Combining 1) “market rate of return” assets with...
...2) grant or concessional capital, and/or 3) credit or loan guarantees in the same investment fund is often called “blended finance”. Proponents see it as a way to attract more capital to projects combined than any of the three capital sources could do alone. As faith-asset owners, you’ve probably been approached to consider a blended finance investments as possibly the first or second type of capital.
But a recent report by Convergence Finance finds that blended finance structures are on the wane, at a time when more capital is needed. While climate change is a major focus for blended finance investing, representing “…two-thirds of … commitments over the past three years…”, Convergence recorded a significant decline in funding, with US$36.5 billion committed to environmental blended finance funds between 2016-18, and just US$14 billion between 2019-21 – a near 60% decline. One bright spot: “institutional investors” and PE/VC firms who combined represented just 22% of total funding in the prior period, increased to 36% for 2019-21.
Why the sharp drop? Convergence notes the following issues:
Lack of detailed action (investment) plans, and competition / confusion among fund providers,
No / limited connections between the investments and the Nationally Determined Contributions (NDCs – essentially the commitments each country made to the Paris Agreement),
“One common complaint from investors is their inability to discern donor agencies’ priorities or know with which to engage on investment strategies that could deliver large impacts but require some support.”
So if you’ve considered or were curious about climate focused blended finance offerings, but found yourself confused or off-put, you’re not alone. We’ve contacts with Convergence and other blended experts, and would be happy to arrange a connection to explore.