Blended Finance Papers: Clean Energy, Sustainable Land Use, Mapping the Private Sector

The Blended Finance Taskforce, an initiative of the Business & Sustainable Development Commission, has commissioned a series of working papers released alongside and contributing to its consultation paper, Better Finance, Better World, including a mapping of how blended finance can work for the private sector, and sector deep dives on clean energy and sustainable land use. Summaries and downloads of commissioned papers are available below.

"Who is the Private Sector? Key Considerations for Mobilising Institutional Capital Through Blended Finance"

Convergence (together with Tideline in an advisory role), has released a paper about mobilising institutional capital at scale for the Sustainable Development Goals (SDGs), using blended finance.  The paper catalogues investment motivations, requirements, and constraints of institutional investors in taking advantage of blended finance mechanisms. 

Institutional investors make up a diverse group, each operating with different mandates, constraints, and risk-adjusted return preferences. However, they are often treated as a homogenous group of investors, while there is value in better understanding the unique investment preferences and regulatory conditions of different segments. The report provides an analysis of the investment motivations, requirements, and constraints of six segments of institutional investors: i) pension funds, ii) insurance companies, iii) sovereign wealth funds, iv) commercial banks and investment banks, v) private equity firms, and vi) asset/wealth managers. Blended finance structures must create assets that fit within the mandates, constraints, and risk-adjusted return preferences of each institutional investor segment. Based on their research, there are five key considerations that will determine whether and to what extent an institutional investor participates in blended finance: i) communication and messaging, ii) policy and regulation, iii) mandate, iv) allocation and capacity, and v) transactional factors. 

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“Blended Finance in Clean Energy: Experiences and Opportunities”

Climate Policy Initiative (CPI) has released a paper about blended finance for clean energy, looking at opportunities where blended finance can mobilise large scale private capital for clean energy. 

A rich foundation of experience in blended finance already exists in the clean energy sector, where public, philanthropic, and private sector organisations have been innovating for many years. CPI’s working paper synthesises this vast knowledge and proposes a path forward. It evaluates, by geography and clean energy sub-sector, the most significant opportunities for impact on both climate change and energy access per dollar invested; the risks and barriers that prevent investment; and how blended finance could be deployed to address investor needs. CPI finds that the greatest opportunities for blended finance in clean energy are in Sub-Saharan Africa and South and East Asia, with a subset of eight countries alone offering more than $360 billion in investment potential in clean energy by 2030. 

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"Financing Sustainable Land Use: Unlocking business opportunities in sustainable land use with blended finance"

KOIS Invest has released a paper about blended finance for sustainable land use (SLU), analysing how blended finance can mitigate risks and enhance returns for investors in this sector.

Growing demand for food and energy is putting increasing pressure globally on land and natural resources. SLU seeks to protect the climate by reducing carbon emissions and preserving carbon sinks by averting or mitigating deforestation, degradation and carbon-intensive agriculture while providing safeguards for meeting increasing needs for food and fibre as well as a habitat for biodiversity, with natural climate solutions being among the most impactful (particularly forest conservation, avoided deforestation, reforestation and forest landscape restoration). Private investment in SLU is not however at the scale needed to tackle the problem. According to KOIS, there needs to be a paradigm shift in the way in which (i) private sector investors view investment opportunities in SLU and how (ii) public and philanthropic investors engage to catalyse private capital in SDGs. Many latent SLU investment opportunities with long-term growth potential in developing countries do exist, but financing SLU requires multi-sectoral coordination to integrate programs into a holistic landscape approach. 

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