GCF: Driving the transformation to a climate-resilient financial system

The GCF's Private Sector Facility (PSF) aims to green the financial systems of developing countries by addressing capacity, market, and policy barriers. The GCF utilizes three primary pillars: providing concessional financing and project preparation grants, implementing policy-level interventions through its Readiness Programme, and conducting outreach through partnerships with global networks. The document highlights the critical role of central banks as regulators and the importance of local financial institutions (LFIs) in reaching micro, small, and medium enterprises (MSMEs) and households. Case studies from Mongolia, Ghana, and West Africa demonstrate the use of on-lending models and risk-sharing instruments to scale up renewable energy and climate-resilient agriculture.

• Climate change poses significant financial stability risks, categorized as physical risks (acute events like floods or chronic processes like sea-level rise) and transition risks (costs from policy shifts or disruptive technologies). Under a "business as usual" scenario, these could lead to a 16.9 per cent loss in global asset value.
• Developing countries, particularly those with commodity-based economies, are more vulnerable to physical climate risks and commodity price volatility, which impacts unbanked and uninsured rural households.
• Central banks are essential 'gatekeepers' that can steer the financial sector toward low-carbon transitions using macro-prudential and micro-prudential regulations, green refinancing, and credit allocation tools, although many do not yet view climate change as a systemic risk.
• The GCF's Private Sector Facility (PSF) has channelled USD 1.7 billion to the financial sectors of developing countries, mobilizing an additional USD 4.3 billion in private capital to mitigate 441 megatonnes of CO2eq and benefit approximately 10 million people.
• The GCF identifies three primary barriers to the green transition in developing countries: capacity barriers (lack of expertise to evaluate climate projects), market barriers (short-term, expensive funding and high upfront costs), and policy barriers (lack of enabling regulatory environments).
• The GCF's operational vision is built on three pillars: Pillar I (Funding Proposals and Project Preparation Facility for concessional credits and technical assistance), Pillar II (Readiness Programme for policy-level interventions and green bank establishment), and Pillar III (Awareness raising and outreach through partnerships).
• The GCF promotes the 'green bank' model—dedicated finance entities for low-carbon projects—which can be established as new institutions, reformed existing institutions, or as green units within existing banks.
• The 'green on-lending' model is the GCF's primary method for achieving scale, using concessional lending and capacity-building grants to strengthen local financial institutions (LFIs) and their alignment with green principles.
• The GCF uses risk-sharing instruments, such as subordinated debt, limited recourse loans, and guarantees, to absorb risks for Accredited Entities and LFIs, thereby crowding in private capital for sectors like agroforestry.
• The GCF specifically targets MSMEs and households through non-banking financial institutions and microfinance, recognizing that these groups often lack the technical capacity or banking relationships to access climate finance.

APA

Green Climate Fund (2019). GCF: Driving the transformation to a climate-resilient financial system. https://www.greenclimate.fund/sites/default/files/document/gcf-driving-transformation-climate-resilient-financial-system-1.pdf

Chicago

Green Climate Fund. GCF: Driving the transformation to a climate-resilient financial system. 2019. https://www.greenclimate.fund/sites/default/files/document/gcf-driving-transformation-climate-resilient-financial-system-1.pdf.

Wikipedia

{{cite report |author=Green Climate Fund |title=GCF: Driving the transformation to a climate-resilient financial system |date=October 2019 |url=https://www.greenclimate.fund/sites/default/files/document/gcf-driving-transformation-climate-resilient-financial-system-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{greenclimatefund2019gcf, author = {{Green Climate Fund}}, title = {{GCF: Driving the transformation to a climate-resilient financial system}}, institution = {Green Climate Fund}, year = {2019}, month = oct, url = {https://www.greenclimate.fund/sites/default/files/document/gcf-driving-transformation-climate-resilient-financial-system-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }