1 Intervention Summary

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1 BUSINESS CASE FOR SMALL PROJECTS SUMMARY INFORMATION Title: Global Climate Partnership Fund (GCPF) Technical Assistance Facility (TAF) Country/ Region: Global: developing countries Senior Responsible Owner: Pete Betts Start Date: December 2016 End Date: likely Project Budget: 6 million RDEL grant (existing investment is 30m CDEL) 1 Intervention Summary The Global Climate Partnership Fund (GCPF) provides finance for energy efficiency and small scale renewable energy projects in developing countries. It predominantly works through local banks to provide loans for small-scale low carbon projects. The ultimate goal of GCPF is to support investments in emerging markets which lead to a reduction of greenhouse gas emissions, contributing to climate change mitigation. Local banks do not have access to affordable longer term finance and perceive the sector as risky due to their lack of experience and knowledge. GCPF aims to address this by providing finance for on-lending to renewable energy and energy efficiency projects, and technical assistance for the institutions it provides funding to. For example, a Bakery in Quito received a loan for an energy efficient oven which uses 40% less fuel. This has reduced CO2 emissions and also significantly increased profitability; the bakery now plans to use the increased income to open a second branch The GCPF Technical Assistance Facility (TAF) aims to overcome the challenges banks face when launching renewable energy and energy efficiency lending operations and enable them to accurately report results. The Technical Assistance Facility significantly increases the likelihood of GCPF meeting its objectives and also increases the transformational potential of the fund by improving local capacity (see section 2.3 on activities undertaken by TAF). This ODA investment would support GCPF banks in their development and growth, helping to develop local low carbon markets, as well as to prepare and protect GCPF investments. In addition, projects may target the enhancement of knowledge sharing about best practice on green lending among GCPF stakeholders to help develop the wider market. The expected result of the TA support is to bring existing financial institutions to a point where they have the capacity to comply with the GCPF requirements, including on reporting, and are able to establish a green lending portfolio which can be widened outside of the GCPF funding as a result of the increased capacity. This ICF funding would be allocated to GCPF projects under the oversight of the Technical Assistance Committee utilising the agreed policies and guidelines for the TAF. The investment would primarily finance technical experts (both local and international, for example so far four different UK technical experts have worked on GCPF projects) who would be procured through a tendering process. The consultants would then work directly with the banks, training their staff so that they are in a position to continue the work once the consultant leaves the bank. The TA finance does not go directly to the local financial institutions. GCPF TAF has the potential, and is already demonstrating evidence, of being a highly transformational ICF investment through its process of working directly with local banks and being flexible to the local market requirements. GCPF TAF works to ensure that the financial institutions increase their capacity for green lending allowing them to continue this in the future without GCPF support. Some of the banks are already reporting that they are starting to do this as they have demonstrated the benefits of green lending through GCPF. 1

2 One example of GCPF TAF being transformational is through its requirement on the financial institutions to implement a Social and Environmental Management System (SEMS) which meets international standards. GCPF will provide TA support to design and implement the SEMS across the entire bank (not just green/energy efficiency loans) but the impact is greater than just within the institution. Every recipient of the loans from the bank (GCPF and all other loans) also has to comply with the SEMS, so far over 40,000 GCPF loans have been disbursed but there will be significantly more loans not originating from GCPF, demonstrating the wide impact of this requirement. This requirement has resulted in both environmental and also direct development benefits, for example, the banks in India reported that their SEMS policy has reduced child labour in factories as they cannot receive loans and are subject to frequent inspections, they have also improved working conditions as for example employees must have contracts, suitable breaks, working conditions etc. This example therefore demonstrates the widespread impact that a GCPF requirement combined with quality technical assistance and on-going support can have. The GCPF TAF is due to run out of funding by Q and therefore BEIS is proposing to invest 6m (RDEL grant) in the TA facility which is expected to provide funding for roughly 60 TA projects over likely three to four years ( /2020). This investment amount is based on the 2016 business plan for the TA facility, further detail is provided in section 5. Without this additional GCPF TAF funding, it would limit the growth of the GCPF fund, significantly hindering the results of the fund. It would also therefore be a likely barrier to attracting additional private investors who want to see their finance disbursed quickly. 2

3 2 Strategic Case 2.1 Background and Context BEIS key climate change priority is to work to limit global temperature rise to less than 2 degrees centigrade. The International Climate Fund (ICF) has been set up to help developing countries to reduce emissions in line with an up to 2 degrees temperature rise, support low carbon development pathways, and to use public finance to leverage greater levels of private finance. The Global Climate Partnership Fund (GCPF) is an innovative shareholder fund designed to leverage private investment and to channel climate finance directly to individual residents and small businesses in middle income countries for various small scale, low carbon projects in order to reduce greenhouse gas (GHG) emissions and ultimately contribute to reducing global temperature rise. In addition to a key aim of leveraging private finance, the ICF aims to use technical assistance (TA) to combat the growing imbalance between the increased availability of international climate finance and the lack of highquality bankable programmes and projects that can effectively reduce emissions. The GCPF has an associated Technical Assistance Facility (TAF) which aims to provide capacity building support to increase the ability of the local financial institutions that are receiving GCPF investment to build strong pipelines and monitor results. 2.2 Global Climate Partnership Fund The Global Climate Partnership Fund (GCPF) provides finance for energy efficiency and small scale renewable energy projects in developing countries. It predominantly works through local financial institutions (FIs) to provide loans for small-scale low carbon projects. Individual projects can range from energy efficient ovens, washing machines, air conditioning, agricultural systems to hybrid cars and small-scale renewable energy e.g. rooftop solar. The goal of GCPF is to support investments in emerging markets that ultimately lead to a reduction of greenhouse gas (GHG) emissions, contributing to climate change mitigation. Local banks do not have access to affordable longer term finance and perceive the sector as risky due to their lack of experience and knowledge. GCPF aims to address this by providing finance for on-lending to renewable energy and energy efficiency projects, and technical assistance for the institutions it provides funding to. The method of providing financial support is therefore complemented by the technical assistance provided by the fund. GCPF is designed to create a multiplier effect by using local FIs to disseminate knowledge on EE/RE projects to SMEs. The theory of change for GCPF is included in Annex I. GCPF aims to provide financing additional to the resources provided by the local financial sector and/or by development finance institutions (DFIs). GCPF is set to operate on market terms and support the development of local financial markets through the introduction of green financing products. Both aspects fulfil the intention to create additionality to the respective EE/RE financing markets and result in transformational change. Investments by financial institutions (FIs) shall result in carbon emission savings of at least 20%. One of the key advantages of GCPF is that it is demand-led. This bottom-up approach ensures that the climate finance is provided for low carbon products which are needed on the ground depending on the local market. GCPF provides market-rate loans to the local FIs and provides support to develop the lending pipeline utilising their local market knowledge. The FIs then use the GCPF capital to on-lend to local individuals and SMEs. This approach is starting to demonstrate transformation results on the ground and evidence of the poverty reduction potential of GCPF. For example, a Bakery in Quito received a loan for an energy efficient oven which uses 40% less fuel. This has reduced CO2 emissions and also significantly increased profitability; the bakery now plans to use the increased income to open a second branch. In India, a smallholder farmer received a loan 3

4 for a drip irrigation system which has allowed him to move away from flood irrigation and increase his yields by 180%. This now means that he and his wife no longer have to supplement their income with extra work. In Bangladesh a textile company making jeans for export to western countries has been able to install energy efficient washing and drying equipment, reducing their energy consumption by 26% and putting them in a stronger position to trade with western countries. In Mongolia 70% of nomads use mobile solar energy systems which can power electrical appliances such as freezers or LED televisions. GCPF s partner bank provides distribution firms with loans that they can use exclusively to import and sell the solar systems and solar-powered appliances. By mid-2016, GCPF had disbursed over 40,000 loans to end-users with the portfolio resulting in an average of 49% CO2 emission reduction. BEIS invested 30 million in GCPF in December GCPF is a structured fund comprising A, B and C shares. The BEIS investment is in first loss equity C shares, which rank junior to A and B shares in terms of losses or loan defaults (which would be borne first by the junior C shares, then B and finally A shares) and in terms of returns (the cash waterfall is such that A-share returns are paid first, then B, then C). Public funds invested in GCPF therefore provide a risk cushion for private investors in the fund and provide comfort against high levels of perceived risk that currently deter private investment. There is also a super senior tranche in the form of time-bound notes that also targets private sector institutional investors (by June 2016 there were $55 million notes invested). The total committed funds to GCPF by mid-2016 were $392 million. The fund structure of GCPF is intended to demonstrate to the global market the potential returns when investing in low carbon products in developing countries. GCPF was established by the German development bank KfW in 2009, becoming operational in Since November 2014 GCPF has been run by a commercial fund manager, responsability, who was appointed by competitive tender. Since investing the UK has worked collaboratively with Germany given our position as the two major donors. We have worked closely to steer the fund and manage our investment, ensuring that our key aims for the fund were being addressed. GCPF primarily provides debt finance, via local financial institutions, however a small proportion of the fund (c.1%) has also been used for direct investments. So far there have been two direct investments made by GCPF both in South Africa. Risks There will be some investment risks when investing in financial institutions in developing countries but these institutions have the ability to result in the greatest transformational change and these risks are carefully managed by the fund. The TA facility works to reduce the investment risk of providing loans to developing country financial institutions by increasing their capacity and therefore by providing additional funding and being able to provide a higher level of support than previously provided, UK TAF investment will help contribute to reducing some of the potential investment risks. 2.3 GCPF Technical Assistance Facility The GCPF Technical Assistance Facility (TAF) aims to overcome the challenges banks face when launching renewable energy and energy efficiency lending operations and enable them to accurately report results. The TAF significantly increases the likelihood of GCPF meeting its objectives and also increases the transformational potential of the fund by improving local knowledge. The focus of the TA provided is on supporting GCPF FIs in their development and growth as well as to prepare and protect investments. In addition, the TA may target the enhancement of knowledge sharing about best practice on green lending among GCPF stakeholders. Currently the majority of the TAF support is provided to set up the GCPF loan but continuing support can also 4

5 be provided, for example, to allow banks to expand their portfolio. The principle aims and objectives of the TAF are: Overcome challenges banks face when launching renewable energy and energy efficiency lending operations: Development of a low carbon lending portfolio TA used to build the required capacity to tap into the local carbon lending market in a systematic manner Strengthening of the social and environmental management systems (SEMS) the TA is used to assist GCPF partner institutions in understanding and dealing with these risks Enable partner institutions to report: Financing of energy audits / environmental and social impact assessments TA used to inform and demonstrate the impact of low carbon investments Enable the reporting of low carbon investments through baseline studies TA allows banks to easily judge the climate mitigation impacts and to allow for standardised reporting Apart from the EE/RE lending support and TA to strengthen SEMS of GCPF Financial Institutions, the TA Facility can also provide support to facilitate direct investments (e.g. in co-financing feasibility studies) or to raise awareness and promote green financing more broadly. The GCPF TAF was established in order to realise the benefits of: Assisting GCPF FIs in their development and growth as well as to prepare and provide some protection to investments Working in synergy with GCPF to maximize its outreach in terms of reducing GHG emissions as well as attaining the fund s goal of developing the financial sector in developing countries Enabling GCPF FIs to access specialised consultancy services to build capacities as needed, particularly to identify and capture the potential of energy efficient and/or renewable energy investments, thereby facilitating the lending to the final beneficiary of the GCPF 2.4 Need for additional finance The GCPF TAF is currently funded by German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMUB), and the Development Bank of Austria (OeEB). In addition, GCPF TAF is part of the income waterfall for GCPF. Over the past three years, the Board of Directors has always allocated the maximum contribution from the Fund to the TAF. This shows that the TAF is perceived as an integral part of the Fund s activities and set-up. The additional contributions from the waterfall enable a greater number of projects to be financed than purely from the grant investments but given the grant nature of the TAF it will continue to need additional replenishment if the fund continues in its current set up. The TAF is a vital element of GCPF as it works with financial institutions to develop the capacity they require to on-lend for RE/EE projects and to calculate and report the results to GCPF. It also enables them to ensure that they have the required social and environmental management systems in place. Therefore without additional GCPF TAF funding, it would be more challenging for GCPF to make new investments next year, significantly hindering the results of the fund. It would also therefore be a likely barrier to attracting additional private investors who want to see their funding disbursed quickly. Whilst the TAF funding between 2011 and 2015 totalled $5.36m, GCPF s business plan involves a scaling up of deliverables in line with attracting new 5

6 investment into the fund, meaning the TAF, which is closely linked to the main fund investments, will also be scaling up (please refer to 5. Financial Case). The OeEB is unable to invest further in the GCPF TAF but Germany is able to potentially consider additional funding in GCPF TAF, further detail is provided in the Appraisal Case. 6

7 3 Appraisal Case As highlighted in the Strategic Case, the UK works closely and collaboratively with Germany on GCPF. We have therefore discussed the potential funding options with them and they are keen to work together to provide the necessary funding this year which will ensure that GCPF can continue to operate at an increasing scale over the short-term (allowing the fund to work to attract additional investment over the long-term). Germany is therefore considering an additional c-shares investment in GCPF. Germany providing additional c-share investment provides additional time for the UK to make a decision on any potential future c-share investment which would be significantly larger than a TAF investment. Providing us this extra time most importantly means that the c-share funding shortfall will not hit before the mid-term evaluation of GCPF which the UK is funding concludes, allowing us to consider the evidence that this will provide before making a funding decision. We consider the TAF to be a good investment opportunity given the success of the fund as described in section 2 and therefore believe it would be a good addition to the ICF portfolio. The options presented below are therefore based on the UK considering funding for only the TAF (which is for the whole fund and not directly linked to our existing 30m investment). 3.1 Feasible options that address the need set out in the strategic case Option 1: Do not provide funding for GCPF TAF If UK chose to not fund TAF this year then Germany (BMUB) would want to ensure that GCPF could continue as it currently does and therefore would need to provide the TAF support. It is unlikely that BMUB would be able to disburse the funds by early 2017 and therefore there would be a gap in TAF funding which would potentially impact on the ability of the fund to deliver. A hiatus in TAF funding could mean a delay in the disbursement of funds, development of new investments and a delay in further diversification of the portfolio given that TA is a vital first step in initiating a GCPF investment. Another option could be that the current donors make the decision to not provide any further GCPF TAF. This would ultimately mean that GCPF is not able to make any new investments and would have to channel the finance through the existing FIs. If the fund was unable to continue to grow and attract new investment, this would restrict the ability to diversify the portfolio and limit the ability to result in transformational change at scale. In addition, without a TAF it is quite likely that GCPF would not be able to attract new investors given the TAF s key role in ensuring that the FIs have the required capacity to implement the GCPF loans effectively and reducing investment risk. Neither the UK or Germany, as the majority donors to GCPF would like to see this happen, nor would the other DFI or private sector investors as it would increase the financial risk of their investments. If ICF did not provide finance for GCPF TAF it would potentially free up additional funding for other RDEL programmes such as Ci-DEV, which is also a high performing project (Carbon Initiative for Development, which invests in Sub-Saharan Africa Clean Development Mechanism projects and provides technical assistance for project development). However, investing in GCPF TAF does not limit our ability to provide to Ci-Dev or other projects as we can split payments across years in order to stay within our annual spend requirements. In addition, the GCPF TAF s funding requirement is more pressing than Ci-Dev at the moment. This project compares favourably with other TA funding options given the potential learning from the fund that can help shape our future TA strategy and the ability to improve the effectiveness of our existing CDEL investment in the fund. Option 2: Provide funding for GCPF TAF for 3-5 years 7

8 BEIS believes that the GCPF TAF is a good investment opportunity as it closely aligns with the key aims of the ICF, in particular its results are starting to demonstrate that it is a very transformational project. If BEIS provides 6m of finance to GCPF TAF it will support the pipeline for approx. 3-5 years (depending on exchange rates and any amendments to the pipeline including as a result of the amount of additional investment and the new and on-going support requested by FIs). This will prevent a hiatus in funding and ensure that the fund can continue to expand and diversify the portfolio and will ensure that a lack of TAF funding does not restrict additional investment into the fund. It will also put us in a strong position to learn and steer a TA fund which is already established and delivering results on the ground. This is particularly key now that BEIS has received an RDEL budget in the 2015 spending review as lessons from TA programmes will be used to steer our future larger-scale TA plans under the UPSCALE programme (pending ministerial approval). Furthermore, it will work to strengthen our relationship with Germany by providing support to meet one of the funding requirements and allowing them to meet the other funding requirement (c-shares), sharing the transaction costs given the different types of finance that is required. BEIS would become the majority donor for GCPF TAF and BMUB would significantly increase their c-share investment, holding the significant majority of the c-share investment. By sharing the investments in this way, we can ensure that GCPF can continue to deliver at scale, allowing BEIS to await the conclusion of the 2017 mid-term evaluation before making a funding decision. Option 3: Provide funding for GCPF TAF for over five years, co-financing with Germany Germany is keen to ensure that GCPF can continue to operate and therefore would consider jointly funding the TAF but only if it was a condition of our investment. They d rather avoid this option due to the duplication of resource in making the investment but it could be an option to jointly invest and to finance the TAF for a longer period of time (likely 5-7 years). Germany are very clear that there is continuing ownership and interest from them but their restrictions on their available finance but more importantly their lack of resource available to make new investments means that they d rather divide the work between us with them focusing on the c- share requirement, they will however, consider a joint investment if that was the only option available as their key priority is the continuing work of GCPF. 3.2 Assessment of Options There are a number of reasons why BEIS should consider contributing to GCPF TAF: GCPF is delivering strong results on the ground (over 40,000 small-scale RE/EE technologies have been financed to date and the current GHG savings for the portfolio is 49%, compared to the position before the new technologies) and the likely gap in funding if we relied on Germany to fund the TAF would compromise the ability of the fund to continue to deliver results at scale, potentially increasing the investment risk in the fund and ability to attract new investors (one of BEIS key priorities for GCPF). The GCPF TAF has demonstrated a strong transformational impact to date by building the capacity of financial institutions for green lending which many are now expanding further, and also having a wider development impact by ensuring that recipients of the loans comply with international social and environmental requirements. BMUB are keen for us to continue to maintain our collaborative relationship and work together to enable GCPF to continue to operate at scale. Germany are planning to invest in c-shares which would therefore reduce the time pressure on BEIS to consider a new c-share investment this year and wait for the results of the 2017 evaluation. In return, BEIS making the TAF investment would share the 8

9 transaction costs between the two majority donors, which is of particular importance for BMUB as they are very resource constrained. GCPF TAF is established and delivering results, providing a useful opportunity for us to learn from a private sector TA programme to help steer our RDEL/UPSCALE spend going forward We are funding an evaluation of the fund next year which will include consideration of the GCPF TAF. Being a key investor and funding the evaluation puts us in a strong position to steer the direction of the fund and ensure that any recommendations are implemented We now have a representative on the board of directors We have worked to strengthen our M&E of GCPF over the past year and are in the process of implementing a new method of monitoring the financial performance of the fund in addition to the other more standard ICF monitoring processes This would be an RDEL grant and therefore wouldn t increase our balance sheet exposure Part of the role of GCPF TAF is to reduce investment risk due to the capacity building it provides. This funding would therefore work to help reduce the investment risk, both to BEIS and also the private sector investors. An additional GCPF TAF would not require any additional resource for on-going management at it would use the existing M&E processes for GCPF. However, there are also some potential reasons why we could choose to not invest in the GCPF TAF at this time, as follows, however we have reviewed these and feel they are not significant and are outweighed by the reasons above. Fund manager, responsability, is relatively new (has been doing the role for 2 years) therefore there is less evidence of their ability to deliver. However TA milestones continue to be met and we are so far very satisfied with what they have delivered. We would be investing before we ve completed the evaluation of GCPF If only the UK invests then we are a significant majority donor for the TAF (although Germany has demonstrated continuing ownership and interest in GCPF and are keen to ensure it continues to deliver) There are risks with working with potentially transformative financial institutions in developing countries and there is not a guarantee that a TA investment will result in a successful GCPF investment Overall we recommend option 2 - that the UK should commit to funding the GCPF TAF in 2016 and provide 6 million which will finance the current pipeline until around This enables us to continue to work collaboratively with Germany by sharing the transaction costs and working together to ensure that GCPF receives both types of funding that it currently requires. 3.3 Results Achieved by GCPF TAF Since inception of the TAF in 2011, a total of 34 projects have been approved of which 14 have been completed by the end of For each project, the TA manager selects the most qualified consultant or team of consultants (which has included four UK consultants). For the 12 mandates that have been tendered in 2015, the TA Manager invited 36 different consultancy firms to participate in tenders. On an aggregated level the TA projects financed by the GCPF TAF contributed to avoided CO2 emissions of over 130,000 tons and facilitated the on-lending of over USD 86 million of GCPF PIs. Furthermore, in total over 560 9

10 people benefited from trainings and know-how transfer that was offered as part of the financed TA support (see Monitoring & Evaluation section for more detail). In the 2015 GCPF annual review, output 3 was scored an A as the TAF met its milestone for new projects funded and exceeded the milestone for disbursing funds. GCPF TAF progress has been slower than expected in This is primarily due to the funding uncertainty and therefore they have focused on the projects that are fundamental to the progress of the main fund i.e. the projects required for on-lending which generally tend to be lower cost. The fund manager has a pipeline of projects that it can fund if new finance is received and therefore the rate of project delivery can increase once a funding commitment is made. The upcoming mid-term evaluation will provide an opportunity to better understand the impact of GCPF. One of the key aims of the TAF can be evidenced by the success of the main GCPF fund given its vital position in providing the assistance required by the FIs to make the investment. GCPF is starting to show results at the outcome level with over 40,000 small-scale RE/EE loans (used as a proxy for KPI 9 - low carbon technologies) having been financed to date suggesting that the majority of the FIs it is working with are starting to be able to disburse the sub-loans at an increasing scale. 3.4 How does GCPF TAF align with wider TA strategy (UPSCALE) In 2015 BEIS ICF team received approval to invest 10m into an existing fund with the Asian Development Bank (ADB) to fund a wide range of technical assistance projects support RE and EE development in middle income countries. As part of this approval we set out the wider need for TA support, identifying the key areas of focus for TA finance. As part of the 2015 spending review, BEIS has been allocated approx. 300m RDEL funding for which will primarily fund TA projects. Therefore as part of the ADB business case we set out a theory of change for this wider programme (UPSCALE). The GCPF TAF provides a useful and timely opportunity for us to steer and learn from an existing TA programme which is delivering strong results. Learning from this and other TA investments made in 2015 and 2016 will help inform our approach to the UPSCALE programme. The theory of change for UPSCALE (Fig. 1) was deliberately wide-ranging, covering many types of TA support which there is currently a need for. It is then expected that projects under the UPSCALE programme may not cover all the project types but will combine to address the requirements highlighted in the theory of change. The GCPF TAF fits in well with the UPSCALE theory of change. Of the five activities listed, GCPF will be supporting training/advisory services, stakeholder events, project preparation and promotion of RE and EE technologies. The key element that GCPF doesn t directly work to address is the regulatory environment in the countries it works in. GCPF TAF will work towards both the outcomes of improving the climate finance infrastructure and developing bankable projects. It therefore clearly aligns with the proposed UPSCALE programme. 10

11 Fig. 1: UPSCALE Theory of Change 3.5 Additionality Given the current reduction in available funding and the amount of time it would take Germany to release any funds, the UK investment in GCPF TAF is strongly additional as it is enabling GCPF TAF funding to continue and the fund to continue operating and increasing in scale. The UK investment will enable the GCPF TAF to meet its pipeline for the next three years. The UK TAF funding will provide cost effective TA support to local financial institutions, allowing them to work more effectively with GCPF, reducing investment risk and also significantly increasing the ability of GCPF to result in transformation change in both the local RE/EE markets in developing countries but also the global market. The UK funding will ensure that there continues to be an effective TA facility which will play a role in attracting private and public investment to the fund, given its vital role in initiating investments with FIs. 3.6 Risks and Uncertainties The TA Manager works to ensure that: Demand-oriented and tailored TA projects are defined in conjunction with the GCPF partner institutions by respecting the principle of additionality and sustainability. TA projects are designed to ensure that they are effectively and efficiently supporting GCPF partner institutions to overcome challenges they are facing when making EE/RE investments. TA services are implemented by best qualified local and international experts selected through a competitive bidding process. TA projects are monitored and documented. Payments are only effectuated if the defined deliverables are reached. 11

12 Against this background, there are a few risks related to TA contributions with mitigation measures in place. The potential impact of these risks is rated as low given the mitigation measures. The likelihood of occurrence is low. 3.7 Value for Money ICF projects use the three E s to assess value for money: economy, efficiency and effectiveness: Economy Economy refers to whether we or our agents are buying inputs i.e. staff, consultants, raw materials and capital that are used to produce outputs of the appropriate quality at the right price. The TA guidelines detail the tendering process that the TAF follows which will depend on the size of the project and the required timescales. This process ensures that the TAF receives the best value for money from its contractors in order to deliver the desired outputs. Efficiency Efficiency refers to how well our inputs are converted into outputs (as detailed in the theory of change in annex I). This investment does not require an additional separate theory of change as it forms part of the overarching GCPF theory of change. All the activities of the GCPF TAF which the UK is funding will lead to output 3 technical assistance to support local financiers to develop products. As detailed above, activities of the TAF include: Development of an EE/RE lending portfolio Enabling the reporting of EE/RE investments through baseline studies Financing of energy audits (EA) / Environmental and Social Impact Assessments (ESIA) Strengthening of the social and environmental management system (SEMS) of FI All of the above works to strengthen the ability of the FIs to effectively on-lend for RE/EE products and therefore meet output 3. The TAF provides regular very detailed results reports giving BEIS a strong oversight of the progress being made and regular opportunities to speak directly to the TA team to ensure the efficiency of project delivery. Effectiveness Effectiveness refers to how well the outputs (which are under the direct control of the delivery partner) achieve the outcomes (over which there is less control) as described in the theory of change for GCPF. The TA output (output 3) contributes to all outcomes. The results for those outcomes by end of 2015 include over 33,000 sub-loans and GCPF continuing to significantly exceed the minimum CO2 reduction threshold of 20%. TAF support is key to the fund being able to operate at this scale, therefore indicating that the TAF is being effective at working to convert outputs to outcomes. Overall we judge that the GCPF TAF has a high likelihood of offering good value for money based on the success of the TAF to date. However, we will continue to monitor the value for money within the logframe for GCPF and through the annual reviews. 12

13 4 Commercial and Management Case 4.1 TAF Governance The TAF is established separately to GCPF within a fiduciary contract under Luxembourg law and governed independently and at arm s length from the fund. This structure allows the TAF to have its own standards and procedures given the different role it takes to the main fund, the TAF has its own balance sheet, it receives a different type of investment to the main fund and this structure allows TAF investors to have more direct oversight of the TAF than if it was structurally part of the main GCPF fund. The figure above shows the governance structure for GCPF. The TAF is managed by the TA Committee which represents the TA contributors. It works directly with the investment committee for GCPF to ensure that the TA work is aligned with the work of the fund given it is a fundamental early step in ensuring successful GCPF investments. The board of directors has ultimate responsibility for the fund. In early 2016 BEIS nominated a representative to the board. There is the potential for BEIS to nominate a representative to the TA Committee, we already have the high level oversight at board level and think that this provides us with the appropriate amount of influence but this is something we will consider further if we can access the right level of expertise and depending on resource availability. As detailed in the M&E section, we will receive regular detailed updates from the TAF which will enable us to have strong oversight. Given our position as a majority donor will also have a stronger ability to steer the fund. The TA Committee approves TA projects in line with the TAF policy (which we can discuss amending if we invest and feel this is appropriate), which specifies the scope of activities eligible for funding and the procurement process. TA Committee decisions are made by consensus. The TAF business plan sets out that the dedicated TA team of the Investment Manager (responsability) works to ensure that demand-orientated and tailored TA projects are defined in conjunction with the GCPF FI by respecting the principle of additionality and sustainability, combining development and market orientation. The team designs TA projects carefully to ensure that they are effectively and efficiently supporting the GCPF FI to overcome the challenges they are facing when making EE/RE investments. The team ensures that all TA projects are procured according to international best practice and implemented by the best qualified local and international green lending and technical experts to build capacities within the FI. The TA works to build the capability required to tap into the potential of green lending to EE and RE segments or to support the development of investable RE/EE projects. In addition, the team within the investment manager is responsible for ensuring that all projects are monitored and documented. 13

14 4.2 Approach to TAF investments TAF projects are demand-orientated and TA projects are tailored and defined in conjunction with the GCPF partner institutions. The TA is provided by the best qualified local and international experts, selected through a competitive bidding process. All TA projects are monitored and documented, and there is regular and close interaction with the TA Committee to ensure continuing oversight. This ICF funding would be allocated to projects by the investment manager (responsability) under the oversight of the Technical Assistance Committee utilising the agreed policies for the fund. The investment would primarily finance consultants (both local and international, for example so far four different UK consultants have worked on GCPF projects) who would be procured through a tendering process. The consultants would then work directly with the banks, training their staff so that they are in a position to continue the work once the consultant leaves the bank. The TA finance does not go directly to the local financial institutions. Each payment from the TAF account must be authorized by the Investment Manager. Payments are only authorized based on invoices and proof of payment of expenses in line with contract obligations and also only upon acceptance of deliverables (report from the consultants, etc.) as outlined in the contracts. The TAC supervises the full process and ensures compliance with the TA Facility Guidelines. The TA Facility Guidelines set out the types of projects that can receive TAF funding. Most of the projects can be grouped within these general categories: Country analysis Awareness raising activities Research and development projects Product design for initiating the disbursement of the GCPF loan Implementation support The financial cost of tenders is a key consideration in the evaluation of each tender and consultants are aware that their offers must be competitive. This therefore incentives value for money, for example, no offers have been received to the GCPF TAF that have included business class flights as they would not be financially competitive. The Board of Directors has confirmed that if BEIS goes ahead with this investment there is the potential for us to influence the TA Facility Guidelines if we consider necessary, for example, we could choose to include detail on travel arrangements. 4.3 Review of Fund Management BEIS initially invested in GCPF in December 2013 and therefore has three years of experience of working with the fund. Board of Directors When BEIS initially invested in GCPF there were three members of the board, all from KfW. BEIS had the opportunity to nominate a board member to represent the donor governments when we invested but faced a 14

15 number of resourcing and legal challenges. However, we were able to make this nomination in 2016 and now have a board representative in place. In addition, another representative from the DFIs, from the FMO, has also joined the board. BEIS representative is therefore one of five board members each with equal voting rights. The board provides the top level oversight and steers the fund, individual funding decisions are made either by the investment committee (for main GCPF funds) or the TA Committee following guidelines set by the board. Having a board representative gives HMG a stronger ability to influence the direction of the fund and also provides a strong learning opportunity. It will also further strengthen our ability to work closely with the board of directors. Our experience of working with the GCPF board is positive. We have found the board members to be very reactive and also over the past year proactive in disseminating information therefore helping to improve our oversight of the fund. Investment Manager The current investment manager was appointed by competitive tender in Autumn 2014, previously the fund was managed by Deutsche Bank. The ICF therefore has less experience of working with responsability but since they started managing the fund we have observed a number of positive improvements. The UK and other donors flagged that communications for GCPF could be improved. responsabilty has since put together a new communications plan to try to address these concerns. This included producing a GCPF leaflet to supplement the annual reports demonstrating the key achievements and giving an outlook on the future development of the fund. Since 2015 communication with investors has significantly improved. As part of their role as the new GCPF fund managers, responsability has carried out a portfolio review of the previous monitoring methods. The review identified three loans (associated with two projects) where local financial institutions misreported emissions data, this was due to technical mistakes rather than a deliberate misrepresentation. responsability will be undertaking an external review of the results of the GCPF to check other results and set in place a system (e.g. training for local financial institutions) to make sure that the risks of this happening in the future are reduced. They have also initiating a new automatic system as part of their internal results QA which will flag any outliers in the results. The UK is keen to ensure that there is full transparency in the mistakes that caused these errors and that systems will be improved to ensure reliability of results in the future. The outputs of these reviews will be considered as part of BEIS/BMUB s mid-term evaluation. One of the challenges that GCPF has faced has been in attracting private investment. When responsability was awarded the investment manager role this was one of their key areas of focus and so far in 2016 two new private investees have joined GCPF. Given that attracting private investment has been a high priority for the investment managers we expect to see continuous improvements to the fund be made and additional private finance leveraged. Furthermore, as detailed in section 6, the fund manager has been actively supportive of BEIS M&E requirements and the upcoming mid-term evaluation. The fund considers itself to be appropriately cautious about disbursing donor funds for TA and rigorous with the consultant s results, only paying the consultant if the fund is convinced that the work has been completely delivered in a professional manner. There have been examples of termination of contract when work was not carried out to their satisfaction by the consultants. In addition, the Partner Financial Institution who benefits from the consultant must also confirm that the performance is satisfactory. Only, then the consultant receives 15

16 the payment. As a result disbursements from GCPF to consultant sometimes take place much later that the assignments. Only when the consultant is paid, responsability also gets the fee. This means that the nonperformance of clients (and less pay-outs or late pay-outs) are directly correlated with the fee for the Manager. This also means that the manager is incentivised to choose good consultants and make sure that the consultants perform. 4.4 ICF Resources Investing in GCPF TAF will not require additional ICF resource to manage as it will fall into the remit of the current GCPF management. Currently GCPF requires 0.3 FTE SEO staff time to manage the investment, along with 0.1 Commercial resource, 0.1 M&E Analyst resource, 0.05 Economist resource and 0.05 management oversight. There is also some requirement from Finance to manage the investment given the GCPF share investment is on our balance sheet (not impacted by this additional investment) and occasional input from BEIS Legal. 4.5 Legal Documentation BEIS will be required to sign a contract with the fund and others in order to formalise our contribution and this would be subject to Luxembourg law. The Policy team will therefore work with BEIS Legal and external lawyers specialising in Luxembourg law to assess whether the draft contract is acceptable and to agree any appropriate amendments to ensure BEIS objectives are met. We will revert back to the ICC Director in the event that these negotiations give rise to significant issues. 16

17 5 Financial Case TA funding requirements for The total remaining not committed TAF funds stand at approx. USD 1.2m by end of June The provision of TA is currently highly prioritized to cater for the most pressing needs only and remaining available funds are expected to be fully committed by Q Therefore, commitments for new TAF contributions will be needed starting Q If all assumptions made (particularly regarding the fund s growth) materialize, the projected TA funding need for TA projects in amounts to USD 8m for around 60 TA projects. This funding plan is only to provide the TA for new FIs but ideally the fund would also like the opportunity to provide more on-going support to existing FIs to help them increase their lending portfolio. Additional contributions derived from the cash flow waterfall of the GCPF fund on top of the 6m UK funding will contribute to that objective and BEIS expects the TAF to continue to receive contributions from the GCPF fund given its fundamental role in the success of the Fund. To note that the contributions paid from GCPF to the TAF (paid in $) also mitigate the TAF foreign exchange risk as BEIS contribution is paid in with the foreign exchange risk taken by the Fund. This is a significant increase in TAF compared to the first 5 years of the fund but the TAF processes have also changed significantly as the fund has developed and lessons have been learnt. It has been very clear how vital the TAF support is in a successful GCPF loan and therefore will now always be offered. In addition, as investment into the fund increases the TA requirements will increase as new investments are made. Furthermore, the availability of on-going support will enable the impact of GCPF to be much greater and the transformational impact of the fund to increase which additional funding will allow for. The above projections are closely linked to the GCPF Business Plan, which is updated each year to reflect latest developments of the fund. GCPF aims to work flexibly with the financial institutions, including in its approach to technical assistance, to ensure the right requirements are met and the projects align with the local market demands. This therefore means that the above is an estimation and therefore the 6m investment provided by BEIS is expected to provide funding for around four years and will only be disbursed if evidence of a strong pipeline is provided. 5.1 Payment and Encashment Schedule This payment will be made through a promissory note which will be deposited at the Bank of England by the end of the calendar year. The current proposed encashment schedule is below, this will be based on the pipeline and required funding of the TAF. Following approval this will be discussed further with the fund and the final agreement will be included in the legal agreements. January 2017 January 2018 January m 2m 2.2m Exchange rate risk Payment will be made through promissory note as this is grant funding meaning the :$ exchange rate risk will be taken by the fund at the time of encashment. There is therefore a risk that the exchange rate could weaken 17

18 and 6m will be insufficient to meet the pipeline but the encashment schedule will be kept under regular review and the next round of TAF funding may either have to be brought forward slightly or delayed slightly. 18

19 6 Monitoring and Evaluation 6.1 BEIS M&E Over 2015 BEIS worked closely with the fund to improve and better align the logframe with the management of the fund. This now means that there is a fully revised logframe which aligns to the results available and with BEIS KPIs. An additional investment into the GCPF TAF will therefore not significantly impact the M&E for GCPF and the resources required to manage the fund given this review has already better aligned the processes. As identified above, given the integral nature of the TAF, the logframe already includes an output related to the progress of the TAF. It is proposed that if this investment is made that the weighting of this output should be increased to be more in line with the other outputs. In addition the current KPI15 transformation change methodology already includes references to the TAF as capacity is one of the key indicators for GCPF (Annex III). ICF KPI s are currently under review, following this we will consider the relevance of GCPF TAF as we could report against additional KPIs, for example, KPI 14 (level of institutional knowledge of climate change issues as a result of ICF support) may be particularly relevant. Over 2016 BEIS has also been working on an addition to the existing M&E process in order to monitor the financial performance of the fund. Given our investment in GCPF is in shares and therefore on our balance sheet, this will give us a stronger understanding of the key results which provide a good indication of how the financial performance of the fund is changing through time. This additional investment in the GCPF TAF will not result in any additions to this process as this investment will be a grant and therefore will not be on BEIS s balance sheet. 6.2 Mid-term evaluation In 2017 BEIS and BMUB will co-fund a joint-evaluation of GCPF as agreed in the original GCPF business case. The terms of reference for the evaluation has been agreed between BEIS and BMUB/KfW and reviewed by the board and fund manager. BEIS has also received internal sign off to proceed with the evaluation. We raised the plans for the evaluation at the GCPF Shareholder meeting in March 2016 where the evaluation approach was received positively and helpful comments were provided which have since been worked into the evaluation plan. We discussed the best timing for the evaluation with the board and fund manager and were advised that the most useful time would be to start the evaluation in early We consider this to be a sensible time given the relatively new fund manager and the length of time that it takes for GCPF projects to start to see results on the ground, it also mitigates the risk of overburdening stakeholders with requests for data at a time when two reviews of results reporting and CO2 methodologies are underway. This evaluation will cover the whole GCPF fund including the TAF and by investing in the GCPF TAF at the same time as funding the evaluation puts the UK in a very strong position to help steer any improvements recommended in the evaluation. If BEIS chooses to invest in additional c-shares at a later date we would consider as part of the business case whether we should fund a further evaluation at a later date, given this decision can now be made once the results of this evaluation are available. We would also aim to work with Germany on any future evaluation and for them to take on the management costs given that BEIS is managing the current evaluation. It is considered disproportionate to the investment amount to fund a further evaluation based only on this TAF investment, especially as the TAF will be included in the mid-term evaluation which we are already funding. 19

20 6.3 Working with GCPF Fund on M&E Overall we have found the fund to be very compliant in assisting with our monitoring and evaluation (M&E) requirements. In designing the new logframe the fund manager provided input and detail on the available data and also what they considered to be the best indicators to use. Furthermore, in 2015 the fund asked the investors which information they d be most interested in seeing in the quarterly reports. This proactivity and flexibility has significantly improved our ability to manage the investment as it means that we receive frequent updates on the indicators we find most useful. When working through the larger MDB funds for other ICF projects this flexibility is usually very difficult so we consider this to be a key advantage of GCPF. The fund holds quarterly shareholder calls where they also provide an update on the results achieved, any risks identified and an update on the activities of the fund. In addition, the fund has been incredibly supportive of our mid-term evaluation plans. They have inputted to the terms of reference and invitation to tender, and have also given advice on how to get the most out of the evaluation. We understand that they are keen to learn from the evaluation which gives us a strong confidence that any recommendations will be carefully considered and implemented where possible. 6.4 GCPF TAF Results Reporting GCPF published quarterly reports for the full fund (which includes a summary of TA developments), an annual report which includes an assessment of progress for the TAF, holds quarterly shareholder teleconference meetings and an annual shareholder meeting where updates on progress against milestones for the past year (for GCPF and TAF) and the targets for the following year will be announced. As a TA donor, BEIS would also have bi-annual updates through a detailed presentation from the fund and opportunities to bring any questions/challenges to the TA Committee. In addition, there is an annual TA results report which includes detailed financial information as well as an overview of each individual project. Furthermore as a TAF donor we would receive the TA Project Factsheet. This provides detailed results for each individual project including a qualitative description. The TAF is currently trialling a wider range of KPIs for the TAF projects and this document will provide detail on progress against these for each individual project. The results provided by GCPF TAF for each individual project will allow us to understand each individual project and allow us to regularly consult the TAF team and understand any challenges they have faced and lessons learned. In addition, the mid-term evaluation also aims to provide important information on the impact that GCPF (inc the TAF) is having on the ground. 20

21 Annex I: BEIS s Theory of Change for GCPF Public sector ODA funding is used to induce the output of attracting other sources of investment by de-risking investments and the outcome of increased private sector and other climate finance flows; public sector investors taking a first loss position in the Fund and thereby by providing a risk cushion for private investors and by the Fund offering preferential returns. It also aims to produce the outcome of a track record for investment through demonstrating the viability of low carbon investments (working through local financial institutions to make loans available and also through direct investments). This is coupled with the outcome of increasing the knowledge and awareness of financial institutions through providing the output of technical assistance to the local financial institutions to help them develop appropriate products. Therefore, by working through local financial institutions (providing credit lines and upskilling through the TA facility), or through direct investment in small-scale projects, GCPF will deliver the output of offering appropriate finance for SMEs and households and help deliver the outcome of building their awareness and knowledge to deliver emissions savings through the uptake of energy efficiency measures and renewable energy. Together these outputs and outcomes contribute to the impact of developing sustainable markets for investments to support low carbon investments in developing countries that do not require public sector funding support. GCPF will test the assumptions that: A portfolio of investments have low failure rate / appropriate risk-return rate to ensure success of GCPF and positive demonstration impact to attract further finance for similar projects; Experience with low carbon investments from local financial institutions and for SMEs, and households will increase their information and knowledge. In turn through the demonstration effect local financial institutions will realise the potential of low carbon products and develop products in the future. Assisting local financial institutions to develop appropriate finance products at comparable rates to other loans on the market for SMEs and households will have sufficient demand. Evidence to support the assumptions in the theory of change: Evidence of public sector funds being used to de-risk investment and generate flows of private finance can be derived from experience of the European Fund for Southeast Europe 1 as well as the Green for Growth Fund 2. These funds - also run by KfW - are structured similarly to GCPF. These Funds have not had any defaults to date and have successfully leveraged private finance. Furthermore, the fund is on track to continue to increase private investors contribution without further public sector funds as it has demonstrated a successful track record and decreased the perceived risk of investments. The success in developing credit lines for energy efficiency and renewable energy in developing countries that are attractive for local financial institutions and end users can be illustrated through the track record of GCPF to date and CTF programmes e.g. evaluation of the Turkey CTF programme that provided concessional finance to and through two local banks for large scale energy efficiency ($50.3m for 15 projects) and renewable energy ($40.4m for 14 projects) has expected saving of 1.3MtCO 2 /yr 3. Also from existing GCPF operations. However, it is important that GCPF contributes to a stronger evidence base that commercial finance is an effective way of creating a market, the combination of offering credit lines and technical assistance offers good value for money, and the effectiveness of focusing on an end-user group. In particular, proving that such a structured fund can work in a developing country context to produce a positive demonstration effect and that experience with low carbon investments also increases information, knowledge and provides a demonstration effect in lower income countries. 1 European Fund for Southeast Europe, 2 Green for Growth Fund, 3 Eberlein, C and Hebb, M Climate Finance in Turkey: The contribution of the World Bank Clean Technology Fund to transforming the Turkish energy sector. 21

22 The theory of change is based on a few assumptions that should be noted: a. Technology and the associated services are available to provide the energy efficiency measures and renewable energy. b. Other interventions focus on developing the supporting policy and regulatory requirements c. Other interventions focus on raising demand side awareness, behavioural and knowledge In brief GCPF is a multi-national intervention focusing on scaling up private finance by offering market rate finance to SMEs and households would be innovative, target the key barrier of lack of access to appropriate finance and complement existing activities. BEIS s business case for the investment in GCPF is published at 22

23 Annex II: GCPF Case Studies INDIA Background The agricultural sector accounts for 17.6 % of India s greenhouse gas emissions. Given the large untapped opportunities for energy savings in agribusinesses, the bank GCPF invested in targets this segment to generate economic value for the bank, farmers and other stakeholders. Almost half of the bank s agribusiness portfolio consists of retail loans to individual farmers. Project information The bank disburses small loans to farmers for drip-irrigation technology, with which water is supplied at regular intervals to the roots of crops using pipes. This method significantly reduces water waste compared to traditional flooding irrigation the water savings are estimated to be 47 % for sugarcane and 33 % for banana cultivation. As irrigation relies on electricity-intensive water pumps, using less water reduces electricity consumption, and consequently CO2 emissions. Estimates based on field survey data show that drip irrigation saves over 1 CO 2 t for sugarcane and almost 0.9 CO2t for bananas per hectare. Drip irrigation creates value beyond reducing CO2 emissions. Farmers who adopt drip irrigation have lower electricity costs, lower water consumption, lower fertilizer costs due to increased efficiency, and are able to grow multiple crops throughout the year which leads to substantially higher incomes. To reach farmers, The bank works in partnership with a local rural development NGO, Dilasa, which acts as an intermediary and provides training to farmers on the technology. The bank has so far reported 1,915 sub-loans for smallscale drip irrigation projects in Maharashtra, Tamil Nadu and Karnataka. The bank plans to issue around 20,000 drip irrigation loans over 5 years. It also plans to finance energy-efficient pumps as well as solar pumps in the future. Before I approached this bank, other banks wouldn t help finance me because of the size of my smallholding. The bank was the only bank that understood the basic realities and challenges of electricity and water shortages, and financed the drip irrigation loan. I can now stand on my own two feet and earn more than I did before. Karansingh Maher Karansing Maher is a smallholder farmer in the Aurangagbad district of Maharashtra. In March 2014, the bank provided Mr. Maher with a loan of INR 99,475 (ca. USD 1,600) to install drip irrigation in his 1.15 Ha smallholding. Mr. Maher previously used flood irrigation to cultivate his cotton and sweet lime crops. As the yields were low, the farm income was not enough to meet the basic needs of his family of six. After adopting drip irrigation, his yields have increased by 180 %, and he has started intercropping onion, onion seeds and coriander to maximize his income. As a result of their increased income, he and his wife no longer need to supplement their household income with extra work. ECUADOR GCPF partner institution provides loans to local SMEs that these businesses use to improve the efficiency of their industrial equipment, including sewing machines or bakery ovens. A small bakery in Quito, for example, was granted a loan that enabled it to replace its existing diesel-fuelled oven with an energyefficient version. The investment helped to cut annual CO2 emissions by 11 tonnes. 23

24 It also generated significant cost savings because energy accounts for 60 % of the bakery s operating costs and the new oven uses 40 % less fuel than the market average. Moreover, the new oven bakes more evenly, resulting in better-quality products and thus less waste. The bakery owner, Jorge Luis Yaguache Sislema, 35, has been in the business since his childhood. Buying an energy-efficient oven has transformed my business, he says. We knew it would be worthwhile, but we could not afford the upfront investment. Repaying the loan over three years makes it affordable. The benefits will last beyond the loan term as the oven has a 14-year lifespan. Sislema plans to use the increased profitability to open a second branch. NICARAGUA Background Nicaragua has a tropical climate, making it very important for hospitals to install high quality air conditioning to ensure a safe and comfortable internal environment. In turn, air conditioners account for a significant proportion of hospitals energy consumption 26 % in the case below and therefore represent a substantial cost. Project Information In 2014 a company financed the installation of seven new high-efficiency air conditioner units for a private hospital in Nicaragua. With standard efficiency air conditioners, the hospital spent USD 8,360 per month on electricity for air conditioning, but with the installation of the new equipment this has been reduced to USD 6,170, translating into USD 27,750 annual savings for the hospital. The installation reduces the annual energy consumption by 134 MWH. The CO 2 emissions were 242 tonnes each year pre-installation, and this has been reduced to 179 tonnes each year, which corresponds to a 26 % reduction. 24

25 Annex III: GCPF KPI15 Transformational Change methodology Global Climate Partnership Fund (GCPF) assessment against ICF KPI 15: Extent to which the ICF intervention is likely to have a transformational impact Summary This paper sets out the method that will be used to assess ICF KPI15 Extent to which ICF intervention is likely to have a transformational impact for the GCPF. Transformational change is defined here as a change which catalyses further change, enabling either a shift from one state to another (for example, from conventional to lower carbon investment patterns) or faster change (for example, accelerating the shift towards low carbon economies by accelerating the deployment of low carbon, climate resilient (LCCR) capital). Transformational change entails a range of simultaneous transformations to political power, social relations, markets and technology. Many of the transformations the ICF is seeking to bring about will only be evident with a time lag. Though it will be necessary to monitor these longer-term changes, most are unlikely to materialise within the period of the ICF. This indicator therefore tracks early signs of transformation, or the extent to which key ICF activities either are being, or have a good likelihood of being, transformational. Method/Approach Given that the transformations that the GCPF is likely to bring about are expected to only materialise in the longer term, the proposed approach is to track the transformational impact through proxies. The Theory of Change (below) sets out several criteria which, if present, are likely to result in transformational change. Progress against the relevant criteria (set out below) will be assessed using the below box markings: 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 As for all ICF projects, the GCPF is expected to eventually receive a box mark 4 (transformation judged very likely). The GCPF box marking will be the median score across all the criteria. 25