How UNDP Serbia Innovation Challenge Calls turn green ideas into reality
Catalysing Serbia’s Green Transformation
November 15, 2023
In March this year, a biotech innovation for air purification from Serbia – Liquid Tree, gained international popularity. Media outlets from the USA to India reported about it, following its worldwide trending on social media. The combination of a solar-powered bench and an aquarium with 600 litres of water hosts microalgae that bind carbon dioxide (CO2) and produce oxygen in urban areas, which lack space for trees.
This was one of many innovative ideas that turned into reality thanks to a unique program developed by the UNDP Serbia Resilience Team, the Innovation Challenge Calls. From 2017 to September 2023, we supported 69 green initiatives with USD 4 million in co-financing and attracted USD 45 million in total for their implementation.
These green innovations came from private and public companies, research and civil society organisations, as well as local governments that applied to our Challenge Calls. After the first round of evaluation, selected solutions enter the acceleration phase, where they receive mentorship and training to turn their ideas into viable business plans or deployable green investments. Those that successfully completed the acceleration process received co-funding for implementation.
Impact of the UNDP Challenge Calls
To fully assess the impact of our approach on fostering green innovations, an independent consultant gathered key data on all the Challenge Calls conducted since 2017. They verified the findings with the UNDP project teams, representatives of donors, international financial institutions (IFIs), and other relevant parties.
The research focused on challenge calls within UNDP Serbia projects related to mitigating climate change in urban environments, decarbonisation (increasing renewable energy production), accelerating the circular economy and reducing waste, improving air quality and biodiversity, sustainable food systems, as well as increasing energy efficiency and ensuring a just green transition in Serbia.
The analysis of the green financing and support programs ecosystem in Serbia shows that UNDP Challenge Call program has some unique features that enable it to fill the gap in Serbia’s green financing landscape:
It provides no-strings-attached funding for early-stage innovations. This allows projects that might otherwise struggle to secure financing to get started, making them more appealing to other investors.
It is among the rare programs to focus on both green initiatives and innovation and one of the very few that specifically target green projects.
It is the only program open to a wide range of participants, including startups, small and medium-sized enterprises (SMEs), public and private companies, as well as large corporations.
In addition, it provides hands-on mentoring and guidance to participants, equipping them with the skills and knowledge needed to carry out sustainable and financially viable ventures. The mentors help the project teams to understand the relevant laws and obtain the necessary permits, to implement their projects in accordance with the legal framework.
The program is significant for the scope and size of Green Transition in Serbia
The Challenge Call program attracts a substantial amount of funding in addition to donor co-funding. To put it in perspective, the 69 supported projects received USD 4 million through donor co-financing, but their total worth amounts to USD 45 million. In simpler terms, every USD 1 invested attracted USD 10 from other sources, including applicant’s own funds. Compared to similar programs in Serbia focused on funding innovation within traditional SMEs, the UNDP program's leverage is notably higher.
The estimated total green investments in Serbia in 2022 amounted to about USD 200 million. Around USD 2 million in direct co-financing were allocated from the EU for Green Agenda in Serbia-related Challenge Calls alone. Considering the program's leverage, this translates to roughly USD 20 million in total project investments. This makes up to 10% of all green investments in Serbia, outpaced only by established international financial institutions like KFW, IFC, and EBRD.
Thanks to the UNDP expert knowledge, networking opportunities and assistance for external promotion, several co-funded projects have scaled beyond the scope of the Call. One project managed to raise EUR 9 million in commercial bank loans to scale their new approach to biomass electricity production. A socially responsible group of women entrepreneurs successfully replicated their business model by extending their network of associates across Serbia. A big international company operating in Serbia expanded their project to re-use old tyres for creating public urban furniture.
Transparency and efficiency in disbursing donor funds
Each project selected for donor co-financing received the funds through the Performance-Based Payment Agreements (PBPA). The PBPA encourages projects to meet their objectives within an estimated 6–12-month framework by disbursing payments only after the successful completion of the agreed deliverables. The PBPA beneficiaries are also obliged to pre-finance planned activities from their own sources or other available funding.
In addition, each project undergoes rigorous impact measurement and estimation tailored to its unique characteristics. For example, metrics like greenhouse gas emissions (GHG) reductions are estimated, providing external stakeholders with an assurance of the project's credibility and potential.
Donor feedback indicated satisfaction with the program’s transparent processes. They appreciate the competitive element, believing it ensures the most deserving and most impactful projects receive funding. Additionally, they value the program's emphasis on early-stage innovations, which highlights projects’ needs for grants vs. other types of financing. Donors also particularly liked the multiple benefits that supported projects bring in terms of environmental, social, and economic impacts. For example, one supported project involved a new business model that promotes carbon neutral production of essential oils, while bringing green jobs to the rural population, especially women.
In turn, the program has witnessed a growing interest from donors. For example, while the Global Environment Facility funds allowed us to pilot, it was the EU that scaled the 'Green Agenda' Challenge Calls, with Switzerland and Sweden joining and other partners coming in. Donors have also been increasing their financial commitments. Switzerland initially contributed approximately €4.5 million and later added an extra €2.2 million. Sweden contributed with approximately €1,7 million. Total donations to the program soared from €8 million to €17 million within a single year.
The research also showed that the donor funds are spent efficiently as 85-95% of the total budget of a Challenge Call goes into financial support for projects, while only 5-15% is spent on administrative costs, mentors, consultants, experts, and trainings.
How can we be even more successful
As the analysis showed, the Challenge Calls program managed to create a favourable environment for the development of innovative business solutions in Serbia, especially those that contribute to the green transformation. In addition, it identified key recommendations for ensuring the future growth of the program:
Further tailor the support and mentoring of the project teams during the acceleration phase by grouping them according to their specific needs. Three different types of support should be provided to: a) traditional SMEs and LSGs, b) innovative SMEs and research organizations and c) large private sector companies.
Track the projects well beyond one-year contracting period, as the real impact of early-stage innovations may be expected after the completion of the projects. This would allow for further support and establishing connections to other projects.
Ensure that the learnings from the acceleration and implementation of projects continue to influence the policy and decision-making processes. An example of this is how insights from the Circular Economy Challenge Calls led to legislative changes in Serbia's waste management regulation, which included end-of-waste regulation, a rulebook on by-products, or the use of waste for R&D purposes.
Help the innovators gain access to more external funding, especially green credit lines that IFIs provide through commercial banks. This would also contribute to scale up of successful green investments, thus maximizing related positive impacts on the environment and local economy.
Make clear why the support provided through the Challenge Calls programme is needed for particular solutions compared to other available commercial borrowing schemes or funding mechanisms and further strengthen the innovativeness of the supported solutions to complement elements of additionality.
Create a sustainable green financing mechanism in Serbia that builds on the successes and lessons learned from the Challenge Calls Program. In the long run, this can help Serbian companies to remain competitive in European and global markets, ultimately accelerating the green transformation of the whole national economy.
By addressing these gaps, we will continue to drive positive change and make a lasting impact on Serbia's journey towards a greener and more sustainable future.
To find out more about Challenge Calls, reach out to UNDP Serbia Resilience Team!
 Excluding outlier rail investments in 2022