Integration for greater impact

8.4 Constraints to GEF private sector engagement

Despite the GEF’s strategic ambition to mobilize private capital for environmental impact, systemic and operational restrictions continue to limit effective private sector engagement. In fact, a substantial share of surveyed stakeholders disagreed or strongly disagreed that the GEF has a comparative advantage in engaging the private sector (figure 8.6).

As determined through interviews, constraints to the GEF’s engagement with the private sector fall into several interrelated categories:

• Bureaucratic processes and misaligned incentives. The GEF’s complex procedures, lengthy project cycles, and delayed visibility of results are poorly matched with the private sector’s need for speed, flexibility, and timely returns. Interviewees noted that prolonged project preparation and implementation timelines undermine the business case for private participation—particularly for small and medium enterprises in developing countries. GEF funding modalities are often viewed as overly rigid, complex, and mismatched with private sector risk return profiles, further discouraging investment.
• Underutilization of NGIs. Although NGIs are central to crowding in private capital investment, their use within the GEF is still held in check. NGIs under the Blended Finance Program are confined to a capped window, with a $15 million ceiling per project, constraining scale and cost-effectiveness. This siloed treatment, despite strong backing from the GEF Scientific and Technical Advisory Panel and consistency with MDB practices, depresses their application across focal areas—especially those lacking predictable revenue streams, such as biodiversity and land degradation. Without broader integration of NGIs into core programming, the GEF’s potential to mobilize private finance remains constrained.
• Institutional bias and design shortcomings. Many GEF Agencies lack the incentives, expertise, or willingness to engage the private sector strategically. Ideological biases persist, with private actors often treated as peripheral stakeholders or cofinanciers rather than core implementation partners. In practice, project locations and themes are frequently predetermined without private sector input, resulting in misaligned priorities and missed opportunities. The mismatch between the GEF’s relatively short funding cycles (three to six years) and the longer investment horizons of private actors further exacerbates this disconnect.
• Limited country-level capacity and readiness. Operational focal points, who are responsible for guiding GEF programming at the national level, often lack the tools, training, and incentives to assess or design private sector interventions. The GEF PSES noted “little knowledge within the private sector of where to start when working with the GEF Partnership, especially through operational focal points” (GEF 2020, 10). Interviews confirmed that country-level capacity constraints—including among local businesses—continue to be a major barrier to effective engagement. While the GEF’s upstream technical dialogues, organized as part of the Country Engagement Strategy (see chapter 10), aim to integrate private sector engagement into country planning, technical expertise, institutional coordination, and access to de-risking tools are often meager.
• Burdensome project preparation and due diligence. Evaluating the financial and operational credibility of private sector partners⁵—particularly in frontier markets—is resource intensive and often exceeds standard project preparation budgets. Agencies noted that this bottleneck can delay timelines and deter private actor inclusion. Private firms in turn may be discouraged by burdensome compliance requirements. Although some Agencies have experience with private sector due diligence, restrictions in accreditation flexibility—such as requiring private sector initiatives to be routed through public sector divisions—further impede efficient engagement.
• Weak monitoring, evaluation, and communication. A lack of robust tracking and evaluation systems for innovative, revenue-generating projects restricts the ability to learn from and scale successful models. Key outcome metrics—such as jobs created or private capital mobilized—are not consistently monitored or communicated. Stakeholders have also stressed the need for stronger information management systems to enhance transparency and help private actors identify investment opportunities. Without improvements in monitoring and communication, successful initiatives risk remaining isolated and underleveraged.
• Limited governance representation. While the GEF has established a Private Sector Advisory Group of financial experts to guide its Blended Finance Program, the GEF Council itself does not include private sector representatives—in contrast with peer institutions such as the Green Climate Fund and the GEF’s own Global Biodiversity Framework Fund. Including private sector voices in Council deliberations could strengthen the alignment between GEF strategies and investor realities, while helping public and private stakeholders better understand each other’s priorities and constraints. It also must be recognized that many companies are reluctant to participate directly in governance structures, as they do not wish to be perceived as formal representatives or proxies for the private sector as a whole, but instead prefer targeted, issue-specific engagement through consultations and advisory panels—an approach reflected in the GEF’s NGI policy. Greater participation by the private sector arms of MDBs in GEF Council discussions could further enhance private sector engagement by bringing investment perspectives and practical experience with blended finance more directly into strategic decision-making.
• Underutilization of the STAR for private sector projects. Although countries are permitted to allocate STAR funding toward private sector engagement or NGI projects, only slight uptake persists. In GEF-8, only 3 of 12 NGI-programmed projects received STAR financing, accounting for less than 15 percent of total NGI project funding. Mainstreaming private sector engagement as a core theme within STAR programming—particularly through blended structures combining grants and NGIs—is an underexploited opportunity, despite its emphasis in the GEF’s NGI policy.