Climate innovation is critical to avert catastrophic climate change, but investment in new climate solutions is hampered by a range of barriers. This Working Paper first identifies the main barriers to climate innovation in developing countries, focusing on each stage of the innovation chain, from the emergence of innovation to its deployment and eventual widespread adoption. Many of these barriers are related to the policy and regulatory environment as well as to technical and macro-economic constraints. They result in high risk perception amongst investors and limited access to long-term affordable financing for climate innovators and entrepreneurs, especially in developing countries.

The paper then outlines the Green Climate Fund’s four-pronged approach to overcome these barriers and to accelerate and scale up climate innovation in developing countries. The first prong is to establish a conducive policy and institutional environment for novel climate solutions. The second prong is to catalyse climate innovation by piloting new technologies, business models, financing instruments and practices to establish proof of concept. The third prong is to use scarce public resources to de-risk early investments that will establish a commercial track record for new climate solutions and crowd-in private finance. The final prong of GCF’s approach is to accelerate the widespread adoption of commercially proven climate solutions by enhancing the capacity of domestic financial institutions to originate and access capital markets to finance climate investments.