Convergence has awarded a proof of concept grant under the Asia Climate Solutions Design Grant to Mekong Capital to design a USD 200 million blended finance vehicle called the Mekong Earth Regeneration Fund (MERF). This vehicle aims to provide growth-stage private equity funding for regenerative agriculture and sustainable land use business models in the Lower Mekong region.
The majority of the local population in the Lower Mekong region relies on agriculture and rural farming, leaving them vulnerable to the severe impacts of climate change. Decades of unsustainable agricultural land use practices have contributed to increased greenhouse gas emissions (GHGs) and land degradation, exacerbating climate hazards. Private investment in sustainable agriculture and forestry is scarce, and the majority of climate finance is currently provided as debt, which is ill-suited for the region’s early-stage businesses with longer-term growth needs. MERF’s blended finance structure, incorporating concessional and commercial capital, is designed to attract private investors by offering downside protection while promoting impactful investments.
This initiative seeks to leverage Mekong Capital’s significant experience to address the gap of undersupplied equity funding in the region and support the expansion of impactful agri-businesses. In addition, MERF intends to provide hands-on support to investee companies through a complementary technical assistance facility that will help expand the operational capacity and impact of these companies.
MERF aims to cultivate a thriving, biodiverse ecosystem in the Lower Mekong region focusing on Cambodia, Laos, and Vietnam through sustainable land use, nature-based solutions, and regenerative farming practices. Together with climate mitigation benefits, it aims to provide significant co-benefits of improved livelihoods, climate adaptation and enhanced resilience of farmers, and protection of biodiversity. The long-term objective is to improve the livelihoods of at least 1 million beneficiaries, regenerate at least 200,000 ha of forest, agricultural, and coastal land and contribute to over 10 million tonnes of CO2e emission reductions.
Design question and learning potential from the market: How can a commercial private equity fund manager transition to designing a blended climate finance fund to provide long-term equity funding for sustainable agriculture and forestry businesses in the Lower Mekong region?
Mekong Capital has previously secured grant funding from the Dutch Fund for Climate and Development for completing the feasibility study of MERF. Through our proof of concept grant, Mekong Capital will look to build off of the feasibility study and advance the design of the fund to help it launch. An important part of this phase will be engaging with different funders to gather feedback, refine the capital structure of the fund and secure anchor commitments, particularly from development finance institutions and private investors. Along with the capital structure, the grant will also enable Mekong Capital to complete the setup of the legal structure of the fund.
The grant will be critical for Mekong Capital to complete key activities for finalizing the setup of the fund’s technical assistance facility including the development of an operations manual, creating an implementation framework and governance structure, and preparing for the pilot phase of the facility. In parallel, the team will advance the project pipeline by identifying and engaging with potential investees in the regenerative agriculture and sustainable forestry sectors in the region.
