IEU Learning Talk:  Results-based Payments—What are they? What makes them work?

Summary

In 2020, the IEU took stock of the evidence on the effectiveness of results-based payments using a systematic, multisectoral search of the literature. The evidence review found there is potential for much greater use of results-based approaches in the GCF’s funding portfolio, including the use of vouchers and conditional cash transfers, which have already been deployed in GCF-supported projects. 

On 27 March 2024, the GCF Independent Evaluation Unit (IEU), together with the Division of Mitigation and Adaptation (DMA), hosted the Learning Talk: Results-based Payments – What are they? What makes them work?

This learning talk introduced results-based payments and the factors that influence their effectiveness. It also spotlighted GCF projects that have used this modality both within and outside of the well-known REDD+ window. 

Discussion highlights

• 'There is a huge potential for growth in the use of RBP-based approaches within the GCF’s overall funding portfolio, as well as the potential for the GCF to grow its support for projects that directly incentivize service providers.'
• 'Results-based payments increase the chance of achieving impact, because the recipient will not get their money until they can not only achieve but also demonstrate their impact. We, as donors, can be much more confident that some, at least some impact will be achieved.'
• [On the focus on forestry sector for the RBP mechanism in GCF] 'The point at which REDD+ really entered the the general consciousness and climate change negotiations was in 2007 at the Bali COP, where there was an agreement that in order for the global community to ensure that forestry was incorporated fully and properly and convincingly into international [climate] negotiations. The only real way to do this is by developing this trust cycle between developing countries where the emissions were happening in terms of the forestry sector and the industrialized countries that were since demanding that something be done.'

Learning outcomes

• Results-based payments involve a funder who agrees to make payments to agents to achieve pre-agreed verified results. The emphasis here is on the verified results because this is fundamental to result-based payments. The rationale behind a result-based payment is the funder has agreed to provide the agreed finance to agents upon achieving the results. The RBPs are reliant on the verification process, which needs very strong policies and and institutional frameworks.
• In many cases, such as an LDCs, African states or SIDS, countries will need upfront financing, ex ante payments, to conduct the readiness activities, including for setting up monitoring systems and verification mechanisms. However, mixing both upfront or ex ante financing and ex post financing (RBPs) might increase the risk of double payment, also known as double dipping. This means a stakeholder is paid once upfront for conducting an activity which will result in an impact which will trigger an expose payment so effectively that stakeholder could be paid upfront and afterwards for the same activity and the same impact.
• The ex post payments are built on the basis of trust between the donor and recipient, as well as trust in the institional frameworks that allow for this intervention to take place.
• When deploying ex ante payments, agreement between stakeholders is reached and payment is disbursed. Through that agreement the recipient is bound to conduct the activity which will result in the impact which the donor wants to achieve. Ex post payments are the inverse of upfront payments, where the incentivey in form of a payment for an activity is provided upfront, and is disbursed upon vertification of impact of the said activity. 

Panelists

• Peter Mwandri, Associate Data Analyst - Data Modeling, IEU
• Benjamin Singer, Senior Forest and Land Use Specialist, DMA

Moderator

• Elangtlhoko Mokgano, Team Assistant, IEU