Blended finance funds build momentum

IFR 2512 - 02 Dec 2023 - 08 Dec 2023
4 min read
EMEA
Julian Lewis

Two more major blended finance initiatives were unveiled in the run-up to the COP28 summit, following the Gaia loan fund for climate change adaptation in least developed countries. Dutch development financier FMO is a pivotal player in both.

In addition, a tranche of the US$30bn Alterra initiative unveiled by the United Arab Emirates on the opening day of COP28 will “provide risk mitigation capital to incentivise investment flows into the global south”, according to a statement.

The US$1.1bn SDG Loan Fund launched by Allianz Global Investors, FMO and the MacArthur Foundation hinges on a first-loss investment from the Dutch agency and a US$25m guarantee from MacArthur for credit enhancement.

FMO, which will originate and manage the loan portfolio, will also be a senior debt investor alongside AllianzGI and Skandia. It is already warehousing about US$100m of eligible loans, according to a statement.

The fund described its future lending as high-impact, Sustainable Development Goals-aligned credits to companies and projects in Africa, Asia, Eastern Europe and Latin America to support affordable energy, financial inclusion and sustainable agriculture.

Once fully invested in about 100 loan participations, the fund aims to support close to 60,000 jobs and avoid around 450,000 tonnes of CO2-equivalent greenhouse gases, it said.

“Blended finance is identified as one of the techniques to mobilise private capital for the Sustainable Development Goals. And the SDG Fund is an example of how different parties can get this done,” said Nadia Nikolova, lead portfolio manager, development finance at AllianzGI.

She stressed the fund’s uncommon genesis as a private-sector led blended finance initiative, saying: “Usually these kind of initiatives are driven by the public sector or development sector.”

In addition, Swiss asset manager responsAbility has launched an Asia-focused blended finance fund. FMO is again an anchor investor, along with Germany’s KfW.

The partners aim to mobilise US$500m to “make an active contribution to CO2 reduction in Asia through targeted investments in low-emission technologies”, according to a statement.

They did not disclose the fund’s full structure, though KfW is putting €58m into the first-loss tranche. The senior debt tranche is to be “more than” US$300m, according to the German development bank.

The fund will finance small and medium-sized Asian companies, particularly in India, Indonesia and Vietnam. It will focus on sectors with high CO2 savings potential such as renewable energy, battery energy storage, electric mobility, energy efficiency and the circular economy, and targets direct savings of 10m tonnes over its lifetime.

The fund aims to achieve high transparency by using an innovative "Climate Impact Assessment and Monitoring Framework".

The US$5bn Alterra Transformation fund was launched at COP by Abu Dhabi-headquartered investment manager Lunate as the smaller portion of an initial US$30bn initiative aimed at energy transition, industrial decarbonisation, sustainable living and climate technologies. Funded by the UAE, it aims to become the world's largest private investment vehicle for climate action by mobilising as much as US$250bn.

The Transformation fund will “directly address the challenges that currently limit climate investment and access to affordable capital”, Lunate said.

It is unclear if any of the initiative’s three launch co-investors – BlackRock, Brookfield and TPG – will participate in the Transformation fund, or which sources of public capital it will draw on. Alterra said it will “create opportunities to leverage concessional finance to further attract climate investment to least developed countries and small island developing states”.