At the request of the Dutch Ministry of Foreign Affairs (MFA), SEO conducted an external evaluation of the Dutch Fund for Climate and Development (DFCD), in cooperation with our partner MDF. Established in 2019, DFCD is a fund aimed at enabling private sector investments in projects aimed at climate change adaptation and mitigation in developing countries. DFCD is managed by a consortium of the Dutch Entrepreneurial Development Bank (FMO, lead), Climate Fund Managers (CFM), World Wide Fund for Nature Netherlands (WWF-NL) and SNV. DFCD is structured in three facilities: the Origination Facility (OF), managed by SNV and WWF, provides grants and technical assistance (TA) for identification and pre-feasibility development of qualifying investment projects. These and other qualifying projects can subsequently be financed by the Water Facility (WF) and the Land Use Facility, which are managed by CFM and FMO, respectively.

The main purpose of the external evaluation was to draw lessons learned from the launch of DFCD in 2019 until 2023 regarding the relevance, effectiveness, coherence, efficiency, and additionality of DFCD, and provide recommendations for the next phase. SEO & MDF carried out the external evaluation between July 2023 and January 2024.

Key findings
The main findings for each of the evaluation criteria were as follows:

  • Relevance: The design of DFCD was found to be highly relevant for climate adaptation and climate mitigation, and to a lesser extent for vulnerable groups and gender.
  • Effectiveness: Effectiveness was limited in that the number of OF-projects that ‘graduated’ to WF and LUF was still very low by the time of the evaluation, especially in least developed countries. However, it was still too early to assess effectiveness in terms of investment outcomes and impact.
  • Coherence: The project origination support provided by two NGOs with local presence (SNV, WWF) was seen as the main source of DFCD’s “value added” compared to other climate funds. However, DFCD’s scope overlapped to some extent with other funds regarding (large) ticket sizes, risk profiles, and the limited use of blending instruments. By the time of the evaluation, the DFCD consortium was already exploring solutions to improve its value added.
  • Additionality: For those projects that got funded, financial additionality relative to the market was generally good, but it proved difficult to find bankable projects for which other sources of funding were not available. The OF’s role in project development was seen as the main source of non-financial additionality.
  • Efficiency: The evaluation team found efficiency to be sub-optimal. First, the potential for graduation was sometimes insufficiently assessed in earlier stages of the process. Second, incentives among the three facilities were not yet well aligned (e.g., WF and LUF had an incentive to close deals with higher ticket sizes, compared to OF). Third monitoring systems were not yet sufficiently harmonised between consortium partners.

The main recommendations, which were validated with DFCD consortium partners, included:

  • Improve internal coordination and efficiency by (a) using a uniform and unified monitoring system; (b) involving WF and LUF investment officers early on in the process to improve efficiency in decision making; (c) concentrating resources within key countries and landscapes; and (d) exploring the technical and legal possibility of merging LUF with other FMO-managed state funds.
  • Focus on new market segments by (a) strengthening partnerships with international partners working with smaller ticket sizes and SMEs,; (b) enhancing the application of the aggregator model, by funding financial intermediaries that can in turn finance smaller companies; (c) expanding the range of financial instruments, for example by using more equity (also in the origination phase) and using grants also during the investment phase to enhance impact.

SEO evaluated the DFCD according to the OECD-DAC evaluation criteria, using a mix of data sources and evaluation techniques:

  • Document review of DFCD procedures, processes and portfolio data; as well as documents and data related to the broader international climate finance architecture.
  • Stakeholder survey conducted among key DFCD stakeholders, including consortium partners, embassies, and project applicants.
  • Semi-structured interviews with DFCD consortium partners and other key stakeholders
  • Case studies involving in-depth analysis of eight DFCD-supported projects, involving document review, online interviews, and a field visit to Vietnam.
  • Validation workshops with DFCD consortium partners.