In manycountries, and particularly in the economies in transition in Centraland Eastern Europe, public environmental funds play an important role infinancing environmental investments. These funds provide subsidizedfinancing through grants and soft loans in response to market failuresthat limit environmental investors' access to capital markets or poorlyaccount for the benefits of environmental improvements. The principalquestion explored in the paper is whether environmental funds are toogenerous or too selective in co-financing environmental projects. Theauthors conducted a survey of applicants whose applications to Polishenvironmental funds were rejected following appraisal by the funds in1994. Applicants were contacted to determine whether they had been ableto close the financing 'gap' by the end of 1995 that had resulted fromthe rejection of their application by the Fund. Survey results indicatethat a large majority of respondents have secured substitute gapfinancing and proceeded with their planned investments, suggesting thatthe fund's assistance was not essential for these projects to beimplemented. Generally, the financing gap had been closed by financingfrom another environmental fund, from own resources, and less frequentlyfrom the same fund (after resubmitting a modified proposal). Only in fewinstances have proposed projects been abandoned.