“Direct Access” to Climate Finance: Lessons Learned by National Institutions

Overview

Developing countries need significant amounts of finance to help them adapt to the changing climate and follow a path of low-carbon development. The international community has set up multilateral funds to help support climate change mitigation and adaptation in these nations. Two of the largest climate funds, the Adaptation Fund and the Green Climate Fund (GCF), have committed to allowing institutions from developing countries so-called direct access to finance. Direct access in this context means that national or subnational entities1 become accredited to receive finance directly from the fund without going through an international intermediary (like the World Bank or a regional development bank). The goal of such direct access is, among other things, to reduce transaction costs and enhance national ownership over available financing.

Implementation of the Adaptation Fund and GCF direct access modalities is still in a relatively early stage. (The Adaptation Fund accredited its first implementing entities in 2010; the GCF did so in 2015.) This paper explores the experiences to date of national institutions that have been accredited by either of these two funds. It focuses on approaches that these institutions have taken to plan for, access, and use finance received through direct access, as well as early lessons learned in the process. The primary target audience is other institutions who plan to seek direct access to finance from the Adaptation Fund, the GCF, or other relevant funds. The information contained in this paper was obtained primarily from interviews with representatives of accredited institutions and other relevant stakeholders. The paper is not meant to be an assessment of whether the funds are doing a good job of implementing the direct access approach. It aims, rather, to be a useful analysis for those seeking to utilize the direct access option.

Findings

Although national institutions have taken a variety of approaches to engaging with the direct access modalities of the climate funds, some common themes can be found in their experiences to date.

Planning for Engagement with the Climate Funds

Several institutions interviewed for this paper recommend that countries spend time planning for how they will engage with the climate funds. This can include linking the search for climate finance to new or existing national strategies related to climate change and sustainable development. It can also include designating a coordinating body to help ensure that different sectors of the country are represented in decision-making processes.

Many institutions also recommend taking care when selecting the institutions that will be responsible for overseeing and implementing projects or programs funded through direct access. Both the Adaptation Fund and the GCF require countries seeking direct access to designate specific actors, including so-called designated authorities, implementing entities, and executing entities. Choosing the right institution to play each role will help countries more easily access and effectively use financing. For example, designated authorities are responsible for overseeing coordination within the country and therefore benefit from having a good overview of activities within the nation. Implementing entities, meanwhile, ensure that projects meet the relevant fund’s standard and therefore benefit from having effective and documented processes in place to reduce fiduciary, environmental, and social risk. Many of those interviewed also emphasize the importance of ensuring effective collaboration between the relevant institutions to avoid duplication and facilitate synergies.

Applying for Accreditation

Implementing entities are responsible for overseeing project and financial management, and so are the only institutions that need to be accredited by the Adaptation Fund or the GCF. Those that have gone through the accreditation process suggest being prepared for a rigorous, time-consuming, but ultimately useful endeavor. They generally recommend ensuring that the institution has adequate human and financial resources dedicated to the accreditation process, including a team of people able to access information about the different sections of the institution. Buy-in from the senior level is also reported as crucial.

Some institutions have struggled more to provide documentation related to the accreditation requirements than to actually meet the standards. They therefore encourage others to ensure that they truly understand the application process by, for example, reaching out to the relevant fund early to ask questions about the process. They also recommend beginning early to thoroughly document the institution’s systems and processes. Some institutions that did not initially meet all the requirements have benefited from being flexible enough to take on new processes, and from being creative in their thinking about how to meet the standards. Readiness support has helped national institutions overcome some of these challenges.

Designing and Implementing Projects and Programs

Once accredited, implementing entities can apply for and receive funding from the relevant fund. As of October 2015, the Adaptation Fund has approved 20 project proposals put forward by 12 national entities. These projects are at different stages of the project cycle. The GCF Board approved two project proposals from national institutions in November 2015. Some of those interviewed report that the project-approval process can be at least as challenging as the process of accreditation. They recommend easing the process by ensuring that the proposal is in line with the objectives of the fund, country, and implementing entity. In terms of project implementation, they encourage people to pick executing entities carefully based on their ability to effectively implement high-quality projects, and to be prepared to train these entities on the relevant fund’s standards. They also suggest building robust monitoring systems. Finally, institutions emphasize the value of engaging external stakeholders in the creation, implementation, and monitoring of projects or programs, including those that the project or program is intended to benefit.