8. Engagement with the private sector

Private sector engagement has become increasingly relevant to the GEF, stemming from the recognition that global environmental challenges and the advancement of transformational change cannot be addressed by public sector efforts alone. Drivers motivating the private sector to engage with the GEF include corporate strategies, the alignment of business targets with multilateral environmental agreements, regulatory frameworks, investor requirements, and evolving disclosure and reporting standards. Additional momentum is provided by private sector roadmaps and global initiatives for net-zero and nature-positive outcomes. Innovation—often led by private actors—remains a central motivator, alongside the opportunity to mobilize additional capital through blended finance.

The GEF has used nongrant instruments (NGIs) since its inception.¹ A dedicated NGI set-aside was first introduced in GEF-4 and later evolved into a dedicated NGI funding window, known in GEF-8 as the Blended Finance Program. In addition, NGIs can be used under System of Transparent Allocation of Resources (STAR) allocations, in the international waters or chemicals and waste focal areas, and under the Global Biodiversity Framework Fund. While NGIs are designed to stimulate private finance, their portfolio remains small. Meanwhile, grant-based support—which can help create enabling environments, support early-stage innovations, and strengthen institutional capacity—remains the GEF’s dominant modality in engaging the private sector.

The GEF’s Private Sector Engagement Strategy (PSES) identifies two pillars for the private sector to engage with the GEF. These are (1) through the use of blended finance, or NGIs; and (2) as an agent for market transformation to shift business practices through reforms, value chain improvements, and sectorwide collaboration (GEF 2020). However, the PSES lacks measurable targets, limiting ability to assess progress or evaluate the effectiveness of its intent.

In practice, the GEF implements both approaches. It engages the private sector by de-risking and catalyzing investments that would otherwise be constrained by market failures, regulatory weaknesses, or unfavorable risk return profiles. It provides concessional, risk-bearing capital through blended finance to support ventures unable to access commercial funding, thereby unlocking innovation and enabling the scaling of solutions with global environmental benefits. Through market transformation efforts such as policy reform, awareness raising, and capacity building, the GEF helps establish conditions for businesses to adopt more sustainable practices.

The GEF has fully implemented the private sector engagement recommendations from the Sixth Comprehensive Evaluation of the GEF (OPS6) and made partial progress on those from OPS7. In response to OPS6, it adopted systems approaches by partnering with financial institutions to de-risk investments, structure innovative finance, and influence industry practices through certification, research, and sustainable supply chains. Progress on OPS7 recommendations—narrowing the focus of engagement, clarifying the value proposition, and better integrating financial and nonfinancial support, including for micro, small, and medium enterprises—remains ongoing.

This chapter reviews the portfolio of GEF projects featuring private sector involvement (here referred to as private sector projects), looks at the effectiveness of such projects, describes the GEF’s strengths in engaging the private sector, and outlines some constraints to further private sector integration in GEF projects and operations. It draws on the recent IEO evaluation of private sector engagement (GEF IEO forthcoming-f).