This report assesses the potential for results-based finance (RBF) to expand post-COVID recovery funds while improving sustainability efforts. By linking financial rewards to climate objectives, RBF enables innovative financing arrangements that can accelerate funding from the private sector.
The idea that RBF can contribute to achieving long-term climate objectives is not new. What is novel is combining financing models, indicators linked to climate performance, and partnerships to create new investment alternatives that improve public spending and attract the private sector towards low-carbon transitioning efforts. This is especially important considering the limited funding available from the public sector, especially in emerging markets where COVID-19 is exacerbating debt burdens.
The report concludes that RBF is an opportunity to innovate on public procurement, mobilize private finance, and contribute substantial climate and economic impacts. RBF approaches can increase the economic efficiency of public procurement and leverage private finance, which will help limited public funds stretch further. However, this new approach also faces important challenges to implementation, and it is likely that support will be needed through the project design and development phase. Up-front funding is also likely to be needed in projects where results will take a significant amount of time to materialize. Once the concept is proven in specific sectors, support can be phased out.