The previous annual review has been replaced with this one. This better aligns the period of the

review with the milestones and data provided by GCPF as they will now both be over the calendar

year. This change in the process also ensures that the current milestones and data can be used to

provide a more accurate assessment of the progress of the fund.

Annual Review - Summary Sheet

Summary of Programme Performance

Year 2015

Programme Score B

Risk Rating Medium

Summary of progress and lessons learnt since last review The Global Climate Partnership Fund (GCPF) was implemented by KfW and is managed by

responsAbility, a privately owned asset manager. GCPF provides finance for energy

efficiency and small scale renewable energy projects in developing countries and emerging

markets. It predominantly works through local financial institutions to provide loans for small-

scale low carbon projects. GCPF includes a Technical Assistance Facility to provide the

capacity building required to work effectively through these institutions. GCPF can finance a

variety of loans ranging 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 lead to a reduction of

greenhouse gas (GHG) emissions, contributing to climate change mitigation.

Total commitments to the fund are currently $367m, including donor governments (Germany,

Denmark, UK), development financial institutions (DFIs) (KfW, FMO, IFC, OeEB) and private

investors (responsAbility and a German pension fund).

Broadly BEIS considers that this has been a successful year for GCPF. We consider there to

have been particular improvements in BEIS’s management of the investment and we have

also seen developments in the management of GCPF by responsAbility, the fund manager.

However, overall progress in delivering the 2015 outputs, i.e. attracting investment and

making disbursements was slower than expected and therefore the outputs this year have

been scored a B. BEIS notes the additional work the fund manager has been focusing on in

2015, the impact of which was a reduction in the output deliverables but this work is

expected to improve the fund and drive future delivery. This review scores the fund against

the logframe outputs, though BEIS does not consider these to fully reflect the wider

performance of the fund. As highlighted by the text in this review, there have been many

management changes which we’d expect to be reflected in the results of future annual

reviews. Further work should be undertaken to find ways to better align the logframe with

Title: Global Climate Partnership Fund

Programme Value: £30,000,000 Review Date: July 2016

Start Date: January 2015 End Date:

December 2015

BEIS’ key areas of focus for GCPF so that the scoring can better reflect how GCPF is

meeting BEIS’ objectives.

Over the past year GCPF successfully met the targets for the technical assistance (TA)

facility. This is positive as the TA is integral to the success of GCPF as it ensures that the

financial institutions have the necessary capability to implement the objectives of the fund.

However, it was not able to disburse as much as originally expected. Over 2015 GCPF

received an additional $40m in public investment but was not able to attract additional

private investment. The fund prioritised attracting private investment in 2015 and that work

did lead to an agreement with a bank to disburse notes which was signed in early 2016 and

it is hoped will result in further investment over 2016. GCPF is starting to make progress

against the outcomes, in particular it is continuing to disburse sub-loans at scale and

therefore to deliver results on the ground.

Over the past year there have been significant improvements made in BEIS’s management

of GCPF as new project management resource was made available. In early 2016 a new

logframe was agreed with the fund manager and has been used for this review of 2015.

Furthermore, the fund has been very open to improving its processes, for example, by

requesting what data shareholders would like to see published in the quarterly reports and

effectively implementing the recommendations. Going forward this will mean that we receive

regular updates on the data that we consider to be key to our oversight of the fund’s

progress. Additionally, the UK has the right to nominate a GCPF Board member, which is

supported by the other donors and also by KfW. Over 2015, we have worked with BEIS

Legal to further assess in detail the legal requirements and implications for Board

membership in Luxembourg. We hope to be able to secure a place on the Board by early in

2016.

Summary of recommendations for the next year

BEIS should re-review the logframe to ensure that, where possible, the outputs consider BEIS’ key areas of focus for GCPF to ensure that the next annual review better reflects the full achievements of the fund.

BEIS should ensure it continues to understand what types of investment into GCPF the fund is aiming to attract and why, given the complexities needed to maintain the attractiveness of the fund

The board to continue to provide updates to the investors on the actions taken to attract private investment, the lessons learned and any changes to the fund

Ensure the mid-term evaluation considers ways of better attracting private investment and the work carried out by the fund to date

Aim to have a UK representative on the Board and potentially on the Investment Committee by early 2016, subject to final confirmation of the legal requirements

Fund manager to include the amount disbursed in the quarterly reports as that will ensure that regular updates for this output are received.

BEIS to continue to work with the fund manager to finalise the logframe where necessary (on-going)

BEIS aims to have internal sign off for the mid-term evaluation by mid-2016 and be able to reflect the results of the evaluation in the review of 2017.

Once the outcomes of the results reviews are received BEIS would expect the fund to provide detail on how they plan to address any recommendations (Q3 2016)

BEIS will consider implementing a new M&E process for GCPF in 2016 to monitor the financial performance of the fund

A. Introduction and Context

Link to Business

Case:

https://www.aidstream.org/files/documents/GCPF-Business-Case.pdf

Outline of the programme

The Global Climate Partnership Fund provides finance for energy efficiency and small scale

renewable energy projects in developing countries. It aims to increase the flow of finance to

small and medium enterprises (SMEs) and households by creating a new partnership with

the private sector, specifically by using public funds invested in to the fund to leverage

greater amounts of private finance.

The fund tackles the barrier that appropriate finance is not available for SMEs and

households for low carbon projects in developing economies. This is because local banks do

not have access to affordable longer term finance and perceive the sector as risky as they

have a lack of experience and knowledge of it. The GCPF aims to address this by providing

finance for on-lending to RE and EE 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.

BEIS invested £30 million in GCPF in December 2013. GCPF is a structured fund

comprising A, B and C shares. The BEIS investment is in C shares, which act as a risk

cushion for A and B shares as any losses or loan defaults would be borne first by the junior

C shares, then B and finally 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.

In addition there is a super senior tranche in the form of time-bound notes that also targets

private sector institutional investors (by end 2015 there were $30 million notes invested).

Public funds invested in GCPF provide a risk cushion (by taking first loss in the event of

default) for private investors in the fund and provide comfort against high levels of perceived

risk that currently deter private investment. The total committed funds to GCPF by end of

2015 were $367 million.

GCPF was established by the German development bank KfW in 2009. It successfully

secured investment from its first private sector investor (a German pension fund) in

December 2012, and work is on-going to attract additional investment. Between 2009 and

November 2014, Deutsche Bank was the Fund Manager for GCPF. Since November 2014,

responsAbility has taken over the Fund Manager role after having won a competitive

international procurement process.

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.

GCPF also includes a TA Facility which provides capacity building support to the financial

institutions and recipients of direct investments to increase the effectiveness of the GCPF

processes. This is grant funded by the BMUB (German Ministry of the Environment) and

OeEB (Austrian Development Bank).

B: PERFORMANCE AND CONCLUSIONS Annual outcome assessment

Outcome 1 ‘increased flows of finance’:

The GCPF continues to disburse an increasing number of sub-loans. By end 2015 a cumulative total of 33,819 had been disbursed, up from 25,442 in 2014.

The fund has met the requirements set out in the subscription form for GCPF to commit the equivalent amount of funding to BEIS’s investment to BEIS’s priority countries and ultimately aim to invest double that amount. This year the amount committed to BEIS priority countries increased by $45m. This agreement was reached when BEIS invested in GCPF as the fund invests in some countries that BEIS does not prioritise, but it would not be effective to carve out the funding so we agreed that the amount equivalent to our investment would go to ICF priority countries.

Outcome 2 ‘building a track record of successful low carbon investments’

The fund continues to exceed its minimum GHG emissions reduction of 20% of the business as usual scenario, with the portfolio currently resulting in 53% GHG reductions

The annual and lifetime CO2 reduction of the portfolio continue to increase, as does the energy savings of the portfolio.

The fund manager is not currently able to provide the clean energy installed capacity but hopes to be able to do so next year. This is due to challenges around the previous manager’s classification of projects meaning the new manager is re-evaluating the whole portfolio to find an effective and reliable way going forward to calculate this.

Outcome 3 ‘increased capacity of local partner institutions for developing successful low

carbon products’:

Following BEIS’s request, the fund now provides the amount of sub-loans disbursed in each sector so we can continue to monitor the increases going forward.

However, this outcome is primarily about the quality of support for the financial institutions as this is most fundamental to the level of success of GCPF and this will primarily be assessed by the mid-term evaluation next year.

Overall GCPF is demonstrating good progress towards the outcomes, it continues to deliver

results on the ground by disbursing sub-loans at scale. It is also significantly exceeding the

minimum CO2 reduction threshold. The mid-term evaluation will be key in providing more

detail on how well GCPF is working towards these outcomes.

Annual output assessment

Scale Description

A++ Outputs substantially exceeded expectation

A+ Outputs moderately exceeded expectation

A Outputs met expectation

B Outputs moderately did not meet expectation

C Outputs substantially did not meet expectation

The overall output score for the GCPF is B.

Output 1 (attracts investment) looks at how much additional public and private finance was

leveraged in 2015. This output was assigned a B. It was positive that there was an increase

in public sector investment into GCPF over 2015, however, there was no additional private

investment as BEIS had hoped to see. It is worth noting that this score refers only to 2015

and the work carried out over 2015 by the fund did attract a new investor in early 2016

indicating that the results of this work are already starting to materialise. The fund manager

continues to work to overcome obstacles to private investment which they hope to result in

additional investments in 2016 and 2017. The score assigned therefore is not considered to

be a negative score given the fact that the 2015 work appears to have started attracting new

investment, and we would like to see the progress continue over 2016.

Overall output 2 (affordable and available credit lines for small-scale renewable energy and

energy efficiency products) has been assigned a B. The number of new direct investments

was significantly lower than expected. Although the FIs that GCPF has already disbursed

funding to have continued to on-lend at scale, the amount that the fund has disbursed to

new FIs for on-lending over 2015 was approximately half of the target. The fund manager

advised that this was due to a number of factors including spending 2015 focusing on

building a long-term pipeline to ensure an improvement of the diversification and the risk-

return profile of the Fund, the impact of the wider economic environment particularly in

Russia which had a knock-on effect to many of the GCPF investments in the region (e.g.

Mongolia, Ukraine), and for the disbursements a decision was made to continue the strategy

initiated early 2015 to split the loans into smaller tranches, providing more flexibility and

control over the on-lending activity of the investees. In addition, some institutions were

behind targets and the team focused on increasing their on-lending volume rather than

acquiring new institutions.

Output 3 (technical assistance to support local financiers to develop products), this output

has been added to the logframe so that it aligns with the theory of change. Although BEIS

has not directly invested in the TA Facility for GCPF, it does feature as part of the waterfall

structure of the fund meaning that it receives a proportion of the fund’s income. The TA

Facility is integral to the success of GCPF given that it helps provide the necessary

capability of the financial institutions, however a 20% impact weighting was selected given

the lack of direct BEIS investment in the facility. This output has been scored A as the TA

facility met the milestones for 2015.

Annual assessment of other relevant progress

Significant additional progress in GCPF which is not reflected in the outputs has also been

made over 2015, further detail on these is set out in section D.

Over 2015 BEIS has made significant progress in addressing the legal requirements in order

to nominate a UK representative to take up the c-shareholder position on the GCPF board of

directors. The nomination is planned for early 2016.

Further progress has also been made on the mid-term evaluation over 2015 with the terms

of reference having been agreed with BMUB and also additional M&E resource will be made

available in BEIS which will allow BEIS to manage the evaluation.

BEIS has produced a new logframe which better aligns with the theory of change and with

the data available for the fund. In addition, the fund manager will also now publish additional

information in the quarterly reports which will mean BEIS receives regular updates on the

information that we consider to be most useful.

After their appointment as the new GCPF fund manager, responsAbility 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. This has had

a significant impact on the results and 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 are also initiating a new automated system as part of their internal results QA

which will flag any outliers in the results. The results of this are expected summer 2016.

Overall score and description

Over the past year the fund has progressed in many areas that are not output measures and

it is important to highlight these, but overall the fund has been assigned a B which is based

on the scores for the outputs and the direct achievements of the fund. BEIS does however

consider it to be a successful year for GCPF due to a number of process improvements

being made both by the fund and in BEIS.

BEIS’s management of this investment has significantly improved and the communication

and results reporting from the fund has also improved. The fund manager is taking a number

of steps to improve the fund further which is extremely positive but the results of this have

not yet fully materialised. Many of the output milestones were not met as GCPF prioritised

developing the 2016 pipeline and investors, so we hope to see this materialise next year.

Over the past year BEIS has been able to increase project management resource.

Furthermore, the fund has worked closely with us to help us improve our monitoring

processes including publishing the most useful information regularly. In addition, BEIS has

now made significant progress towards nominating a c-shareholder representative to the

board and plans to be able to make the nomination in early 2016.

We hope to be able to reflect the impact of all the fund management work over 2015 in the

2016 review.

Key actions

Action Deadline Lead

Nominate UK Board representative January 2016 Project lead

Include additional data in the

quarterly report for Q4 2015

March 2016 responsAbility

Conclude review of GCPF’s results Q4 2016 responsAbility

and produce a plan to address any

recommendations

Receive internal sign off for the mid-

term evaluation and aim to

commence the evaluation late

2016/early 2017

Mid-2016 and late

2016

Project lead (input from M&E

lead)

Has the logframe been updated since the last review?

Yes – significant amendments to the logframe have been made in order to better align it with the management of the fund, to align it with the theory of change and to ensure it works better alongside the other ICF management processes including ensuring that the results needed to monitor against the KPIs are included.

C: DETAILED OUTPUT SCORING

Output Title Attracts investment

Output number per LF 1 Output Score B

Risk rating (H, M or L): Medium Impact weighting (%): 40%

Risk revised since last

AR?

No Impact weighting %

revised since last AR?

No

Key Points

Over 2015, $40m of additional public investment (from FMO) was committed to GCPF. It is

positive to see that the public sector investment increased in 2015 and that it exceeded the

2015 milestones. However BEIS considers it one of the key aims of the fund to work to

attract private investment and this milestone was not reached, therefore this will be

considered when assigning a score to this indicator.

It is worth noting that these values refer to the 2015 calendar year, GCPF did attract a new

private sector investment towards the end of 2015 but the final agreement was not signed

until early 2016. This will therefore be reflected in the 2016 results and will be incorporated

into the 2016 milestones.

GCPF has generally struggled to attract private sector investment but over 2015 this has

been a key focus for the fund manager who has received feedback that will be presented to

the board with potential suggested amendments to make the fund more attractive in 2016.

This is one area that will be considered as part of the mid-term evaluation.

The fund manager advised that over 2015 private investors were approached across Europe

and especially in those countries where the GCPF investment manager has local coverage

(Switzerland, France, Germany, Austria, the Netherlands, Belgium, Luxembourg and

Norway). While there was much interest shown on climate change mitigation, numerous

challenges were raised during the fund raising campaign due to the complex structure of the

vehicle:

Challenges Mitigation

Lack of liquidity (No secondary market)

Issue of short-term notes Evaluation of structuring solution with an investment bank

Fund currency USD Hedging facility is currently being implemented as part of the fund, and is planned to be in place by end 2016.

Lack of external rating This is being considered further

Spread is considered too low Terms of all shares and Notes will be compared to market conditions and redefined

Too long maturities Part of Notes may be issued with a maturity of 1-3 years.

Floating rates Hedging facility is currently implemented and needs to be in place by end 2016.

High minimum investment In the case of a structuring solution, the reduction of the minimum investment of USD 200’000 might be considered.

Cash Management Matching of investment pipeline and investor commitments is important. Nevertheless, delaying commitments of private sector

Mitigating measures are currently in process of implementation. This process will last until

Q1 2017. Nevertheless, some measures helped to grow the pipeline of prospect investors.

In addition, as highlighted under output 2, the fund has continued to diversify the investment

portfolio having committed $124m to five new investees which will help make the fund more

attractive to private investors.

Overall this output has been assigned a B. Unfortunately private finance wasn’t leveraged in

2015 but the work carried out over 2015 has since led an additional private investor in early

2016 which will be reflected in the next annual review. It is positive to see that public

investment increased over 2015.

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

n/a

Recommendations

BEIS should ensure it continues to understand what types of investment into GCPF the fund is aiming to attract and why, given the complexities needed to maintain the attractiveness of the fund

The board to continue to provide updates to the investors on the actions taken to attract private investment, the lessons learned and any changes to the fund.

Ensure the mid-term evaluation considers ways of better attracting private investment and the work carried out by the fund to date

Aim to have a UK representative on the Board and potentially on the Investment Committee by early 2016, subject to final confirmation of the legal requirements

investors is not common and should therefore be avoided.

Marketing licenses Currently, responsAbility is authorised to promote GCPF in Switzerland, Luxembourg and Norway. Further application for licenses is in process.

Output Title Affordable and available credit lines for small-scale renewable energy and

energy efficiency products

Output number per LF 2 Output Score B

Risk: Low Impact weighting (%): 40%

Risk revised since last

AR?

No Impact weighting %

revised since last AR?

Yes – was

revised down

slightly due to

the addition of a

new output

Key Points

During 2015 GCPF disbursed approximately half as much to new investees as originally

expected and approximately 75% of the expected amount to existing investees. It disbursed

funding to four new financial institutions and it did not invest in any new direct investments.

The fund manager advised that during 2015 the milestones were only partially met due to

several factors:

The investment team was focused on building a long-term pipeline to ensure an improvement in the diversification and the risk-return profile of the Fund. It is expected that these deals will materialise in 2016.

Regarding disbursements, a decision was made to continue the strategy initiated early 2015 to split the loans in to smaller tranches, providing more flexibility and control over the on-lending activity of the investees and reducing the financial risk. In addition, some institutions were behind targets and the team focused on increasing the on-lending volume rather than acquiring new institutions.

There was a significant increase in TA activity with 16 new projects, to support partner institutions in building their green portfolio of eligible projects to GCPF and improving their social and environmental management systems. This long-term strategy regarding TA increases the green lending activity and ensures a pipeline of projects but it also leads to less disbursement. BEIS considers that the TA work is key in the success of GCPF and is also aware that the fund manager is currently recruiting to help reduce the resource constraints. We would hope to see any open positions filled as quickly as possible.

The deterioration in the economic environment also played a role, as there was a general decrease in demand, the impact of the Russian crisis in Eastern Europe and Central Asia (loans already approved were not disbursed) and a closer monitoring of the existing institutions was needed to monitor investment risk.

The fund manager also highlighted that, not exactly related with the milestones, but having

an impact on the investment activity of the team, was the time and resources put into

redrafting the investment guidelines, the framework agreement, the re-assessment of the

existing portfolio and impact figures, and diverse activities related with the actual set-up of

the fund. This was required as part of the necessary re-assessment of the fund which

responsAbility undertook as part of their role as the new fund manager.

In addition to the amount disbursed, GCPF committed $124m to five new investees and one

existing partner institution. As highlighted in the annual management report, this contributed

to the improved diversification and risk-return profile of the fund and will also contribute to

output 1 in making the fund more attractive to private investors.

When considering the success of this output it is also important to consider the outcomes

that it leads to. This output focuses on the fund disbursing finance, this finance is then used

for on-lending in the form of sub-loans. The cumulative number of sub-loans disbursed at the

end of 2013 was 11,794 by end 2014 it was 25,442 and by the end of 2015 it had risen to

33,819. This therefore indicates that the GCPF still continues to result in a high number of

EE/RE projects each year.

Overall this output has been assigned a B. The number of new direct investments was

significantly lower than expected but this is a lower priority for BEIS than disbursing sub-

loans as the fund tests a model that through on-lending you can develop the capacity of

financial institutions and also help drive the EE/RE market. We would expect the fund to

work to achieve the target for the annual disbursement for 2016 without any compromise to

the due diligence processes, and the work undertaken in 2015 will help meet that goal.

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

The logframe has now been updated to ensure it includes accurate data and measurable

indicators for which milestones are available.

Recommendations

Fund manager to include the amount disbursed in the quarterly reports as that will ensure

that regular updates for this output are received.

Output Title Technical assistance to support local financiers to develop products (ICF

Funds will only indirectly fund the TA component of the fund)

Output number per LF 3 Output Score A

Risk: Low Impact weighting (%): 20%

Risk revised since last

AR?

n/a Impact weighting %

revised since last AR?

n/a

Key Points

This output has been added to the logframe so that it aligns with the theory of change.

Although BEIS has not directly invested in the TA Facility for GCPF, it does feature as part of

the waterfall structure of the fund meaning that it receives a proportion of the fund’s income.

The TA Facility is integral to the success of GCPF given that it helps provide the necessary

capability of the financial institutions. A 20% impact weighting was selected given the lack of

direct BEIS investment in the facility.

Over 2015 the TA facility met the milestone of approving new TA projects; the amount

assigned to these projects (which also includes indirect costs) exceeded the milestone by

approximately 45%.

For this output we consider that the key indicator is the number of TA projects rather than

their cost as the more TA projects that are possible, the greater the increased capacity of

local partner institutions (outcome 3). We would expect that the amount assigned to these

projects as they are approved would vary depending on the nature of the required TA.

Therefore this output has been assigned a score of A.

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

n/a – output recently added to logframe

Recommendations

n/a

D: FUND PERFORMANCE NOT CAPTURED BY OUTPUTS

Identify and appoint a UK Board member

The UK has an option to nominate someone to take up the c-shareholder seat on the GCPF

board, having a UK representative is supported by the other donors. It is considered

beneficial for the UK to appoint a board member as it would allow better learning from the

fund. Over 2015, we have worked with BEIS Legal to further assess in detail the legal

requirements and implications for board membership in Luxembourg. We hope to be able to

secure a place on the board by early 2016, and will also consider the potential option of

having a representative on the Investment Committee.

Mid-term evaluation

In the Business Case we set aside £150,000 to fund a joint evaluation of the GCPF with

German Environment Ministry BMUB. Over 2015 we have finalised our M&E plan which

includes a list of questions that we expect the joint evaluation to cover. The decision was

made in late 2015 for BEIS to start leading the evaluation as additional M&E resource was

expected in the team in early 2016.

The implementation of the evaluation has been slower than originally anticipated, this is

partly due to the additional challenges of doing a jointly funded evaluation but was also due

to a lack of M&E resource available in the BEIS team over 2015.

The terms of reference for the evaluation has been agreed between BEIS and BMUB/KfW

and therefore in 2016 we hope to also agree it with the board and fund manager. BEIS

expects to be able to receive internal sign off for the evaluation by mid-2016. We hope to be

able to incorporate the results of the evaluation into the 2017 review.

Fund management

responsAbility was awarded the fund manager role for GCPF in Autumn 2014 and over 2015

they have worked to improve the management of the fund.

The UK and other donors flagged that communications for GCPF could be improved.

responsAbility 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. Over 2015 communication with investors has significantly improved.

The GCPF carbon impact figures are restated as of Q2 2015, due to errors in the estimation of carbon reduction of two projects that have a substantial impact. As a result, the total expected lifetime CO2 reduction for all projects financed by the Fund since its inception has moved from 5.6CO2t to 3.1 CO2t (as of year end 2014). The errors were identified as part of a portfolio review that the investment manager undertook as part of the mandate takeover. For this, outliers were identified among the 25,000 sub-loans according to specific indicators and then scrutinised in detail. A root cause analysis for these two cases was performed, and based on the results an action plan has been created to ensure the accuracy of GCPF

carbon reporting in the future. Moreover, the relevant financial institutions themselves have taken action to ensure these errors are not repeated. 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 are 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.

This process has been a key learning product for the GCPF and for wider BEIS investments

as it has demonstrated the challenged faced in accurately reporting results and the need for

on-going technical assistance support.

Overall we have been pleased with the progress that responsAbility has made since

becoming the GCPF fund managers, especially in relation to external communication and

taking a transparent and proactive approach to deal with the results errors.

Logframe

Over 2015/early 2016 the logframe has been significantly updated to better reflect the

management of the fund. BEIS has worked closely with the fund manager to ensure that the

logframe closely aligns with how the fund is managed to ensure that it remains a useful M&E

instrument. The key amendments were:

Aligning the logframe with the theory of change for GCPF

Ensuring that the logframe includes the necessary information to meet the relevant ICF key performance indicators

Discussions with the fund manager to identify the most relevant indicators given the information available for each output and outcome

Aligning the output indicators with the annual targets which are provided by the fund

Making the logframe more flexible given that the fund seeks to respond quickly to changes in the local markets therefore making longer-term targets of minimal use

The logframe is a fundamental part of the on-going management of BEIS’s GCPF

investment as it enables us to track progress and can assist in identifying any potential

issues early on. The GCPF fund manager has worked with BEIS to help ensure that the

logframe is fit for purpose. Furthermore, the fund actively sought views from shareholders on

what results we would like to see published. This has also helped significantly in BEIS’s

management of its investment into GCPF as we can now monitor progress against our key

indicators on a quarterly basis, thus providing another mechanism for us to better

understand and closely monitor any potential issues that may arise.

Recommendations

BEIS to continue to work with the fund manager to finalise the logframe where necessary (on-going)

BEIS aims to have internal sign off for the mid-term evaluation by mid-2016 and be able to reflect the results of the evaluation in the review of 2017.

Once the outcomes of the results reviews are received BEIS would expect the fund to provide detail on how they plan to address any recommendations (Q3 2016)

BEIS will consider implementing a new M&E process for GCPF in 2016 to monitor the financial performance of the fund

E: VALUE FOR MONEY & FINANCIAL PERFORMANCE BEIS employs the ‘three Es’ assessment of value for money: economy, efficiency and

effectiveness.

Key cost drivers and performance

Economy:

BEIS invested £30million into the GCPF in 2013. In the Business Case £150,000 was also

allocated to fund the joint evaluation of the GCPF which we are co-funding with BMUB.

The Total Expense Ratio (TER) for the fund was 2.85% at the end of 2015 and comprises:

management fee, direct operating expenses, bank charges, and performance fee (as

outlined in section A). All percentages are relative to average total assets during the period.

This has increased since 2014 due to an increase in management fees for the new fund

manager which were agreed when the new fund manager was appointed (considering the

wider ICF portfolio we still consider these to be comparatively low and also understand that

the fund manager has now allocated additional resource to GCPF and continues to hire into

new positions).

VfM performance compared to the original VfM proposition in the business case

Efficiency:

The fund has attracted additional public investment, though up until end 2015 has generally

struggled to attract investment from the private sector. However, since the new fund

manager started in late 2014, they have prioritised private investment and spent 2015

identifying and addressing potential barriers. By the end of 2015 this had led to an

agreement with a new private investor but the legal documents will not be signed until early

2016 meaning it will count to the results for the following year, and BEIS hopes that this work

will help catalyse a change going forward. The fund has also disbursed less than expected

this year due to a focus on improving other aspects of the fund over 2015.

This review highlights that there has been good progress in the GCPF TA facility over 2015

with the output milestones for 2015 being met. There has also been good progress on other

outputs not formally in the logframe, particularly on BEIS’s management and M&E.

Effectiveness:

Section I and Annex I assess the progress that the GCPF has made against the

transformational change KPI including looking at whether it is operating at scale and whether

it is sustainable. Evidence available so far against these criteria suggests that

transformational change is looking likely, meaning that this element of the VfM case appears

to be being well addressed, though there remains some key areas to work on (see section I

and Annex I for more information).

There are signs indicating that the fund has been effective in converting outputs to

outcomes. There has been good progress on the outcomes as outlined in the annual

outcome assessment in section B.

Quality of financial management

Financial management

The accounting for the Fund is carried out by a specialist fund accounting firm in

Luxembourg (European Fund Accounting, subsidiary of Banque du Luxembourg), including

the drafting of financial statements as well as the calculation of the Fund’s NAV. On a

quarterly basis, the financial statements are reviewed by the Investment Manager

(reconciliation against investment database). The accounts of the Fund as well as the

accounting processes are audited annually by an external auditor (Ernst & Young).

Cash of the Fund 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.

Annually a business plan with detailed projections is prepared by the Investment Manager

and approved by the Board, this allows for identification of the sensitivities around the

profitability and sustainability of the Fund and ensures that appropriate actions can be taken.

Risk management

The 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 proposal to the Fund’s Investment Committee and supervises the risk

monitoring of counterparties and at a fund level. Impairments are proposed by the risk

management units to the Investment Manager’s valuation committee, who would in turn

recommend them to the Fund’s Investment 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 external legal counsel.

Date of last narrative financial report 2015 Annual Report, published June 2016

Date of last audited annual statement 2015 Annual Report, audit signed June 2016

F: RISK

Overall risk rating:

Medium

Overview of programme risk

The business case identified a number of key risks. Many of these risks relate to the GCPF

aiming to deliver transformational change. The risks are that transformational change relies

on a large range of stakeholders (financial institutions, SMEs, households) changing their

behaviour. This is something over which we do not have direct control, but we can work to

provide an incentive framework. There is the additional risk that the financial institutions that

GCPF is working with have had limited experience in financing RE/EE projects and of

emissions reporting. However, GCPF also has a TA element which provides support on, for

example, developing lending strategies, providing staff training and working with the FI to

define GCPF compliant lending products. Section I and Annex I set out the transformational

change KPI method and assess the GCPF’s progress. This indicates that there is some

initial progress being made to generate transformational change and we think that

transformational change in the future is likely, however there are still some further steps to

be taken. The joint evaluation will also look further into the impact that GCPF is having on

the local FIs and will provide further information that can be used to assess the

transformational impact of the fund at the local level. Although there is still work to be done

to further reduce the risk that the GCPF will not be transformational, evidence suggests that

changes are starting to occur (see section I). The RAG rating for this risk is therefore Amber.

Another risk identified in the business case was around financial provision. It is important to

achieve a large enough size of investment into the fund to ensure that it is profitable and

continues to encourage investment and to demonstrate success. The total investment into

the GCPF continues to increase and the fund continues to meet its expected returns. The

RAG rating for this risk is therefore Amber.

An additional risk that has since been flagged is the challenge of the GCPF results collection

given that it is working with a number of financial institutions which have had limited

experience in emissions reporting which means they require more support. The fund

manager recently identified two errors in the results collection from two projects which

significantly impacted the overall results for the GCPF. This therefore highlights the

significant challenges of the GCPF results collection. The fund manager is addressing this

by setting up a new system as part of the results capture which will automatically flag up any

significant outliers. A review of the results is also being undertaken which is due to conclude

in summer 2016. The GCPF also has a TA facility which provides additional support to the

financial institutions. Currently the RAG rating for this is Amber as the results of the reviews

are not yet available which will provide more detail and actions that can be taken to further

reduce the risk.

As GCPF is on BEIS’s balance sheet there is the potential for the value of our shares to go

down which would mean that we would require AME budget cover. However, the value of

our shares can also go up so overall this is not formally considered to be a risk as the

exposure is neutral.

It is also a risk that the fund considers to struggle to attract private investment given that

BEIS considers this to be key to the fund being transformational and initiating change at

scale. It is positive to see the work of the fund manager over 2015 to identify what the

challenges are and make suitable amendments which resulted in an initial agreement with a

private investor in late 2015 but the agreements are due to be signed in 2016. We hope that

these will now ensure it is easier to attract private investment going forward and are keen to

learn the lessons from GCPF as they could be useful learning for other ICF private sector

projects.

Outstanding actions from risk assessment

None

G: COMMERCIAL CONSIDERATIONS Delivery against planned timeframe

The UK’s investment into the GCPF does not have a specified end point. It was a one off

purchase of shares with no additional fees/payments as the fees are taken out of the profit of

the fund. The fund is still in the early stages with significant transformational change still to

occur, therefore we do not consider there to be a reason at this time to withdraw our

investment.

Performance of partnership(s)

The fund manager has been proactive in identifying ways of improving the GCPF and

appears to be taking on feedback from the UK and other donors. For example over the past

year they have worked closely with the investors to improve results reporting and to include,

where possible, the information that investors would like to see. This has been incredibly

helpful for BEIS’s reporting processes. The fund manager has also proactively assisted BEIS

in designing the revised logframe including providing their view on the best indicators to use.

BEIS continues to work with BMUB/KfW on the joint evaluation and have now agreed the

different roles for each institution.

BEIS will also nominate a representative to the board of directors therefore enabling us to be

a more effective partner and help steer the fund.

Asset monitoring and control

As previously mentioned, two external reviews are currently being undertaken, on the results

reported to date and the new carbon monitoring tool. These are expected to conclude

summer 2016 and BEIS will ensure that these feed into the joint mid-term evaluation (section

H).

The fund manager has now set up a results system that flags outliers to help reduce the

likelihood of inaccurate results being reported by the FIs. GCPF also has the TA facility

which provides support to the FIs including training on using the results system.

H: MONITORING & EVALUATION

Evidence and evaluation

The UK and BMUB are planning a joint external evaluation of GCPF which is likely to begin

in late 2016/early 2017. The UK provided BMUB with our M&E plan which included a list of

questions that we thought should be covered in the ToR for the joint evaluation. Using this,

the first full draft of the terms of reference has now been agreed between BEIS and BMUB.

BEIS has now agree to lead the evaluation as new M&E specialist resource is expected in

the team. It is expected that with this additional resource, internal sign off for the evaluation

will be achieved by mid-2016.

The mid-term evaluation has two main aims to consider:

1. Whether and how the structure, management and governance of the fund is successful in bringing in private capital

2. Whether and how the on-lending approach combined with technical assistance is successful in developing local financial institutions

responsAbility has now commissioned two external reviews. One review will consider the

results that have been reported for the GCPF to date. The second will assess the new

carbon tool which the fund manager has developed. These come as a result of two errors in

the CO2 results being reported which resulted in a significant reduction in the CO2 savings

of the portfolio once amended. BEIS considers that these will be very valuable and help

ensure the GCPF results are more reliable. The results will also provide useful detail for the

mid-term evaluation.

Monitoring progress throughout the review period

In early 2016 BEIS has been working closely with the GCPF fund manager to update the

logframe to ensure it best reflects the data available and provides a good measure of

progress in the fund. This logframe has been used for this review of the 2015 progress. The

fund manager also contacted shareholders to improve their results publication which has

been very helpful for BEIS’s reporting requirements, enabling better on-going management

of fund progress.

I: TRANSFORMATIONAL CHANGE

Rating

2 – the median score of the KPI15 criteria indicates that early evidence suggests that

transformational change is likely, see Annex I for more detail.

Evidence and evaluation

The information currently available suggests that there is an early indication that the GCPF

is demonstrating evidence of effectiveness. Investments into the GCPF have increased

slightly over the past year but the number of private investors has not increased. The

number of institutions GCPF has invested in has also increased.

There is some evidence to suggest that the GCPF is increasing the capability of financial

institutions. The TA facility has approved 16 projects over 2015 and over the lifetime of

GCPF the fund has invested in 19 financial institutions across 15 countries, however it is

expected that the upcoming evaluation will provide further detail on the quality of this

support. We have worked with the fund manager since the last annual review and they now

publish the on-lent volumes to each sector which will allow us to track increases in each

sector through time.

There is currently limited information on the indicators for whether the GCPF is replicable but

for the fourth consecutive year, GCPF has been able to pay target and complementary

dividends to shareholders, demonstrating its profitability. Previously the total profit was

reported here but given that the value reported is partly dependent on other factors, for

example the amount assigned to the technical assistance facility, it was recommended that

the profit is not the best portrayal of the success of the fund and that returns are a better

indicator to use.

There is some stronger evidence that the GCPF is operating at scale. It is operating in 15

countries, investing in 19 financial institutions and it has disbursed a large number of

individual sub-loans. Since the last annual review the fund manager has agreed to publish

the number of sub-loans disbursed by each financial institution therefore allowing us to also

track the number being disbursed in each country.

The GCPF is also providing early evidence that it is sustainable. The A and B shares have

seen expected returns. There was no additional private sector investment in GCPF in 2015

however this is a key aim for the fund in 2016 and progress has already been made with one

additional private sector investment being confirmed early 2016.

Monitoring progress throughout the review period

Many of the KPI15 indicators have been captured in the logframe and the significant majority

are now published in the quarterly reports therefore providing regular updates. The KPI15

results will next be formally reviewed as part of the March 2016 results collection.

Annex I: Transformational change

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.

Relevant KPI15 Criteria

1) Evidence of effectiveness is shared – approaches which have proved successful in one

location are made widely available and lessons on their usefulness are credible and

shared widely

The GCPF sets out to demonstrate that the previously held idea that investing in small-scale

energy efficiency and renewable energy projects is high risk is not in fact the case and that

there is a financial incentive (as well as numerous other advantages) to investing in these

types of projects.

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. Therefore the extent to which evidence of effectiveness is

demonstrated will be assessed by the:

1.1 – Number of new public sector investors into the GCPF that year None

1.2 – Number of new private sector investors into the GCPF that year None

1.3 – Increase in total investments into GCPF Yes - $40million

1.4 – Total number of private sector investors 1

1.5 – Total number of institutions working with 19

Score: 1 – 2

There has been a relatively modest increase in the total investment into GCPF (A and B

shares) and no new C-shareholders or private sector investors. The number of institutions

that the GCPF is working with has gone up from 15 to 19 over 2015.

2) Capacity / capability - countries and communities have the capacities and capabilities

necessary to bring the change about

The GCPF provides loans for small-scale energy efficiency projects and also has a TA

facility to provide additional assistance. By funding a wide range of projects it gives a large

number of financial institutions the experience of setting up these types of projects and also

can provide additional assistance through the TA facility if required. This experience will

therefore increase the capability of these financial intuitions to develop similar projects in the

future without the need for GCPF funding / assistance.

The GCPF will result in a greater increase in capacity / capability with the more financial

institutions that are receiving funding, the wider the geographical coverage and the wider

range of sectors supported.

This will therefore be assessed by:

2.1 – Total number of institutions receiving investment (loans and direct investments)

19

2.2 – Total number of countries invested in 15

2.3 – Total number of approved Technical Assistance projects 16

Score: 2

The above indicators suggest that the GCPF is increasing the capability of a number of

financial institutions across the world. There have been 16 TA projects approved and the

GCPF is currently providing funding for 19 institutions across 15 countries. The mid-term

evaluation will look further at the process of the FIs working with GCPF and give a better

indication of the impact of this support.

3) Replicable – good ideas piloted by the ICF are replicated by others in the same country

and more widely

One of the principal aims of the GCPF is to build a successful track record in investing in

small-scale energy efficiency projects and therefore encourage others in invest in similar

projects. Whether or not similar projects are replicated will depend on the success of the

projects invested in and their value for money.

The extent to which GCPF has been replicated will be assessed by:

3.1 – fund performance – returns for A and B shares returns have increased since

2013

3.2 – have the FIs developed low carbon loans beyond GCPF to be answered as part

of the mid-term evaluation

3.3 – did GCPF lead to increased institutional knowledge of low carbon investments to

be answered as part of the mid-term evaluation

Score: 1 - 2

Currently the A and B shares are seeing increasing returns since 2013 demonstrating that

the fund is becoming a stronger investment. The remaining indicators will be assessed as

part of the upcoming GCPF mid-term evaluation.

4) At scale – interventions that have sufficient reach to achieve institutional and policy

reform, or drive down costs of technology deployment

The GCPF Business Case states that the “VfM case for supporting the GCPF is through

scale”. The GCPF is a fund that will reinvest its profits and therefore continue to grow. It also

aims to attract significant private sector investment as a result of the public sector

investments providing a risk cushion and through demonstrating success. When the GCPF

was originally set up it focused on 13 target countries, however since then it has been

expanded to include any emerging and developing country which is approved by the Board

of Directors, the geographical coverage of GCPF therefore continues to expand.

The extent to which the GCPF has achieved scale will be assessed by:

4.1 – Total number of financial institutions receiving investment (loans and direct

investments) 19

4.2 – Total number of countries receiving investment 15

4.3 – Total number of individual sub-loans disbursed 33,819

Score: 3

These indicators show that the GCPF is starting to operate at scale. A high number of sub-

loans have now been disbursed, the number of sub-loans for most banks continues to

increase and the GCPF is working with 19 financial institutions across 15 countries.

5) Sustainable – change is likely to be sustained once ICF support ends

The private sector (both local financial institutions and the wider capital markets) has a lack

of experience and hence confidence in providing finance for small-scale energy efficiency

projects. GCPF aims to address this by using public funds to take a greater level of risk with

a lower rate of return than commercial investors would accept in order to mobilise

investment in to the fund. Encouraging private sector investment into the fund by

demonstrating that these types of investments are not high risk will allow the fund to become

sustainable without being reliant on public sector investment.

The extent to which the GCPF is sustainable will be assessed by the following indicators

which provide an indication of how well the GCPF is demonstrating to the private sector the

benefits of investing in small-scale energy efficiency projects.

5.1 – Total additional private sector investment into GCPF over the past year None

5.2 – Total percentage of private investment into GCPF (inc fund manager investment)

10.9%

5.3 – fund performance – returns for A and B shares returns have increased since

2013

Score: 2

The above indicators suggest that GCPF is starting to become a sustainable fund. The fund

manager indicated that the A and B share returns are a better measure of the sustainability

of the fund than the profit which was previously reported for this criteria. The key area that

needs improving is attracting private sector investment which would significantly increase the

sustainability of the fund (noting that this may not need to be achieved every year given the

need to balance the liquidity of the fund and meet the minimum % for each share type).