Public climate finance: the challenge of reporting equity

There is currently no agreed comprehensive methodology on how to track and report on public climate finance. One of the difficulties – next to determining the climate relevance of projects funded– is the valuation of financial instruments other than grants (i.e. loans, guarantees, equity). For loans, the calculation of the grant equivalent of the financial flow is relatively straightforward, but for equity, it is unclear what the best way is to value the grant equivalent. Hence, the primary objective of this research paper is to provide an overview of the variety of methods that can be used to value the provision of public climate finance to developing countries through equity investments. In this endeavour, special attention will be paid to recent debates taking place in the context of the modernisation of the OECD DAC statistical system about how to better represent the donor effort involved in extending private sector instruments and especially equity investments.