Results-Based Financing (RBF) is a financing modality or approach under which a donor or investor disburses funds to a upon the achievement and independent verification of a pre-agreed set of results. Four criteria must be followed:
- Payments are made for climate mitigation or adaptation results;
- Payments are made ex post;
- Payments are made once predefined results have been achieved;
- Reported results have been independently verified.
To understand the role RBCF can play in supporting the Paris Agreement, it is important to recognize RBCF is both an approach that can be combined in a program with other financial instruments—such as upfront grants, loans, or guarantees—and a vehicle for delivering the funding associated with those financial instruments.
The 12 largest programs providing international public RBCF to developing countries identified in this report reached their estimated peak capitalization of $2.6 billion in 2015. About 90 percent of these funds are dedicated to the forestry and land use sector. While this number was up from $2 billion in 2010, it is expected to rapidly decline over the next few years, unless additional funds are provided.
The 74 programs of the sample underlying this report are evenly distributed among the Sub-Saharan Africa Region (29 programs), the Latin America and the Caribbean Region (29 programs), and the East Asia and Pacific Region (28 programs). Several programs are implemented in more than one region. The prevalence of RBCF in low-income countries, as well as its application in middle-income countries, indicates the potential for the broad application of the approach, and its ability to overcome several barriers to investment identified in the literature, including limited access to financing and a weak MRV infrastructure.
The conclusions permit to show how RBCF programs are already contributing to climate finance flows. Estimated annual disbursements stood at $280 million in 2015 and 2016, and are expected to increase by a further $200 million, and peak in the period 2018—20. RBCF is a flexible approach that can be targeted at multiple actors, including governments, implementing agencies, and project entities.
The report concludes that RBCF is well suited to climate mitigation because reducing carbon emissions focuses on a well-defined and measurable global externality. Additionally, RBCF facilitates carbon pricing and market building, supports host countries’ policy processes to achieve their NDCs, and advantages private sector activity and private financing. RBCF has also shown potential in adaptation, albeit through fewer programs than in mitigation so far.