An increasing share of official development assistance is being used for climate-relatedactivities. This trend is continuing despite the lack of comprehensive cost-effectivenessevidence to guide spending decisions and continuing concerns that few applicationsare effective or efficient mechanisms for either climate or development outcomes. Thisrepresents both a waste of scarce resources and a missed opportunity. This paper proposesthat a well-designed pull financing mechanism, which identifies specific problems for whichit will pay a pre-specified price for solutions that can scale up, has the potential to navigatethese problems. When they work, a pull instrument can solve problems at scale at low costby incentivizing private innovators to produce a socially beneficial product that people want

to buy and use. However, the design challenges associated with them are not trivial: firstly,the identification and selection of technologies or problems for which the pull financingfacility would be a sufficiently large portion of the market to shift incentives for innovatorsor producers (for technologies that exist but have not been taken up widely yet); andsecondly, the ability to design contracts that incentivize socially beneficial innovation that arebought and used. This paper sets out the case for pull financing for climate and developmentactivities, the challenges that need to be addressed to do it well, criteria for judging potentialapplications of pull financing and an initial indication of some sectors to which pullfinancing may be applied.