Green Climate Fund: Accessing Funding for Sustainable Development

1. “Dialogue on Climate Change” June 2016, Rand WaterGREEN CLIMATE FUND (GCF) PresentationOlympus Manthata: DBSA

2. CONTENTS • Green Climate Fund (GCF) – Background • GCF Governance and how to access funding • GCF approval process and procedure • Investment Strategy and Funding Criteria • Financial Terms • Q&A

3. The GCF in the newest and biggest operating entity of the financial mechanism of the United Nations Framework Convention on Climate Change (UNFCCC). The goal is to to promote the paradigm shift towards low-emission and climate-resilient development pathways. The current global pledge to GCF is $10.2 billion for next 3 years, with an aspirational budget of $100 billion per year by 2020. DBSA was accredited as regional entity(covering Sub-Saharan Africa) during GCF board meeting held in March 2016 United Nations Framework Convention on Climate Change (UNFCCC) established two main green financing mechanisms: the Global Environmental Facility (GEF) and the Green Climate Fund (GCF) Other GCF accredited organisations • What is Global Environment Fund (GCF)?

4. How funding is accessed

5. Investment Strategy • Allocation of resources; 50:50 balance between mitigation & adaptation with time. • Mitigation: intervention or action to reduce the long-term risk of the  magnitude of • climate change through alternative strategies such as emissions reductions (dealing • with the problem at its very source) and Geo-engineering  (offsetting the effects of • greenhouse gas emissions) • Adaptation: efforts to limit our vulnerability or adjust/cope with consequences of climate change impacts through various measures, while not necessarily dealing with the underlying cause of those impacts. • IPCC (2010) definitions • Climate resilient railroad

6. Investment Strategy (cont.) • 50% allocation to vulnerable states, LDCs, SIDs and African states and seeks geographical balance, maximizing scale and transformational impact of the Fund • Finances projects and programmes that demonstrate the maximum potential for a paradigm shift towards low-carbon and climate-resilient sustainable development • Provides minimum concessional funding (i.e. a grant-equivalent subsidy element) necessary to make a project or programme viable. • Financing provided to intermediaries may be used by the latter to blend with their own financial resources in order to increase the level of concessionality of the financing they extend to projects and programmes • Will not “crowd out” potential financing from other public and private sources • Only revenue-generating activities that are intrinsically sound from a financial point of view will be supported through loans by the Fund • Provides Project Preparation Support for projects

7. Investment Criteria • Impact potential- potential of the programme/project to contribute to the achievement of the Fund's objectives • Paradigm shift potential- degree to which the proposed activity can catalyse impact beyond a once-off project or programme investment • Sustainable development potential: wider benefits and priorities, including environmental, social, and economic co-benefits as well as gender-sensitive development impact • Responsive to recipients needs: vulnerability and financing needs of the beneficiary country and population in the targeted group. • Promote country ownership: beneficiary country ownership of and capacity to implement a funded project or programme (policies, climate strategies and institutions) • Efficiency & effectiveness: economic and, if appropriate, financial soundness of the programme/project, and for mitigation-specific programmes/projects, cost-effectiveness and co-financing

8. Priority areas • Fund’s Investment Framework, 5 investment priority areas: • Transforming energy generation and access; • Creating climate-compatible cities; • Encouraging low-emission and climate-resilient agriculture; • Scaling up finance for forests and climate change; • Enhancing resilience in Small Island Developing States (SIDS)

9. Investment Products • Private Sector Facility • Enables Fund to directly and indirectly finance private sector mitigation and adaptation • Addresses barriers to private sector investment e.g. market failures, insufficient capacity and lack of awareness, in order to mobilize private capital and expertise at scale • Promotes participation of private sector, in particular local actors, including small- and medium-sized enterprises and local financial intermediaries • Public Sector Facility • Enables Fund to support public sector mitigation and adaptation initiatives • Offer concessional terms to vulnerable countriesand less concessional terms other countries

10. Investment Products • Project Preparation Facility (PPF): • The PPF will benefit Direct Access entities and would be targeting small-scale activities and, providing up to 10% of requested GCF funding with a maximum of USD 1.5 million for any single proposal. • Indicative eligible activities • Category 1: Technical project development: Due diligence, including detailed financial, • legal, engineering, environmental, social appraisals and gender assessment required to • develop reports that validate and develop concepts further completing project feasibility • assessment • Category 2: Transaction advisory: Project structuring, including detailed financial and legal structuring, and the preparation of financial models and legal documentation. • Indicative Deliverables • Technical study, legal analysis, financial model, economic model, gender assessment and gender action plan, environmental and social impact assessment, environmental and social management framework, resettlement action plan, resettlement policy framework, and

11. Investment Limits – DBSA accredited to implement micro to large projects Micro – up to and including US$10 million Small – above US$10million and up to and including US$ 50 million Medium – above US$50million and up to and including US$ 250 million Large – above US$ 250 million Geographic coverage – DBSA accredited to implement project in Africa Sub-Saharan countries Investment limits for DBSA

12. DBSA sectors of focus supported by GCF (both mitigation & adaptation) Energy – renewable energy and energy efficiency Water – Opportunities to support water savings programmes e.g. i) revolving facilities, programmatic approaches ii) Investment in the revitalisation of aging water infrastructure Transport – mass transit, alternative fuels ICT – e.g. adaptation project opportunities in Africa sub-Saharan countries Social sector – housing, education, health Potential Opportunities for DBSA

13. Financial Instruments • Public sector recipients: • Grants • Grants without repayment contingency: no reimbursement required • All grants repayable by the recipient in cases involving corruption or other non-compliance with integrity or fiduciary standards • Concessional Loans (senior and subordinate) • Deeply concessional terms will be offered to vulnerable countries, while less concessional terms will be offered to other countries as follows

14. Financial Instruments • Private sector recipients: • Grants • May be grants with repayment contingency • All grants repayable by the recipient in cases involving corruption or other non-compliance with integrity or fiduciary standards • Concessional Loans (senior and subordinate) • GCF tailors its terms to cover the incremental cost or risk premium required to make the investment viable • Terms not be more concessional than those offered to the public sector • Includes a credit risk premium that does not take into account sovereign risk, includes a concessionality premium commensurate with the potential that the project/programme has in advancing the Fund’s objectives

15. Financial Instruments and Terms (cont.) • Concessional Loans (senior and subordinate) – private sector recipients • Concessionality of non-grant instruments to the private sector therefore decrease as credit risk increases, but increase as the impact potential of the project increases. • Since the terms that the Fund offers to the private sector will not be more concessional than those offered to the public sector, the concessionality premium can never be greater than the credit risk premium • Other Instruments extended to private sector recipients: Equity and Guarantees • Other forms of support: Facility to support Accredited entities (e.g. DBSA) to set up Guarantee facility and Green Bonds. (type of support could include technical assistance, cover issuance expenses, offer partial guarantees and GCF could also be part bond holder at favorable terms)

16. Approval Process – Overview NDA No-objection 6 Legal arrangements 2 3 IE or Intermediary Concept development (voluntary) Submission of funding proposal 1 Trustee Generation of funding proposals 4 Analysis and recommendation Secretariat Technical Advisory Panel 5 Board Decision Board

17. Initial Proposal Approval Process – Proposal Submission & Review Submission IE or Intermediary Second level due diligence Check for completeness Submission to the Board Analysis and Recommendation Secretariat TAP Assessment TAP Board Board Decision 2 weeks * In between meetings or Board meeting 1-2 week 4-6 weeks 3 weeks