By its decision B.07/05, paragraph (b), the Board adopted the Green Climate Fund’s initial financial risk management framework.

By the same decision, paragraph (e), the Board requested the Secretariat, in consultation with the Risk Management Committee, to prepare an analysis of the Fund’s potential risk appetite under different key assumptions as part of its financial risk management framework.

As a first step, the Board requested the Secretariat to provide a survey of methodologies used by relevant institutions to define and determine their risk appetite, for consideration by the Board at the third Board meeting of 2014.

The purpose of this document is to provide such a survey of methodologies and to provide a starting point for the analysis of the Fund’s potential risk appetite under different key assumptions as part of its financial risk management framework, as requested by the Board. While the Board’s decision B.07/05 concentrates on financial risks, this paper takes a more general approach and considers a broader set of risks that the Fund may face. In particular, the mandate of the Fund is such that an adequate level of risk appetite must also explicitly consider climate impact risks (i.e. the risk that projects or technical assistance activities supported by the Fund do not contribute to the Fund’s strategic objective on positive climate impacts). This approach ensures that the level of risk taken as part of the Fund’s financial activities is not only consistent with the Fund’s financial losses tolerance, but also with the type of engagements necessary to “promote the paradigm shift towards low-emission and climate-resilient development pathways”.