Engaging Private Sector in Climate Finance: The Role of the Private Sector Facility of the Green Climate Fund

There are many uncertainties regarding the actual risks posed by climate change. But, what is certain, is that it will affect both developed and developing countries, and is one of the biggest challenges faced by our society in the next decades. Addressing them requires high levels of financial support and innovative financial mechanisms, specially considering that there is no one source that can deliver the necessary funds to address such risks individually. Thus, when figuring the scientific alternatives on how to by-pass the risks and threats posed by climate change, they must be complemented with an analysis on how to finance them. This paper centers on how to facilitate private sector investment in climate finance, and the particular expectations the establishment of the Green Climate Fund’s Private Sector Facility has raised to that effect. The thesis leading this research is that the Private Sector Facility has a huge potential as a leading actor in helping to overcome private climate investment risks and barriers if it focuses its efforts in strengthening technology development and capacity building in local actors and markets, such as micro-, small- and medium-sized enterprises. To that effect, in Section II, a background on climate finance and the Green Climate Fund is provided. Then, in Section III, the involvement and necessity of leveraging private investment in climate finance is explained. And lastly, the main objectives and challenges of the Green Climate Fund’s Private Sector Facility are analyzed.