Annual Review - Summary SheetTitle: Global Climate Partnership Fund

Programme Value: £54.54m (£30m in 2013 +£18.54m investment 2018 - £6m grant to TA component in 2016)

Review Date: July 2019

Start Date: 1 January 2018 End Date: 31 December 2018

Summary of Programme Performance

Year 2015 2016 2017 2018

Programme Score B A A+ A

Risk Rating Medium

Moderate Moderate1 Moderate

Summary of progress and lessons learnt since last review

The Global Climate Partnership Fund (GCPF) has scored an A for its performance over 2018. Whilst it has not met all of its milestones for 2018, there are several mitigating factors that compensate for these scores, primarily attributable to overperformance in 2017 and subsequent changes in standard business practice (for example, the need to focus on developing rather than growing investment portfolios following strong growth in 2017). GCPF’s overperformance in 2017 means that whilst it did not meet all of its milestones for 2018, it exceeded most of its milestones when these are combined for 2017 and 2018. The GCPF Technical Assistance Facility has made progress on its milestones and feedback from partner institutions suggests it continues to raise the value of GCPF’s offering to investees.

GCPF 2018 achievements include: Total commitments to the fund at the end of 2018 had increased to $667m, an

increase of $51m compared to 2017 More than 20,000 new sub-loans with a value of over $131m were disbursed by

GCPF partner institutions in 2018, a 28% increase over 2017 Expected lifetime CO2 emissions reductions from GCPF projects reached 12.8 million

tCO2, 107 MW of new renewable energy capacity was added, and annual MWh energy savings increased to 593,939MWh compared to 552,590MWh in 20172

The Technical Assistance Facility initiated 52 new technical assistance projects and approved $4.2m funding

The final report of the GCPF mid-term external evaluation was published in 20183 (initial findings were reported in the 2017 annual review). The evaluation found evidence that GCPF is demonstrating transformational change.

1 Risk ratings have changed, to include a fourth rating: low; moderate; major; severe2 GCPF Annual Report 20183 GCPF Mid-term evaluation

Recommendations from previous Annual Review

Recommendation Status Note on implementationContribute to GCPF discussions on its capital structure and investment mandate to increase its attractiveness and achieve financial sustainability in the long term.

In process BEIS has been involved in ongoing discussions with GCPF shareholders and the Board of Directors around optimising the GCPF revenue waterfall.

GCPF to continue to make shareholders aware of funding requirements to continue leveraging investment in line with the fund’s risk ratios through specific updates on the quarterly shareholder calls (ongoing).

Complete GCPF have provided regular updates on funding requirements to shareholders in their quarterly calls.

GCPF to continue to work with the private sector to attract investment and provide regular updates to shareholders through the quarterly shareholder calls (ongoing).

Complete GCPF have updated BEIS on public and private sector funding status throughout the year through quarterly calls and shareholder updates.

The Board adopts targets for the fund that are intended to be ambitious but realistic. It is recommended that BEIS continues to ensure it understands the balance between the returns and the risks and challenges in the investment environment that the fund continues to strike. Project lead to speak to the board of directors annually when the targets are released (Q2 each year).

In process The annual targets have not been released yet. The programme lead anticipates holding this conversation once the targets are agreed.

BEIS to finalise its representation on the Technical Assistance Committee given it is now the significant majority (around 90%) investor in the fund. Project lead to nominate representative (Q1 2018) and secure the participation of its representative (by end-2018).

Complete BEIS has a nominated representative on the Technical Assistance Committee.

GCPF to publish results of the reviews (e.g. on CO2 monitoring, calculation and reporting and the independent evaluation) where possible to share learning (Q3 2018).

Complete GCPF has published external reports on its reviews on its website.

BEIS to test and confirm its accounting treatment of GCPF while remaining compatible with the policy objective (December 2018).

In process Discussions within BEIS on its accounting treatment of the fund are ongoing.

Summary of recommendations for this Annual ReviewID Recommendation

1 BEIS GCPF Technical Assistance Committee member to work with GCPF Technical Assistance Committee to review how the Technical Assistance Facility will monitor progress and reporting against KPIs by October 2019

2 Project lead to continue to work with GCPF Board of Directors and responsAbility to review how GCPF investment structure might be adjusted to improve its long-term sustainability – by September 2019.

3 By 15 August project lead to complete an internal review of the log frame against the GCPF theory of change and the government SMART guidelines and agree changes with responsAbility by 15 September.

4 By two months from Annual Review completion date complete a review of the log frame including agreeing milestone indicators for 2019 with delivery partner.

A. Introduction and Context

Link to Business Case: https://www. aidstream. org/files/documents/GCPF-Business-Case. pdf https://aidstream. org/files/documents/GCPF-TAF-Business-Case-20170420120443. pdf

2017 business case (unpublished)

Outline of the programmeGCPF is a public-private partnership which seeks to mobilise investment flows in energy efficiency and renewable energy projects in developing and emerging markets, with the aim to reduce greenhouse gas emissions. GCPF primarily does this by providing debt finance via local financial institutions, extending credit lines so they can offer loans for small-scale low carbon projects. A small proportion of the fund (9% at end-2018) is used for direct investments.4 GCPF also supports local finance institutions through technical assistance and capacity building.

BEIS invested £30m in GCPF in December 2013 and a further £18.54m in 2018. The BEIS investment is in pure equity, labelled C shares, which provides a risk cushion for other investors. Any losses or loan defaults are borne by the junior C shares first, followed by B and then A shares. In addition, the process for paying returns from the revenues accrued follows a waterfall principle: A-share returns are paid first, then B, then C. There is a super senior tranche in the form of time-bound notes (debt) that targets private sector institutional investors.5 Public funds invested in GCPF therefore catalyse additional private finance into the fund, increasing its impact and providing strong value for money. The total committed funds to GCPF at the end of 2018 were $667m, up from $616m in 2017.

In 2016 BEIS committed £6m to the GCPF Technical Assistance Facility (TAF), which provides capacity building support to the financial institutions and recipients of direct investments. This increases the effectiveness of GCPF to reduce perceptions of risk and stimulate further investment in low carbon projects. The TAF improves GCPF’s offer to partner institutions, which is otherwise at commercial rates. As well as adding

4 Currently there are eight direct investments; in Ghana, Uganda, India, Namibia, South Africa, Tanzania and one with a presence in different countries in South East Asia.5 By end 2018 there were USD $157m notes invested

concessionality, the TAF improves the GCPF business model as partner institutions are more likely to profit from lending to their clients.

B: PERFORMANCE AND CONCLUSIONS

Annual outcome assessment

Outcome 1 ‘increased flows of finance’

Assessment: Outputs met expectations

Outcome indicator Milestone Achieved AssessmentCumulative number of sub-loans disbursed

No milestones as dependent on pipeline of FIs

74,251 GCPF continues to disburse an increasing number of sub-loans. A cumulative total of 74,251 loans had been disbursed at the end of 2018, up from 53,404 in 2017 (an increase of 28%)

Average % CO2 savings of the portfolio since inception

>20% 46% GCPF continues to exceed its minimum GHG emissions reduction of 20% against the business as usual (BAU) scenario.

Annual CO2 reduction (tCO2/yr) of loans disbursed since inception of the fund

No milestones as dependent on pipeline of FIs

578,130 The annual and lifetime CO2 reductions have both risen over 2018. Taking account of committed funds would take the CO2 reductions higher.

Number of clean energy installed capacity (MW)

No milestones as dependent on pipeline of FIs

339 Total installed capacity increased by 107MW, up from 232MW in 2017.

Expected lifetime CO2 reductions (tonnes) of disbursed sub-loans

No milestones as dependent on pipeline of FIs

12,810,000 Projects financed in 2018 alone accounted for 2.8 million tonnes of expected lifetime CO2 emission reduction, bringing the total lifetime expected CO2 reduction to 12.8 million tonnes.

Information not captured in outcome indicators

In 2018 GCPF disbursed several loans in currencies other than USD.6 This has helped partner institutions to reduce the currency risk on their balance sheet.

GCPF continues to lower funding costs for private investors.

Outcome 2: ‘Demonstration of feasibility and profitability of low carbon investments

Assessment: Outputs met expectations

Outcome indicator AssessmentLevel of provisioning in GCPF

The requirement for provisioning in relation to loan defaults will increase with the application of the amended IFRS9, and the provisioning will grow as the fund grows.

Average total return for A/B-shares in year

The returns for A and B shares continue to demonstrate that the fund offers attractive returns for investors.

Information not captured in outcome

7 new partner institutions and 3 new countries were added to the portfolio, which now includes 34 counterparties in 25 countries

6 The Fund has disbursed loans in euro, Peruvian nuevo sol, Indian rupee and Ugandan shilling.

indicators across MENA, Eastern Europe, Latin America, Africa and Asia The annual MWh energy savings of disbursed loans increased in

2018 to 593,939MWh compared to 552,590MWh in 2017 New energy efficiency projects financed by the Fund are expected

to save more than 44 GWh annually, compared to 72 GWh in 2017. This decrease is due to increased financing of light-duty vehicles and some energy efficiency projects in SMEs which have lower investment efficiencies

At the end of 2018, the total annual renewable energy production amounted to more than 1,000 GWh

Outcome 3 ‘increased capacity of local partner institutions for developing successful low carbon products’Assessment: Outputs met expectations

Outcome indicator Milestone Achieved noteNumber of TA projects completed (annual)

No milestone targets

27 The Technical Assistance Facility approved $4.2m funding for new projects and initiated 52 new Technical Assistance projects in 2018

Amount of funding disbursed to TA projects (annual)

No milestone targets

$1.63m The Technical Assistance Facility disbursed a total of $1.63m funds in 2018, up from $0.7m in 2017

Information not captured in outcome indicators

Total number of projects completed since inception: 65 Total funds disbursed since inception: $5.35m

The log frame does not set milestone targets for several outcomes as they are dependent on the pipeline of projects.

Annual output assessment: A

Scale DescriptionA++ Outputs substantially exceeded expectationA+ Outputs moderately exceeded expectationA Outputs met expectationB Outputs moderately did not meet expectationC Outputs substantially did not meet expectation

Annual assessment of other relevant progressAdditional progress in the delivery of GCPF which is not reflected in the outputs has also been made over 2018. Further details of these are set out in section D.

Overall score and descriptionOverall, GCPF has scored A in 2018. GCPF made improvements in key areas, notably its investment portfolio and Technical Assistance Facility. Where GCPF has not met its milestones, this can be justified by factors attributable to standard business practice that are not a reflection of GCPF’s performance

Key actions to take

Action Deadline LeadContribute to GCPF discussions on its future capital structure and investment mandate to increase its attractiveness and achieve financial sustainability in the long term.

June 2019

Project lead will work with other investors and through BEIS’ nominated board member to steer ongoing discussions on capital structure and investment mandate.

Has the log frame been updated since the last review?

Log frame values have been updated.

The 2017 Annual review noted that the log frame was updated in 2017 to include new indicators to measure the outcome of BEIS’ grant to the Technical Assistance Facility (TAF). They all apply to Outcome 3: Increased capacity of local partner institutions for developing successful low carbon products:

Number of TA projects completed (annual) (tracking from 2016 as made investment in TAF Dec 2016)

Amount of funding disbursed to TA projects (annual) Number of people trained through TAF (annual)

In March 2018, the GCPF Technical Assistance Committee agreed that the annual report should instead focus on qualitative outcomes for the GCPF TAF. In addition to the information provided in the TAF annual report, responsAbility provided the TA Committee with an update on recently completed projects, this includes a summary of achievements/findings, lessons learnt, final project cost, satisfaction of the beneficiary. The TAC will review this approach in October 2019.

C: DETAILED OUTPUT SCORING

Output Title Investments in partner institutions made.

Output number per LF 1 Output Score A

Risk: Medium Impact weighting (%): 33%

Risk revised since last AR?

No Impact weighting % revised since last AR?

No

Key PointsThe GCPF scores A for this output. Whilst GCPF did not meet its milestone for total annual amount disbursed in 2018, it met its milestone for number of new partner institutions and marginally underachieved its target for number of new direct investments.7

Following strong growth of disbursements in 2017, GCPF focused on developing the green portfolios of its existing partner institutions and on acquiring new partner institutions in 2018, which resulted in slower portfolio growth than previous years.

The following factors also had an impact on the investment portfolio: Pressure on margins with rising LIBOR rates (1.84% end of 2017 vs. 2.84% in Q4

2018) and increased competition in specific markets and institutions. An increase in risk in some of the GCPF’s target markets Additional efforts placed on developing the green portfolios of existing and

prospective institutions, GCPF is entering a repayment and renewal phase as many original loans are

starting to mature. Converting the senior loans of some existing investments required full due diligence

and Investment Committee approval. Significant resources were allocated to these operations, which were neutral in terms of asset growth.

Summary of responses to issues raised in previous annual reviews Issue 2018 updateBEIS to make sure we understand the balance that the fund continues to strike on this output and the challenges in the investment environment. Which targets are deliberately ambitious and what is considered by the board of directors to be a success. Project lead to speak to the board of directors annually when the targets are released (Q2 each year).

BEIS is awaiting the release of targets for 2020, which is expected at the end of Q2 2019.

RecommendationsBy 15 August project lead to complete an internal review of the log frame against the GCPF theory of change and the government SMART guidelines and agree changes with responsAbility by 15 September.

By two months from Annual Review completion date complete a review of the log frame including agreeing milestone indicators for 2019 with delivery partner.

7 GCPF sets targets for or direct investments in its annual business plan.

Output Title Attracts investment

Output number per LF 2 Output Score A

Risk rating (H, M or L): Medium Impact weighting (%): 33%

Risk revised since last AR?

No Impact weighting % revised since last AR?

No

Key PointsGCPF scores an A for this output. GCPF did not meet its milestone for attracting additional commitments to the fund, nor for total annual private sector additional commitments. GCPF did exceed its total annual additional public investment.

Whilst GCPF did not meet its milestones for annual additional investment and annual private sector additional commitments, this is a function of the business model and the significant funding attracted in 2017. GCPF aims to increase its portfolio over the next 3-4 years in balance with its impact, risk and return. After a successful private sector debt-raising in 2017, GCPF was required to raise equity in the form of C-shares in 2018. Further, when achieved values are combined as a rolling average over 2017/2018, GCPF has still met its combined targets:

Summary of responses to issues raised in previous annual reviews

Issue 2018 updateBEIS to make sure we understand: the balance that the fund continues to strike on this output and the challenges in the investment environment; which targets are deliberately ambitious; and what is considered by the board of directors necessary to continue to make shareholders aware of funding requirements to continue leveraging investment in line with the fund’s risk ratios through specific updates on the quarterly shareholder calls.

on-going

GCPF to continue to work with the private sector to attract investment and provide regular updates to shareholders through the quarterly shareholder calls

on-going

RecommendationsAs per overall recommendations, project lead to complete an internal review of the log frame.

Output Title Technical assistance to support local financiers to develop products

Output number per LF 3 Output Score A

Risk: Low Impact weighting (%): 33%

Risk revised since last AR?

No Impact weighting % revised since last AR?

No

Key PointsThe GCPF scored an A for this output. The bulk of the TAF’s efforts in 2018 was focused on expanding the worldwide green lending community by facilitating peer exchange on challenges and success factors when building green lending strategies. In 2018 the GCPF TAF has focussed on streamlining its processes and has framework contracts with consultants to meet recurrent demand from partner institutions. As anticipated, the TAF is spending in a slower timeframe than when BEIS granted £6m in 2016.

GCPF Technical Assistance Facility key activities 2018

Green Lending ForumIn early 2018, a new online platform was launched with the objective to further enhance the knowledge exchange between the network's green lending practitioners.

GCPF AcademyIn September, GCPF organised its second “Academy”, a global peer learning and networking event that brought together representatives from 27 financial institutions as well as practitioners and experts from emerging economies.

WorkshopsGCPF organized a series of regional workshops to build Partner Institutions capacities on environmental and social risk management. These workshops triggered several follow-up projects including the development of an environmental and social assessment tool to be made available for all partner institutions; the design of training materials for bank relationship managers to better engage with their clients on this topic; and tailored technical support to several Partner Institutions for the development and implementation of an Environmental and Social Management System.

Summary of responses to issues raised in previous annual reviews (where relevant)

Issue 2018 updateBEIS to finalise its representation on the TA Committee given it is now a majority (around 90%) investor in the fund. Project lead to nominate representative Q1 2018 and secure the participation of its representative in the committee by end-2018.

BEIS has nominated a board member for the Technical Assistance Committee

Recommendations

BEIS GCPF Technical Assistance Committee member to work with GCPF Technical Assistance Committee to review how the Technical Assistance Facility will monitor progress and reporting against KPIs by October 2019.

D: FUND PERFORMANCE NOT CAPTURED BY OUTPUTS

Fund managementGCPF continues to provide detailed regular updates and quarterly results reports to the shareholders, giving oversight of the progress and opportunities to question and scrutinise where necessary. BEIS has been pleased with the transparency and frequency with which information has been provided. Overall, we consider the management of GCPF to be of a high quality, due to the opportunities taken for improvement and the regular communication with stakeholders. We expect the fund to continue working in this way and identify areas where lessons can be learnt, and improvements made.

Optimisation PlanThe GCPF Board of Directors has proposed changes to GCPF’s waterfall structure and investment returns to improve its ability to attract investment and its long-term sustainability. These changes are set out in an Optimisation Plan which is due to be agreed at the GCPF shareholder meeting in June 2019.

Summary of responses to issues raised in previous annual reviews (where relevant)

Issue 2018 updateGCPF to publish results of reviews where possible to share learning (Q3 2018).

The mid-term evaluation has been published. A review of reporting is due to be published in Q3 2019.

Recommendations

Project lead to continue to work with GCPF Board of Directors and responsAbility to review how GCPF investment structure might be adjusted to improve its long-term sustainability – by September 2019

E: VALUE FOR MONEY & FINANCIAL PERFORMANCE

Key cost drivers and performance BEIS invested £30 million into the GCPF in 2013 and a further £18.54m ($23.4m) in 2018. BEIS is the second largest owner of C-shares, with an attribution rate of 43.8%. The total value of C-Shares is $164m (BMU, Danida and BEIS). BEIS also provided a grant of £6m to the GCPF TAF in 2016.

Economy (i.e. Are we or our agents buying inputs of the appropriate quality at the right price?)     The UK’s investment will be recycled indefinitely until it is used up, the fund winds up, or

BEIS chooses to try to sell its stake. By partnering with fellow donor governments, the UK is maximising the possible impact whilst minimising its inputs.

As the fees to the delivery partner are paid from the returns that the fund makes, the UK does not need to add new expenditure on management fees or a service contract. The fees are, however, taken from revenue before the returns are made to shareholders, so indirectly they are paid from the return that BEIS gets. However, BEIS’ investment does not aim to make a significant return and any return is recycled back into the fund where possible. The evaluation of GCPF benchmarked the fees against other industry segments and found them to be reasonable.

BEIS’ grant of £6m to the GCPF TAF in 2016 has served to attract investees to the GCPF and further enhanced the performance of the GCPF’s investments, both financially and in terms of impact on the ground. The TAF also receives a proportion of the profits after taxes, capital and costs. The GCPF’s overall fees, including the TAF, were benchmarked against similar organisations as part of the evaluation and the GCPF was found to be competitive.

Efficiency (i.e. How well do we or our agents convert inputs into outputs?)      The efficiency of the fund has decreased in comparison to previous years as less

progress has been made in securing additional private investment. New additional funding attracted is below the 2018 milestone and less than last years achieved result. We expect this to remain a priority for the fund going forwards and for them to continue to steer the fund towards being more attractive to private investors.

Technical Assistance projects are now scaling up due to the UK’s investment. The TAF is developing an online platform that will allow partner institutions to undertake some of the TA steps independently and gain technical know-how themselves without drawing on the bespoke TA services. This means more TA is delivered through the platform at no marginal cost to the TAF, increasing the efficiency of the TAF further.

Effectiveness: There has been good progress on the outcomes as outlined in the annual outcome

assessment in section B. GCPF reports against several Key Performance Indicators (KPIs) including GHG emissions avoided (KPI6) and volume of private finance mobilised (KPI 12), detailed further below. The KPI’s differ to outcome assessments as they have been subject to additional discounts in order to comply with the ICF KPI methodologies.

GHG emissions avoided (KPI 6): 2018 data shows a significant increase in the total lifetime expected CO2 reductions for the GCPF portfolio (disbursed funds) to over 12.8 million tCO2. Aligning these figures with the KPI 6 methodology results in lifetime expected savings (UK attributed) of 4.6 million tCO2e, from committed funds and funds already disbursed. This is an increase of 1.1 million tCO2e compared to last year and it is primarily driven by an increase in the UK’s attribution rate, following the UK’s additional investment.

The cost of reducing a tonne of carbon is used as a measure of cost effectiveness; the expected cost of reducing a tonne of carbon (UK attributed) is £10.4/tCO2e8, this is within the value-for-money range (£6-£37/tCO2e) for ICF programmes and below the original business case cost per tonne value of £63/tCO2e.

Volume of Private Finance Mobilised (KPI 12): after overachieving last year the fund failed to meet this year’s private mobilisation milestone. Aligning results with the KPI 12 methodology gives an actual (UK attributed) figure of £31.6m, an increase of £1.8m compared to last year.

Assessment of whether the programme continues to represent value for moneyGCPF continues to provide value-for-money as the fund has continued to attract more investment and exceeded milestones in disbursing funds and building the TAF’s offering and pipeline. As the GCPF’s investments begin to be repaid so the funds can be recycled creating more positive impact on the ground. There is now a growing body of evidence of transformation on the ground, in terms of the final beneficiaries of the sub-loans. Also, as the financial institutions can see the benefits of sustainability finance and gain experience of a hitherto suppressed demand for green finance, they are beginning to come back to GCPF for another round of funding, and even branch out into green finance without GCPF’s support.

Quality of financial managementFinancial managementThe Fund undergoes external audit on an annual basis. On a quarterly basis, the financial statements are reviewed by the Investment Manager (reconciliation against investment database). GCPF’s cash is managed in line with the Investment Guidelines and Investment Committee decisions. Currently, cash is placed as sight and term deposits with highly rated banks in Luxembourg.

Risk managementThe Fund’s Risk Management is governed by a Risk Management Policy that is Board approved and filed with the CSSF (regulator in Luxembourg). Risk management areas, processes and measures are defined at that level. Operationally, the risk management is handled mainly by the Investment Manager (responsAbility Investments AG). The Investment Manager has an independent risk management unit which reviews and opines on any transaction and supervises the credit risk monitoring of counterparties and the fund as a whole. Impairments are proposed by the risk management units to the Investment Manager’s valuation committee, who in turn recommends them to the Fund’s Investment 8 Calculation: UK Investment (£48.54m) / lifetime expected carbon savings (UK attributed)

Committee and Board. The supervision of fund risk limits is handled by the Investment Manager’s portfolio management (ex ante) and fund reporting (ex post) units. Operational risk management is mainly relevant at the level of disbursements (legal documentation, KYC process) and is handled by the Fund’s custodian (Banque du Luxembourg) and the internal and external legal counsel. The mid-term evaluation notes that both stakeholders internal to the Fund, and external auditors, have praised the due diligence and risk assessment activities which were considered to be more advanced than those in place in other similar Funds.

RecommendationAs per overall recommendation, project lead to work with BEIS analysts to develop formal indicators and milestones to measure VFM for future annual reviews against the value for money indicators: Economy, Efficiency, Equity and Effectiveness.

Date of last narrative financial report 2018 Annual Report, published May 2019Date of last audited annual statement 2018 Annual Report, published May 2019

F: RISK

Overall risk rating: Moderate

Overview of programme riskGCPF operates in countries with varied inherent risks, including relatively advanced developing economies to low-income developing economies. There are three prominent and programme-specific risks; attracting private sector finance, preservation of equity capital, and delivery risk.

1. Although some progress in attracting private investment was made in 2018, this is still considered a risk as the market becomes more competitive. GCPF offers its loans at commercial rates and it must compete with other, often cheaper (concessional) sources of finance. The returns to the private sector could be improved to help attract more investment from that sector, bringing greater benefit on the ground. This risk will be monitored by BEIS in the coming year.

2. As GCPF is on BEIS’s balance sheet there is the potential for the value of our shares to go up or down in the short term. The latter would require Annually Managed Expenditure (non-departmental government expenditure) budget cover. Given that the share value can also go up this is not formally considered to be a risk as the overall exposure is neutral. BEIS continues to monitor this risk on a quarterly basis. , BEIS anticipates the value of its stake in GCPF to erode over time as it is ODA deployed as high-risk equity in the first-loss position; if and when losses on loans materialise, the first-loss capital will be eroded. However, exchange rates remain the primary driver of short-term changes to the GCPF value on BEIS’ balance sheet. GCPF continues to diversify the portfolio and disburse in smaller tranches, two factors which will reduce investment risk and the likelihood of losses reducing the BEIS share value.

3. By working with local financial institutions in developing countries there is an inherent investment risk, but there is also the potential to initiate significant change and open new markets. GCPF has reviewed its due diligence processes to ensure they are in line with best practice. GCPF has also identified some investment process improvements to help reduce future exposure and the associated financial risk, for example by reducing the size of loans relative to the fund size and staggering disbursements. It has adjusted its investment restrictions, partly in response to the provisioning for the loan default and the advent of IFRS9.

Risk managementRisk profile

The 2016 Annual Review reported that a GCPF investee had been put into receivership. Over 2018 the process to sell the bank continued and given the information available the board decided to increase its provisioning of the investment.

Several emerging markets, especially the ones with a high reliance on USD denominated debt, continued to feel the impact of increasing USD interest rates.

GCPF operates within its mandate and these events are within its risk appetite. As a result of its experience, GCPF has taken action to change its investment policy including limiting the amount it invests in any given bank and staggering the transfer of funds to those banks so the impact of default is minimised. BEIS will continue to work with responsAbility to ensure that investment risk is mitigated where possible, whilst still delivering the aims of the fund.

Outstanding actions from risk assessment

Issue 2018 updateBEIS to continue to consider its accounting treatment of GCPF to be compatible with the policy objective (December 2018).

Discussions with BEIS Finance are on-going.

G: COMMERCIAL CONSIDERATIONS

Delivery against planned timeframeThe UK’s investment into the GCPF does not have a specific end date. It was a purchase of shares with no additional fees or payments. The fund is still growing with significant transformational change still to occur. We do not consider there to be a reason currently to seek to withdraw our investment.

The Technical Assistance Facility investment that BEIS committed in December 2016 was expected to last for approximately four years. As the TAF has developed online tools for partner institutions to use, it is delivering some of its outputs online and this efficiency means that the budget is expected to last its originally planned lifetime. BEIS will continue to monitor the pipeline to ensure that the encashments are only executed when there is a strong evidence of need and in line with the agreed schedule at the earliest, recognising that the encashments may be slower than anticipated.

Performance of partnership(s)The Board and investment manager continue to be proactive in identifying ways of improving the GCPF and in responding to feedback from the UK and other donors. Over 2018 the fund was responsive to requests for information on its business plan and reporting methodology. Similarly, the fund has supported the BEIS-BMU evaluation, working closely with us to help the evaluation run smoothly, and the external results reviews that the fund commissioned.

Asset monitoring and control BEIS has a relatively high level of confidence over the monitoring of the results due to the recent results reviews, the external evaluation, and the regular reporting and shareholder calls. In addition, we receive quarterly share values for our investments which provide regular oversight of the financial progress between the annual financial statements.

H: MONITORING & EVALUATION

Evidence and evaluation

In 2018 the final findings of the GCPF mid-term evaluation were published.

The evaluation found: the design of the GCPF to offer a relevant and innovative model for supporting Partner

Institutions in their development of green lending pipelines. GCPF is helping Partner Institutions to overcome tangible market barriers in order to

increase the uptake of energy efficiency and renewable energy technologies. Technical Assistance provided by GCPF TAF is a key element that overcomes market

barriers to increased uptake of energy efficiency and renewable energy technology.

ID  Recommendation  status 1  A more streamlined presentation of the Fund structure,

ensuring this is clear and succinct for potential investors and emphasises the value of key aspects of the Fund’s set-up 

This is being discussed as a part of the GCPF Optimisation Plan.

2  Where Direct Investments are pursued, consider delivery models that can encourage replicability potential (involving intermediary FIs for example), and where possible offer local currency financing (with local currency hedges) and extended tenures (up to 15 years). 

GCPF has started to offer loans in currencies other than USD allowing Partner Institutions to reduce the currency risk on their balance sheet.

3  Ensure PIs are clear on the future intentions of the Fund (including its appetite for re-investment), through the ongoing relationship between the Fund and the PIs. 

Potential renewals are always part of the discussions with Partner Institutions. Some of the term-sheets include this option.

4  Refinements to the investment process and support a speeding up of key processes involved in due diligence and risk assessment  

GCPF’s investment with Electronica Finance is a key example of a streamlined process.

5  Improve the clarity of the communication around the TA offer, ensuring its value is recognised by PIs through engaging them further in identifying their support needs and publicising case-studies of how various types of TA support have been of value, and driven impact for other PIs.  

The bulk of GCPF's efforts in 2018 was focused on expanding the worldwide green lending community by facilitating peer exchange on challenges and success factors when building green lending strategies.

6  Support PIs in generating further demand for sub-loans, through training PI staff on the end-user benefits of EE and RE technologies and facilitating a sharing of learning between PIs on effective ways of marketing sub-loans.  

The technology workshops GCPF’s green lending forum are examples. The continuous exchange between the Energy Specialist and the Financial Institutions also contribute to knowledge transfer.

7  Consideration of eligibility requirements for on-lending, ensuring these are fit for purpose in particular markets. 

The technology workshops are an example as well as the green lending forum.

8  Enhancing the value of being part of the GCPF community through further knowledge sharing, for example process learning around the most efficient way of automating reporting requirements.  

The green lending forum and the exchange between PABC and RBL are good examples

9  Maximising PI engagement in the GCPF reporting requirements to enhance the value of these processes for PIs, explaining how reporting of impacts could help PIs to attract future investors or for marketing their products. 

This was done during the Academy and Technology Workshops.

The evaluation recommended areas warranting further assessment of impact including: strategies for attracting private finance, supply chain effects, the impact of the GCPF by project type, impact on labour markets (job creation and gender equality), impacts among end-beneficiaries, and the sustainability of the GCPF impacts. 

The BEIS 2018 business case for its reinvestment in GCPF includes £500,000 for future evaluation purposes. 

GCPF regularly publishes reports on its website. GCPF is currently taking a review of its Environmental and Social Governance measures, which is due to be approved and published in Q2 2019.

RecommendationsBy 15 August project lead to complete an internal review of the log frame against the GCPF theory of change and the government SMART guidelines and agree changes with responsAbility by 15 September.

I: TRANSFORMATIONAL CHANGE Progress against the criteria set out in GCPF transformational change methodology is assessed using the following scoring: 

0 Transformation judged unlikely 1 No evidence yet available - too soon to revise assessment in business case 2 Some early evidence suggests transformation likely 3 Tentative evidence of change – transformation judged likely 4 Clear evidence of change - transformation judged very likely 

In its results report for 2018, BEIS found that GCPF scored 3: tentative evidence of transformational change. This is based on data reported back by responsAbility through GCPF’s quarterly and annual reports and on information from the GCPF evaluation. Each of the following criteria are evaluated and assessed in detail in the 2018 Results Collection.

1. Evidence of effectiveness is shared - The GCPF is demonstrating that it is effective if it is successfully encouraging new financial institutions to come forward to receive funding and if new investors are coming forward to invest into the GCPF.

2. Capacity & Capability - There is evidence that the GCPF has been able to increase the capacity of Partner Institutions engaged through this evaluation to provide capital for climate change mitigation. It has done this by working with Partner Institutions through the deal making process and, in particular, through its TAF. TA has often provided vital capacity building to Financial Institutions in how to work in RE and EE-related lending, identify suitable projects for financing and demonstrate that market-rate returns can be made

3. Replicability - There is evidence of encouraging replication within local markets, with examples of other Financial institutions seeking advice and information on adopting the model. The GCPF has achieved some success in mobilising further capital and building the size of the Fund as well as expanding its geographical coverage, disbursement of loans and number of sub-loans. This offers potential to see larger-scale demonstration of impacts and market reform over a longer period,

4. At scale – relevant indicators show that the GCPF is starting to operate at scale. A high number of sub-loans have now been disbursed and this number continues to rise. The number of sub-loans for most banks continues to increase and the GCPF is working with an increasing number of financial institutions across an increasing number of countries. 

5. Sustainable - The extent to which the GCPF is sustainable indicators that provide an indication of how well the GCPF is demonstrating to the private sector the benefits of investing in small-scale energy efficiency projects and also assess the support provided by the TAF. 

The evaluation found that there is stronger evidence to-date of the GCPF’s transformational potential at a local level (for PIs and the recipients of sub-loans), than at an overall market or Fund level. While potential elements of the fund through which the GCPF could generate

transformation change at an overall market or Fund level can be identified, there is currently less evidence of this transformation starting to take place.

Monitoring progress throughout the review period

Many of the KPI15 indicators have been captured in the log frame and the majority are now published in the quarterly reports, providing regular updates. The Technical Assistance indicators were added to the methodology for the 2018 results collection and are applied in this Annual Review.