The Green Climate Fund (GCF) is a central pillar of international climate finance, established by the Paris Agreement specifically to help developing countries “raise and realize” their climate ambitions. It is also the single largest public source of concessional climate finance. A critical component of this pillar is the GCF’s focus on an equitable and efficient distribution of the fund’s resources.
The funding mechanism known as “direct access” is an exciting part of the GCF’s innovative approach to financing and commitment to equitable finance. This mechanism allows entities based in developing countries — such as development banks, government ministries, non-profits and private banks — to become accredited to the fund and receive financing directly. These entities normally receive finance through other international institutions, but direct access removes this extra layer and has benefits for equity, local control and capacity-building in developing countries.
A new paper from WRI explores the GCF’s progress on direct access and proposes ways to fully realize the potential of this approach.
Why Direct Access Matters — and Why It Needs More Support
Since the founding of the Green Climate Fund, direct access has held both political and operational significance. Direct access lets developing countries access finance without going through the international intermediaries that dominate other sources of funds, which makes finance more accessible and gives these entities the opportunity and resources to strengthen internal systems and more effectively integrate climate change throughout their operations. Direct access also allows governing activities to happen within the borders of recipient countries and supports cost effectiveness in delivering finance to intended beneficiaries.
The Green Climate Fund has accredited 62 regional and national direct access entities, such as Namibia’s Environmental Investment Fund, the Protected Areas Conservation Trust of Belize and XacBank of Mongol. In addition to direct access entities, 41 international institutions, including multilateral development banks and UN agencies, are accredited to the fund.
The board of the GCF will meet next week to approve new funding proposals and discuss policy decisions. An additional 5 entities are up for direct-access accreditation at this meeting. While the direct access accreditation numbers reflect significant interest from countries, the number of projects approved from these entities remains relatively low. Only 21% of approved projects have gone to direct access entities — a number that does not appear to be improving, with only two out of 14 projects up for approval next week coming from direct access entities. Around two-thirds of direct access entities have not yet had a project approved.
The Green Climate Fund Board and Secretariat developed a number of programs to assist all entities with getting projects approved. They are particularly essential to increasing the number of direct access entities getting projects approved. However, the programs in their current form need improvement to ensure that they meet the needs of direct access entities.
Three Changes Could Accelerate Direct Access
Our paper proposes three ways to amend the Green Climate Fund’s direct access programs to better meet the needs of various entities:
1. Automate Access to Funding for Early Stage Project Development
Applying for accreditation takes time and resources, both of which can be scarce for otherwise worthy organizations. To address this, the GCF provides funding to direct access entities as they work toward accreditation and develop full proposals.
This funding comes from two sources: the Readiness Programme and the Project Preparation Facility. Entities have primarily received finance from the Readiness Programme to achieve accreditation and conduct upstream planning. Funds for project preparation are meant to come from the Project Preparation Facility. However, entities can only access funding from this facility once they have an endorsed concept note from the GCF Secretariat. The cost of developing a concept note that meets the GCF’s standards can range from $100,000 to $300,000, which can be prohibitively high for entities with smaller operating budgets. In addition, entities are limited in how they can use the funds, with restrictions put on funding for internal staff time and constraints to changing funding purposes once proposals are approved.
To streamline access to funding for project selection, the GCF should consider providing immediate “kick-off” funding for entities once they receive accreditation. Such funding could help entities initiate the process for selecting and developing project proposals. The GCF should also consider combining the Readiness Programme and Project Preparation Facility to create a more straightforward and streamlined approach to support accreditation, project identification, concept note development and the completion of full proposals. Finally, the fund should ensure that entities receiving support can use the funds where it is needed most and adjust funding purposes as needed, including for the time their own staff spend on the project.
2. Streamline the Simplified Approval Process
The GCF has two ways for entities to apply for project funding: the standard full project approval process or the Simplified Approval Process (SAP).
The SAP was launched in September 2017 for projects with under $10 million in GCF funding and with low environmental and social risks. The SAP aimed to make the approval process for these projects less involved compared to larger and more risky proposals. The SAP has a target of 50% for projects from direct access entities, although today this number is around 30%.
To date, the SAP has not significantly reduced the approval time or made the process less burdensome for entities applying for funding. While SAP proposals have lower maximum word limits compared to full proposals, they still require the same amount of information. As a result, SAP proposals can be up to ten times longer than the word limits, making the average SAP proposal only slightly shorter than full length proposals. SAP proposals that exceed the word limit also take longer for the GCF to process.
There are several ways to improve the process time for SAP proposals and reduce the administrative and financial burden of developing them. The GCF could start by continuing to streamline the review processes within the Secretariat and the independent Technical Advisory Panel by reducing the number of reviewers Additionally, they could reduce the types of information required for SAP proposals. Finally, if the GCF continues to use word limits, they should adjust the required amount of information accordingly to make these limits achievable.
3. Revise the Enhanced Direct Access Pilot
The Enhanced Direct Access Pilot is one of several requests for proposals by the GCF meant to target funding to a specific set of projects. The pilot focuses on projects where direct access entities can implement devolved funding mechanisms, meaning direct access entities decide which projects receive funding without official input from the GCF. This pilot is the only one specifically targeting direct access entities with an allocation of $200 million for 10 projects.
While the pilot remains a popular concept among entities and other stakeholders, it is the least utilized of all the GCF’s current pilots. This is partially because it does not fully meet the needs of direct access entities, as it only applies to a small segment of entities whose accreditation status meets specific on-lending and grant award requirements. Some entities are also not well-suited for the types of projects they would like to bring forward under the pilot, despite meeting accreditation requirements. As a result, the pilot does not appeal to a large group of entities, further limiting its success.
The GCF could increase the funding for the pilot and provide more funding per entity, thereby increasing entities interested in the pilot. In addition, the GCF should more frequently work with direct access entities to identify where there is demand for future pilots.
Ensuring the Full Benefits of Direct Access
Direct access is crucial to the success of the Green Climate Fund, and the demand from countries is growing — an additional 173 direct access entities nominated by Nationally Designated Authorities are currently in various stages of the accreditation process. This demand reflects the enthusiasm that led to the creation of the direct access mechanism in the first place. However, meeting this demand will require making it easier for direct access entities to access and utilize funding. Doing so will help developing nations achieve more ambitious climate action that contributes to the goals of the Paris Agreement.