Under review: the GCF's private sector strategy

18 May 2022

Camco's General Counsel Karl Upston-Hooper was invited to act as a private sector observer at the 32nd meeting of the Green Climate Finance Board in May 2022. Below is the statement Karl read to the Board and invited attendees during the session "Policy consultations: Review of the initial private sector facility modalities and the private sector strategy".

Thank you Co-Chair for giving me the floor.

I would like to start by affirming the intervention by Jimmy querying what is meant by “private sector”. The private sector is not a homogenous whole. Not every International AE is a large financial institution - in fact, there are several small IAEs primarily based in developing countries – and similarly some DAEs are in fact large financial institutions. This heterogenous nature of the private sector should be factored into today’s considerations of the SAP, Private Sector Strategy and the Guidance on Supporting Adaptation Activities.

Turning to the strategy document, the Private Sector welcomes and supports the four-pronged approach proposed and wishes to respond to them in turn:

Firstly, we strongly support further efforts by the GCF to promote a conducive investment environment. Long-term investment road maps and green strategies are crucial to provide a direction of travel that can unlock innovation from the private sector. However, a genuinely conducive investment environment must be built on the delivery of results. The Private Sector is focused on getting things done, and as Hans Olav noted, the risks/rewards of doing so. Accordingly, private sector engagement by the GCF should focus on removing the barriers that prevent essential adaptation and mitigation projects reaching financial close. We strongly support the development of regional presences to further the engagement between the GCF and national/subnational entities.

Secondly, we welcome and support the GCFs intention to accelerate innovation in business models, financial instruments, and climate technologies. However, in order to do this, the GCF, and particularly the PSF, will need to not only be “right sized” but also “right staffed”. i.e. PSF recruitment should focus on staff who have experience of working in the private sector – including a familiarity with decision-making in a commercial context – this will result in more effective dialogue about innovation and instrument selection, and accordingly improve the quality and timeliness of projects/programmes within the GCF approval process. It should be noted that notwithstanding the drive to financial innovation and equity instruments, projects in many LDCs and SIDs will nevertheless continue to require more traditional financial products such as concessional senior debt.

Thirdly, we are very pleased to see the role of de-risking highlighted as one of the four prongs. We can all agree that Adaptation and Mitigation projects are not happening at the scale and breadth required to achieve the collective goals of the NDCs under the Paris Agreement. This is primarily due to market perceptions of risk, and the pricing of such risk into financial products. Accordingly, de-risking is really THE key task for the private sector modalities of the GCF. It is what is needed to get the bulk of private capital off the side lines and co-investing in impactful climate initiatives. The first loss tranche of FP0186 is a very good example of this dynamic in action.

And finally, we recognize the crucial need for strengthening domestic and regional financial institutions to scale up private climate finance. This can take a number of mutually supporting forms;

The re-formation of an energised PSAG
The GCF increasing its building capacity efforts with NDAs, with a broad focus beyond Readiness Programmes.
Enabling AEs to jointly submit FPs, particularly where there are complimentary accreditations. This would enable peer to peer learning that will also increase the participation of DAEs
Ensuring the continuation of the GCF Private Investment for Climate (GPIC) in 2022, with ample support for stakeholders from LDCs and SIDs to attend.

Thank you for allowing me to intervene, back over to you Co-Chair.