mobilize finance at scale: by using scarce public resources to improve the risk-reward profile of low emission climate resilient investment and crowd-in private finance, notably for adaptation, nature-based solutions, least developed countries (LDCs) and small island developing states (SIDS).
  4. Mainstreaming climate risks and opportunities into investment decision-making to align finance with sustainable development: by promoting methodologies, standards and practices that foster new norms and values.

Climate change offers businesses an unprecedented chance to capitalize on new growth and investment opportunities that can protect the planet as well. GCF employs part of its funds to help mobilize financial flows from the private sector to compelling and profitable climate-smart investment opportunities. 

Key Features

Country driven

A core GCF principle is to follow a country-driven approach, which means that developing countries lead GCF programming and implementation. Country ownership of GCF financing decisions enables developing countries to turn NDC ambitions into climate action. GCF’s country-driven approach is underpinned by capacity-building support through its Readiness Programme that is available to all developing countries.  

An open, partnership organization

GCF operates through a network of over 200 Accredited Entities and delivery partners who work directly with developing countries for project design and implementation. Its partners include international and national commercial banks, multilateral, regional and national development finance institutions, equity funds institutions, United Nations agencies, and civil society organizations. This open partnership enables the Fund to foster unprecedented coalitions between private investors, development agencies and civil society organizations to achieve transformative change and support harmonization of standards and practices. 

A range of financing instruments

GCF can structure its financial support through a flexible combination of grant, concessional debt, guarantees or equity instruments to leverage blended finance and crowd-in private investment for climate action in developing countries. This flexibility enables the Fund to pilot new financial structures to support green market creation.

Balanced allocation

GCF is mandated to invest 50% of its resources to mitigation and 50% to adaptation in grant equivalent. At least half of its adaptation resources must be invested in the most climate vulnerable countries (SIDS, LDCs, and African States). The GCF programming strategy recognizes the need to scale up both mitigation and adaptation efforts. GCF aims to leverage synergies and minimize potential trade-offs between adaptation and mitigation.

Risk-taking, patient capital

GCF adds value to its partners by enabling them to raise the ambition of their climate action. By leveraging the risk management capacity of its partners and investment, risk and results management frameworks, GCF can accept higher risks to support early-stage project development as well as policy, institutional, technological and financial innovation to catalyse climate finance. This capacity to take risk is backed up by a robust second level due diligence system.

Timeline

GCF was established under the Cancún Agreements in 2010 as a dedicated financing vehicle for developing countries within the global climate architecture, serving the Financial Mechanism of the UNFCCC and the Paris Agreement. Since the approval of the first project funding in 2015, GCF has made rapid strides in building a portfolio of more than 100 projects.

Sources: 

https://www.greenclimate.fund/about

https://www.greenclimate.fund/about/timeline

About Impact Capital Partners

At Impact Capital Partners, our mission is to connect institutional capital with the growing impact investment market to address the world’s most pressing challenges. By utilizing impact investments, institutional investors are able to generate positive, measurable social and environmental impact alongside a financial return. We are constantly finding new impact strategies in both emerging and developed markets, targeting market-rate returns. Schedule a call with us HERE if you’re interested in learning more about our impact strategies.

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