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__Member Training: How Philanthropic Organizations Blend, January 9, 2025__

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More details to come.

Member Training: How Philanthropic Organizations Blend

Join us as we explore how philanthropic organizations blend

How Philanthropic Organizations Blend

Convergence Member Networking in Mumbai: Scaling Blended Finance in India

__Thursday, December 12, 2024 at 4:00pm – 6:30pm IST__

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Convergence invites you to a networking event with members and partners in __Mumbai__. The event will feature:

- A presentation of key findings from our State of Blended Finance 2024: Climate Edition with Asia and India lens
- Discussions on potential to scale blended finance in India
- Networking
 

The event will bring together Convergence's members, partners, and other innovative finance stakeholders comprising impact investors, institutional investors, donor agencies, development banks, and sponsors of blended finance deals. It will be an opportunity to connect with like-minded individuals/institutions engaged in blended finance, make new contacts, exchange ideas, and more.

*Details on the venue and the format of the event will be shared soon. Please save the date on your calendar.*

Convergence invites you to a networking event with members and partners in Mumbai. 

Member Networking Mumbai: Scaling Blended Finance in India

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__Inside the Deal: Climate Investor 2, December 4, 2024, 9:00AM - 10:00AM ET__

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Explore the inner workings of real blended finance transactions through Convergence's "Inside the Deal" webinar series. Each quarter, we delve into a successful deal, inviting the deal sponsor and key stakeholders to offer candid insights on structuring these intricate transactions.

In our next webinar, we will feature Climate Fund Managers' Climate Investor 2 (CI2). CI2 is a blended finance facility delivering water, sanitation, and oceans infrastructure projects in emerging markets.

During this hour-long webinar, the Climate Fund Managers team will provide an overview of the facility’s structure and their fundraising journey. We will also conduct in-depth interviews with key stakeholders involved in the transaction, uncovering invaluable lessons learned along the way. The webinar will conclude with an open Q&A session.

*This webinar is open to Convergence members only.*

Inside the Deal: Climate Investor 2

Join us to learn about Climate Fund Manager’s Climate Investor 2 (CI2).

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__Wednesday, November 27, 2024, 4:00PM-5:00PM EAT__

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Blended finance has emerged as a key tool for mobilizing private capital to address development and climate challenges, especially in Sub-Saharan Africa. As climate risks intensify, the need for sustainable investment in sectors like energy, agriculture, and financial services becomes more critical.

Convergence’s recently published [State of Blended Finance 2024: Climate Edition](https://www.convergence.finance/resource/state-of-blended-finance-2024-climate-edition/view) provides fresh insights into the state of blended finance globally, with a special focus on climate-related investments. The report highlights that Sub-Saharan Africa accounts for 41% of climate-blended finance transactions, driven by the continent's investment opportunities and urgent climate needs. Despite significant progress, barriers such as perceived risks and relatively small transaction sizes continue to hinder private sector participation in the region.

Join us, alongside Africa's Green Economy Summit, for this webinar as we present key findings from the report, discuss the successes and challenges in mobilizing climate finance in Africa, and explore strategies to unlock more private capital with a climate lens.

The State of Blended Finance 2024 (Climate Edition): Spotlight on Africa

Join us, alongside Africa's Green Economy Summit, for this webinar exploring the State of Blended Finance 2024: Climate Edition, with specific focus on Africa.

The State of Blended Finance 2024 (Climate Edition): Africa

Let's talk about Blended Finance: Practical Cases

__Tuesday, November 26, 2024 at 8:00 - 10:00 AM ET__

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Join Convergence, NAB Colombia, and Brigard Urrutia for an engaging networking event, “Let’s Talk About Blended Finance: Practical Cases,” on November 26, 2024, from 8:00 AM to 10:00 AM in Bogotá, Colombia.

One complimentary seat is available for each Convergence member.

Networking Event – Let’s Talk About Blended Finance: Practical Cases

Let’s Talk About Blended Finance: Practical Cases

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__Innovative Finance for Climate: The Role of Blended Bonds, November 25, 2024, 10:00AM - 11:30AM ET__

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Join us for a webinar on the innovative use of blended bonds to address the climate financing gap. As global climate commitments continue to grow, the need for effective financing solutions has become paramount. This webinar will explore how blended bonds are emerging as a critical tool to mobilize capital for climate adaptation and mitigation projects worldwide.

The session will begin with presentations from leading organizations in the field: Convergence and the Climate Bonds Initiative (CBI). Convergence, a global network for blended finance, will provide an overview of how blended finance climate bond structures are effectively attracting both public and private capital. CBI, a pioneer in the green and sustainable bond space, will present on how certification and standardization of climate bonds are enhancing transparency, lowering risk, and improving market credibility and on the role of policy makers in supporting this process.

Following the presentations, a dynamic panel discussion will delve into the practical aspects of structuring and deploying blended bonds for climate action. Panelists will address the challenges and opportunities in scaling up the use of blended bonds.

The final agenda and panelists will be shared closer to the event date.

Innovative Finance for Climate: The Role of Blended Bonds

Join us to learn about the innovative use of blended bonds to address the climate financing gap.

State of Blended Finance Climate Edition – Spotlight on Asian Trends

__Member Training: State of Blended Finance (Climate Edition) – Spotlight on Asian Trends, November 21, 2024, 10:30AM-11:45AM SGT__

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Convergence just launched [the State of Blended Finance 2024 report](https://www.convergence.finance/resource/state-of-blended-finance-2024-climate-edition/view) with a focus on climate, which offers an updated analysis on climate blended finance in emerging markets, covering sector, region, and investor trends.

This session will focus on the the Asia-Pacific region, exploring the challenges and opportunities to mobilizing private sector finance into climate projects at scale in Asia.

__Featured Speakers:__
- Tristan Knowles, Unit Head, Blended Finance, Asian Development Bank
- Nandini Chaudhury, Managing Director, Head of APAC Advisory, CrossBoundary
- Eric Arndt, Director, Asia Regional Office, The Rockefeller Foundation
- Ritesh Thakkar, Senior Advisor and Head of Asia Pacific, Convergence Blended Finance (Moderator)

Each Convergence member organization has two complimentary seats in each training. Non-members can register for a fee of USD75.

Member Training: State of Blended Finance (Climate Edition) – Spotlight on Asian Trends

Join us as we explore climate blended finance in Asia-Pacific region.

State of Blended Finance Climate Edition – Asian Trends

Member Townhall 2024

__Wednesday, November 20, 2024 at 10:00AM – 11:00AM ET__

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Convergence is delighted to invite you to its inaugural __Member Townhall 2024__. This Townhall will provide Convergence’s members the opportunity to directly engage with members of its Content and Engagement Teams, and:
- Provide feedback on Convergence’s recently published research.
- Provide suggestions on topics for Convergence to explore in future research reports.
- Discuss other ways in which Convergence’s __Content__ and __Engagement Teams__ can better service your needs or areas of interest as members. 
 
Stay tuned for more details on the full agenda.

Convergence Member Townhall 2024

Join us for our inaugural  Member Townhall 2024.

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__Masterclass: An Introduction to Blended Finance for Nature Based Solutions, November 14, 2024, 9:00AM - 10:00AM ET__

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Interested in innovative financing for nature-based solutions? Join Latimpacto and Convergence for an engaging masterclass designed to demystify blended finance in the environmental context. Explore how public and private resources can work together to drive sustainable impact and gain insights from industry experts.

Masterclass: An Introduction to Blended Finance for Nature Based Solutions

Join us to learn about blended finance for nature-based solutions.

Blended Finance for Nature Based Solutions

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__Tuesday, November 5, 2024, 6:00PM - 8:30PM EAT, Nairobi, Kenya__

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The High Commission of Canada in Kenya, Convergence, and Renew Capital are hosting an invite-only networking event during the AVPA Conference in Nairobi.

The event will bring together Convergence's members, partners, and other innovative finance stakeholders comprising impact investors, institutional investors, donor agencies, development banks, and sponsors of blended finance deals. It will be an opportunity to connect with like-minded individuals/institutions engaged in blended finance, make new contacts, exchange ideas, and more.

*Registration is open on a first come, first served basis.*

Member Networking in Nairobi

Join us for a member networking reception in Nairobi, Kenya.

Member Networking Reception in Nairobi

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Join us virtually for the launch of the 9th edition of our flagship State of Blended Finance report on __Wednesday, October 30 at 9:00AM ET__, where we will share data, trends, insights, and recommendations from the report.

This year, for the first time, we are releasing two State of Blended Finance reports. This second report, with a focus on climate, complements our 2024 State of Blended Finance which covered the overall blended finance market and was released earlier this year.

Explore the 2024 State of Blended Finance [here](https://www.convergence.finance/resource/state-of-blended-finance-2024/view).

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Detailed agenda to follow.

2024 State of Blended Finance (Climate Edition) Virtual Launch

Convergence is launching the State of Blended Finance (Climate Edition) on Wednesday, October 30 at 9:00AM ET. This year, for the first time, we are releasing two State of Blended Finance reports. This second report, with a focus on climate, complements our 2024 State of Blended Finance which covered the overall blended finance market and was released earlier this year.

2024 State of Blended Finance (Climate Edition) Launch

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__Tuesday, October 22, 2024, 7:00PM - 8:30PM CET, Amsterdam, Netherlands__

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Convergence invites you to our member networking reception on the sidelines of the GIIN Investor Forum in Amsterdam. Chat with other Convergence members, including impact investors, institutional investors, donors, development banks, and sponsors of blended finance deals. Convergence will present the latest trends in blended finance, and members will have ample time to exchange ideas and discuss blended finance initiatives. Snacks and drinks will be served. 

*Registration for this event is now closed. Please contact regina.rossmann@convergence.finance with any questions.*

Member Networking at the GIIN Investor Forum

Join us for a member networking reception in Amsterdam, Netherlands.

Member Networking Reception in Amsterdam

The investment needs for climate mitigation and adaptation in low- and middle-income countries (LMICs) other than China is [estimated](https://www.worldbank.org/en/news/feature/2023/03/13/what-you-need-to-know-about-how-ccdrs-estimate-climate-finance-needs#:~:text=With%20this%20simple%20approach%2C%20and,year%20between%20now%20and%202030.) at $783 billion per year between now and 2030. While the World Bank [reports](https://openknowledge.worldbank.org/server/api/core/bitstreams/83f7aadd-dc5a-406b-98d4-9624e93993e5/content) that bonds are the most important debt instrument for these countries - comprising the majority of the $161 billion net debt inflows from private creditors to LMICs on average from 2018 to 2022 - there is a clear need for innovative climate financing structures to close the persistent investment gap.

While this need is urgent, blended finance to create climate bonds has remained relatively nascent. In Convergence’s Historical Deals Database (HDD) of blended finance transactions, bonds account for only 8% of the 1,233 deals. There is, however, growing interest to use blended finance for climate bonds; Convergence data [shows](https://www.convergence.finance/api/file/88d984f74160b7df482795ee0267f66b:4c76b20aa92457ff40e2fd0bc89a111fcc030e1af7d5dff392476ac8f9db2aa4ee25d95d2c6d386621e9968b8a4ed2798dbeb7ffa4d00dab9f8a48f3b1d323e6150c04957610a87f0c97c0233bf229adb0ee670799432cb89a711fa4df7d619e19922522aa2786201194d77f811733b66db394d972e9288e376afecf1619b358f1fa55ca995a132e2f1a4f613d2c9834) that in climate-related transactions, blended finance bonds were deployed more in 2023 than in previous years. As a proportion of annual climate financing volume, “blended climate bonds” have grown from 2% of total climate blended finance in 2017 to 9% in 2023.

In our [post](https://www.convergence.finance/news-and-events/news/1C6NFH0hAla85XqtZ6NmXu/view) on 2024 blended finance trends, Convergence noted that there are increasing opportunities to use blended finance to promote green, social, sustainable, sustainability-linked and other (GSS+) bonds. As one of the lesser-used vehicles, it is worth a deeper look at why blended bonds are an important instrument and how blended finance can be used to encourage its uptake in climate initiatives.

__Understanding bonds as important debt instruments__

One of the biggest benefits of bonds as a debt instrument is that they are typically publicly listed and traded – thereby increasing liquidity, unlike other debt instruments (e.g. loans and notes), which are more frequently closed through private transactions. Continuing to originate and structure debt as loans or notes in private markets means transactions are mostly unavailable to a large number of investors. Through publicly listed bonds, a larger investor pool can be reached, thereby increasing investor demand and investment volumes and decreasing interest rates. Public trading of bonds reduces the uncertainty of market price, since high trading volumes help ensure the true value of the underlying asset.

Most investors require bond issuers to be rated by credit rating agencies such as Moody’s, S&P, or Fitch. The main driver of a bond rating in any country is the sovereign risk rating, known as the sovereign ceiling. Bonds issued in countries with weak ratings (e.g., B or lower) lie beyond the fiduciary and regulatory investment mandates of most global debt investors (generally, investment grade BBB). A huge challenge of using bonds in emerging markets is the limited number of issuers that meet investors’ fiduciary and regulatory investment risk mandates (e.g., 76% of developing countries are rated B or lower).

Blended finance can be used to address the risk challenge by structuring bonds to fit within investors’ risk mandates and provide market risk-adjusted returns, thereby overcoming the sovereign ceiling and improving the creditworthiness of the issuer.

__Blended finance funds to increase the creditworthiness of bonds__

There are several blended finance approaches to create a bond that meets investors’ investment risk mandates. The simplest is for a more creditworthy guarantor to provide a guarantee for the bond; for example the World Bank Group (rated AAA) or a private entity like GuarantCo or Green Guarantee Company issuing an investment grade guarantee (A and BBB respectively).

An alternative effective and efficient approach is through creating a tiered blended finance fund that invests in climate debt (e.g., loans, notes and bonds) in developing countries. For example, a fund can be established with three tranches of capital: senior, mezzanine, and junior. The junior tranche is essential for success; it is the most catalytic tranche since it faces the highest risk – typically beyond the ability or willingness of multilateral development banks (MDBs) and development finance institutions (DFIs) to invest. It is typically financed by climate impact organizations like country members of the Organization for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC), the Green Climate Fund (GCF), or philanthropic foundations. The mezzanine tranche should be structured to be investible by MDBs, DFIs, and high-yield investors, for example rated CCC or B with commensurate return.

The diversification of assets in the fund and the 10% to 20% subordination allows the senior tranche to be in the form of an investment grade (e.g., BBB) bond. In general, BBB rated bonds that are listed and traded, liquid, and large enough, allow almost all debt investors to invest. 

Using blended funds to support the issuance of climate bonds is the most effective and efficient approach for several reasons:
- *High scalability:* A fund issuing bonds can be sized from $200 million to $20+ billion. Investors want size, but most climate projects do not require the large amount of debt to justify a bond – aggregating debt to many projects creates the necessary size for bonds.
- *Diversification:* A fund delivers country and borrower diversification, and usually achieves a two-notch upgrade delivering one-quarter of the required credit enhancement (subordination delivering the other three-quarters).
- *Effective use of capital:* While a full guarantee protects the total amount of the bond to overcome the sovereign ceiling, this may not be the best use of scarce concessional public funding. Most public sector issuers of guarantees are AAA or AA rated MDBs (e.g., Multilateral Investment Guarantee Agency) or developed countries (e.g., Germany). Debt investors neither need nor want such strong guarantees. Rather, they need to be credit enhanced beyond underlying CCC and B risk of the borrower. In general, a low investment grade rating (e.g., BBB) is sufficient and preferred to mobilize private capital. Tiered funds can issue investment grade bonds as the senior capital, and non-investment grade bonds as the mezzanine capital, which frees up large amounts of public capital to invest directly for impact and leverage additional funds.
- *Sufficient at de-risking:* Other means of blending, such as partial guarantees, are likely less effective since credit rating agencies’ methodology for partial guarantees is to provide only a one- to two-notch upgrade from the underlying risk. Therefore, if the underlying risk is CCC, a partial guarantee would likely upgrade the bond to B-, which is still beyond the fiduciary and regulatory mandate of most debt investors. With a multi-tiered fund, the combination of diversification and catalytic junior and mezzanine tranches allow the senior capital to be an investment grade bond.
 

__GSS+ Bond Certification__

While blended finance structures increase the creditworthiness of bonds, bond certification can help further mobilize private capital into the asset class. Through its bond certification program, called the [Climate Bonds Standard and Certification Scheme](https://www.climatebonds.net/certification/get-certified), CBI encourages investment in GSS+ bonds by supporting investor confidence in the climate change credentials of green bonds and other instruments. The program is designed to assist investors and governments in prioritizing investments that address climate change, using a science-based approach consistent with the goals of the Paris Climate Agreement to limit warming to 1.5 degrees Celsius.

CBI believes that investing in reputable GSS+ bonds—those with Climate Bonds Certification or a solid Second Party Opinion—gives investors confidence in the bond's environmental credentials. This approach broadens the range of eligible green investments since investors are not limited to exclusively green companies, and it also lessens the need for extensive due diligence because GSS+ issuers are expected to provide post-issuance reporting.

Overall, blended bonds at risk ratings aligned to fiduciary and regulatory mandates offer an important and growing opportunity for investors to diversify their portfolios and engage in climate-friendly investments. While organizations such as CBI are advocating for the creation of more transparent and responsible GSS+ bonds, concessional finance can be used to address perceived and real risks associated with these bonds.

*Convergence and CBI will hold an information session on climate blended bonds on November 25, 2024 at 10am ET. Please register [here](https://www.convergence.finance/calendar/6VpjWDxDCHBqYrWlUNNEbB/view). Please direct any enquiries to robin.ivory@convergence.finance.*

Learn why blended bonds are an important instrument and how blended finance can be used to encourage its uptake in climate initiatives.

Blended finance for climate bonds

As climate change continues to be a pressing global concern, climate finance remains a central focus of sustainable development. In this context, carbon markets have emerged as one avenue for companies and countries to mitigate their current emissions and meet climate targets. By pricing carbon through carbon credits, these markets are designed to encourage carbon emitters to internalize the negative externalities associated with emissions. While carbon credits have been met with criticism regarding the transparency of markets, the legitimacy of credit-verification methodologies, and the markets’ greenwashing practices, they have the potential to be a useful solution for climate change mitigation and adaptation. Climate Policy Initiative (CPI), [reports](https://www.climatepolicyinitiative.org/wp-content/uploads/2023/09/How-big-is-the-Net-Zero-financing-gap-2023.pdf) $6.2 trillion of climate finance is required between now and 2030 to meet companies’ Net Zero requirements. As the carbon markets gain credibility through improved industry guidelines, blended finance can be a valuable tool in de-risking these investments and increasing private sector participation.

__Carbon credits__

Formally introduced to the global market in 2005, carbon credits became a central component of the Kyoto Protocol and later, the Paris Agreement under Article 6. Commonly referred to as emission trading schemes (ETS), carbon credits were created to help countries meet their emission reduction targets. A carbon credit [represents](https://www.convergence.finance/api/file/37b2d355392c831604ba1581f7549e93:30b0ba1250a802dde73ffa8008ec8aa9de72b7f55e5a25c70456ae41bef4789e3300f342e043a4e3f89a9aeb890866751b3d3cf9520dd7bf22b920e3b4da7548bd7e4aa78c4a486b01defb249f0e50614b4a4d5c566722ac32067daed456291bfd2dd96ea2ecb9d7a1acd92027d08483a08e9e97fa50163a45d10416fc053e0ba1dc93904f531cfa4ac92a61798d871c) one metric tonne of greenhouse gas (GHG) emissions reduced, avoided, or removed in the atmosphere because of an emissions-focused project or activity. Carbon credits can be generated through nature-based solutions (NbS) such as afforestation, reforestation, and reduced deforestation efforts, or technology-based solutions such as renewable energy projects, carbon capture practices, or clean-cooking technology. Accreditation agencies verify carbon credits sold to buyers, aiming to offset the GHG emissions that cannot be reduced through internal, operational changes.

__Carbon markets__

The carbon market [is a](https://www.convergence.finance/api/file/37b2d355392c831604ba1581f7549e93:30b0ba1250a802dde73ffa8008ec8aa9de72b7f55e5a25c70456ae41bef4789e3300f342e043a4e3f89a9aeb890866751b3d3cf9520dd7bf22b920e3b4da7548bd7e4aa78c4a486b01defb249f0e50614b4a4d5c566722ac32067daed456291bfd2dd96ea2ecb9d7a1acd92027d08483a08e9e97fa50163a45d10416fc053e0ba1dc93904f531cfa4ac92a61798d871c) specialized financial system where credits are traded by various actors, including companies, banks and project developers, amongst others. There are two main types of carbon markets where credits can be produced, bought and sold: the compliance and voluntary markets. 

The compliance carbon market (CCM) [is established](https://climatepromise.undp.org/news-and-stories/what-are-carbon-markets-and-why-are-they-important) by regional, national, and international regulatory bodies to reduce GHG emissions. CCM actors– typically companies operating in participating regions–must adhere to mandated emission limits. The voluntary carbon market (VCM) [is a](https://www.unep.org/topics/climate-action/climate-finance/carbon-markets#:~:text=Carbon%20markets%20are%20carbon%20pricing,carbon%20markets%3A%20Compliance%20and%20voluntary.) decentralized market where actors, including individuals, project developers, companies, banks, or even regions, voluntarily participate in producing, purchasing, and selling carbon credits. In the VCM, buyers and sellers of carbon credits are not obligated to meet certain emissions targets, but participate in reducing or offsetting their carbon emissions individually or as part of an industry. Due to the market's decentralized nature, various standards and certification programs exist to verify emission reductions and facilitate the distribution of carbon credits. Despite structural differences, the two markets share a similar goal of achieving global climate targets by cost-effectively reducing carbon emissions. In 2023, the CCM [was valued](https://www.reuters.com/markets/commodities/global-carbon-markets-value-hit-record-949-bln-last-year-lseg-2024-02-12/) at over $900 billion, while the VCM [was valued](https://about.bnef.com/blog/carbon-credits-face-biggest-test-yet-could-reach-238-ton-in-2050-according-to-bloombergnef-report/#:~:text=The%20market%20would%20peak%20at,and%20%24172%2Fton%20in%202050.) at $2 billion. 

__Considerations and challenges__

Despite the potential for carbon markets, it is important to recognize that the VCM is still in its early stages, facing growing pains that investors should consider before providing financing. A primary barrier influencing the integrity of VCMs is the lack of established regulations and standards. As a decentralized market, the VCM lacks a unified credit verification mechanism. Verification depends on certification agencies' self-determined methodologies, resulting in a wide array of what constitutes a "credit." This self-reliant verification system makes distinguishing authentic programs from greenwashing (where firms exaggerate their environmental efforts to appear more sustainable to the public) carbon credit activities and sales difficult. Moreover, certification agencies' prescriptive calculations for determining avoided emissions raise concerns that such calculations may not accurately account for the unique geographic landscapes and conditions where these emission avoidance projects occur. 

Lastly, the carbon market allows companies to commit to net-zero targets by relying primarily on purchasing carbon credits rather than adapting internal practices and technology to reduce emissions. For effective climate action, carbon credits should complement decarbonization efforts within businesses rather than serve as the sole strategy to meet net-zero goals.

There are, however, ongoing efforts to strengthen the credibility of the VCM through guidelines and best-practice documents. Namely, Article 6 of the Paris Agreement facilitates voluntary international cooperation among countries to meet their Nationally Determined Contributions (NDCs). Specifically, Article 6.4 establishes a framework for a centralized, global carbon market. In addition, in June 2022, the World Resources Institute (WRI) [released](https://www.wri.org/technical-perspectives/guidance-voluntary-use-nature-based-solution-carbon-credits-through-2040) *Guidance on Voluntary Use of Nature-based Solution Carbon Credits Through 2040*, and in 2024, the U.S. Government [issued](https://www.whitehouse.gov/wp-content/uploads/2024/05/VCM-Joint-Policy-Statement-and-Principles.pdf) a *Voluntary Carbon Markets Joint Policy Statement and Principles* document advocating for increased transparency of credited projects, robust third-party verification of credits, reduction of leakage and double counting, and adoption of practices that respect human rights. Organizations such as the [Voluntary Carbon Markets Integrity Initiative](https://vcmintegrity.org/) (VCMI) and the [Integrity Council for the Voluntary Carbon Market](https://icvcm.org/) (ICVCM) have also emerged to contribute to the VCM regulation conversation. The discussion of regulating the VCM was also an agenda item at COP28, and the discussion is anticipated to continue at COP29.

__Opportunities for Blended Finance__

Blended finance is uniquely positioned to support VCM alignment with regulatory initiatives by building the capacity of project developers to meet standards set forth by policy bodies and by promoting market transparency, through for example technical assistance (TA). Blended finance can also be leveraged to increase private sector confidence in carbon credit-linked projects. Some private investors remain hesitant about funding carbon credit vehicles, given concerns about the project’s ability to deliver credits at the needed volume or quality, and the volatility of carbon prices in recent years. Blended finance tools, such as concessional risk insurance can help boost investor confidence and reduce perceived risks. 

Similarly, a catalytic party taking a first-loss position in the transaction, and thus taking on disproportionate exposure to the risk that the carbon revenue will not materialize, can protect senior, commercial investors in the capital stack. Private commercial capital refers to institutional and individual investors, including commercial banks, investment management firms, family offices, pension funds, etc. These investors operate under strict mandates, focused on protecting clients’ capital and generating secure returns. The presence of a junior, first-loss tier in a transaction brings the risk-return profile of their senior investment into alignment with their needs. 

However, there are limitations to blended finance in the VCM. While in the short term, it can attract private investment by reducing the risk profile and demonstrating the viability of initiatives, the ultimate goal of blended finance is to help develop mature markets where investments become commercially sustainable and no longer rely on concessional funding. Blended finance is not designed to be a permanent solution, but to build investor confidence and market readiness. For long-term commercial success in the VCM, stricter regulations, compliance mechanisms by policymakers, and improved market transparency by industry actors are essential.

__Examples of Blended Finance in the VCM__

Convergence has tracked various blended finance deals that leverage carbon credits to generate climate and social benefits. These deals demonstrate how blended finance can support pioneering transactions in the VCM and create important knowledge spillovers. For example, the Livelihoods Carbon Funds (LCF), which has launched three sub-funds thus far. The latest installment of the fund, LCF III, [launched](https://livelihoods.eu/lcf/) in 2021 and focuses on providing financing to project developers for ecosystem restoration, agroforestry, and rural energy projects. The fund seeks to improve food security for rural communities and income for smallholder farmers. Fund investors then receive carbon credits generated from these projects in return for their financial contributions. LCF III, [received](https://www.thegef.org/projects-operations/projects/10500) a grant from Global Environment Facility (GEF), through Conservation International to help seed the fund, [as well as](https://www.dfc.gov/media/press-releases/dfc-approves-11-values-based-investments-totaling-nearly-364-million-address) a partial credit-default guarantee from U.S International Development Finance Corporation (DFC), to provide risk protection against the uncertainties of the investment, making it more attractive to commercial investors. The fund aims to sequester nearly 30 million tons of carbon dioxide (CO2) in the next 20 years and to benefit two million people. 

Blended finance can also aid the evolution of the VCM through TA, which can help establish a project’s credibility by improving the investment-readiness of carbon-linked transactions, providing capacity building, subsidizing operational costs, and supporting the accurate measurement, monitoring, and reporting of emissions. An example of a blended transaction using TA is Café Selva Norte, which [aids](https://www.idhsustainabletrade.com/uploaded/2020/02/LDN-Report-5.3-Peru.pdf) smallholder farmers in Peru's transition to sustainable land practices. The project provides access to financing for smallholder coffee farmers to improve degraded coffee plantation infrastructure and operations, thereby improving product quality and generating land restoration and forestry co-benefits. The rehabilitated coffee plants and other agroforestry initiatives are expected to sequester 3.8 million tonnes of CO2, which will be converted into verified credits. The initiative received a TA grant from the Land Degradation Neutrality Fund to assist community co-operatives in establishing accurate baseline monitoring mechanisms for environmental returns. 

Finally, Terra Global Capital, a leading NbS investment firm, [has managed](https://www.terraglobalcapital.com/) and contributed to funds focused on reducing carbon emissions through NbS. In 2011, the firm launched the Terra Global Fund to finance agroforestry small and medium sized enterprises (SMEs), integrating emission reduction strategies into their operations and generating verified carbon credits. The fund received political risk insurance from the Overseas Private Investment Corporation (OPIC) due to the limited carbon market sector knowledge at the time. Recently, Terra Global began fundraising for the Terra Bella NbS Carbon Pool Fund [to support](https://www.terraglobalcapital.com/terra-bella-fund-0) rural income growth in emerging markets through projects that generate nature-based credits by reducing deforestation and reforestation initiatives. The fund will use blended finance to create a TA facility. The facility will provide support to community-level projects to improve their bankability and provide training on sustainable land practices and carbon emission recording. Given the lack of regulation and market volatility in the VCM, blended finance can improve these projects' risk/return profile to investors and stimulate economic growth for agri-dependent communities.

__Conclusion__

Despite challenges, carbon markets have the potential to boost financial flows toward climate efforts. The markets’ success and integrity, however, hinge on establishing industry-wide best practices, increasing transparency in carbon-linked initiatives and implementing robust credit verification protocols. Carbon credit-linked projects are increasingly integrated into blended finance transactions, with blended finance proving out and demonstrating to commercial investors their viability. As the VCM evolves, blended finance can support bringing carbon-linked initiatives to market and providing the necessary transaction and impact data investors need to assess the risks and returns.

As climate change continues to be a pressing global concern, climate finance remains a central focus of sustainable development. Carbon markets have emerged as one avenue for companies and countries to mitigate current emissions and meet climate targets. 

Legitimizing Carbon Markets: The Role of Blended Finance

Growing evidence [demonstrates](https://blogs.worldbank.org/en/climatechange/people-and-planet-together-why-women-and-girls-are-heart-climate-action) that women play a critical role in achieving climate goals; both as leaders in advancing climate solutions, as well as beneficiaries. There is therefore an urgent need for more investments into transactions that incorporate both gender and climate considerations.

Yet, mainstreaming gender within climate vehicles often encounters a myriad of barriers. This is apparent in the blended finance market, where out of the 550 or so climate blended finance deals in Convergence’s Historical Deals Database (HDD), only 22% were gender-responsive, a considerably lower proportion than the overall trend in the blended finance market where 31% of the deals were gender-responsive. Recognizing this, the Catalytic Climate Finance Facility (CC Facility) Learning Hub recently released its inaugural [report](https://www.ccfacility.org/learning-hub/blended-finance-gender-energy-nexus-report) on gender-responsive blended climate finance transactions in the energy sector. The report provides an analysis of the data behind these transactions and highlights case study examples. It also explores the challenges to successfully launching gender-energy blended transactions and suggests recommendations for investors and practitioners to help increase their effectiveness in implementing these deals.

A commonly discussed challenge was simultaneously addressing climate and gender objectives within the same transaction. Often, investors approach each in a silo, understanding one of the objectives but failing to be proficient in the other type of impact strategy. This is especially the case for smaller funds that do not possess large technical assistance (TA) facilities, or for institutions with limited resources that must prioritize impact measurement and monitoring for a single or small set of objectives. 

A lack of standardized frameworks and metrics for these dual objectives further complicates efforts. While climate metrics, especially those for mitigation, are more established, investors and practitioners repeatedly signaled the lack of standardization in gender-related metrics as a significant challenge for structuring and investing in gender-responsive climate transactions. Moreover, limited or non-disaggregated data can also make globally recognized metrics and criteria neither useful nor relevant.

The report suggests several ways of overcoming these challenges to integrate both gender and climate within a transaction. One is through monetizing the gender co-benefits of climate vehicles through gender credits. Co-benefits [are](https://unfccc.int/files/gender_and_climate_change/application/pdf/egmreport.pdf) advantages that climate solutions provide above and beyond helping to fight climate change. Articulating the gender co-benefits of a climate transaction can be strategic since it capitalizes on investor demand for climate while adding a premium for gender equality. The second method is by using TA and financial incentives simultaneously to hit gender key performance indicators (KPIs) within climate transactions. 

__Monetizing gender co-benefits__

Two cases demonstrate how gender co-benefits can be monetized through the sale of gender credits.
The first is the [Clean Impact Bond (CIB)](https://sistema.bio/wp-content/uploads/IFC_Clean_Impact_Bond.pdf), launched by Sistema.bio in 2022. The CIB is a type of development impact bond that contributes to the broader use of clean cooking technologies by increasing access to clean appliances for low-income customers across Africa. It does this by drawing on upfront funding for small- and medium-sized enterprises (SMEs) that manufacture and distribute these appliances. The outcome buyer will purchase the health and gender co-benefits generated from the use of these appliances, as a type of credit. Considering women are largely the demographic positively affected by clean cooking, co-gender benefits can play an important role in such a vehicle.

The CIB demonstrates that there is a viable way to monetize gender co-benefits in the climate finance market by accomplishing two crucial outcomes: i) it provides data-driven metrics for quantifying the impact and monetary value of gender and health, and ii) it demonstrates the existence of willing buyers for gender and health co-benefits, indicating the potential market demand for gender. In this way, the CIB offers a starting point for determining a revenue stream for gender credits, as well as identifying the presence of outcome funders.

The second case that exemplifies the use of gender credits is the [W+ Standard](https://www.wocan.org/projects/buy-w-credits/) issued by WOCAN. The W+ Standard allows projects to certify quantifiable contributions to women’s empowerment and emissions reduction. For example, carbon emissions reduction projects that deliver benefits to women can add the W+ Standard to their existing projects, which can then be sold for a premium price to carbon buyers seeking co-benefits for gender equality/women’s empowerment, or to address SDG 5 (Gender Equality). One credit is equivalent to a 10% improvement in the lives of women in the project community.1 The W+ Standard requires that at least 20% of the price of the sold credit is provided to women of the project community, to support their self-determined goals. In general, incorporating gender credits into a transaction can encourage more rigorous tracking and reporting on gender-related outcomes, leading to greater transparency and accountability in how investments impact women and gender equality.

__Using TA and financial incentives to incorporate a gender-lens__

A further recommendation within the report for incorporating a gender-lens in climate transactions is to deploy TA and financial incentives together to achieve complementary goals. One barrier to incorporating a gender-lens is the lack of knowledge of how to do so; targeted TA can provide the necessary training to help a deal sponsor develop and measure gender outcomes. Financial incentives can then be an important tool to encourage companies to follow-through and meet these established goals.

An example of a transaction that has done this is the [Beyond Finance Asia-Pacific Facility](https://www.convergence.finance/design-funding/grant-portfolio/3gK51dZsW84lJMQ4q3BTei/view), a blended finance initiative that aims to enhance women’s access to funding and essential services in the Asia-Pacific and sub-Saharan Africa regions. Beyond Finance uses TA to help incorporate a gender-lens in the development of climate adaptation products. When KPIs are achieved, it triggers the provision of interest rate reductions for investees.

Meanwhile, Deetken Impact, a fund manager, [uses](https://deetkenimpact.com/gender-lens-investing/) TA to improve the gender scores of its portfolio companies. As part of its due diligence process, Deetken devised a gender scorecard that covers five main principles: women in leadership and governance; workplace equity; professional development programs for women; value chain and advocacy; and community engagement. Through their TA training programs, they have been able to improve outcomes across each of these focus areas, deepening impacts and moving beyond simple headcounts. Deetken uses TA to improve gender outcomes within large-scale solar projects while partnering with Inter-American Development Bank (IDB) Invest, which provides financial incentives in the form of lower interest rates to encourage a transaction to hit its climate and gender milestones.

These cases demonstrates that while financial incentives can be a powerful motivator for prioritizing gender outcomes, TA-enabled advisory support is a necessary precursor to creating and reaching reasonable and customized targets based on the specifics of the transaction.

__Conclusion__

Whether a transaction uses gender credits to monetize the co-benefits of gender in climate transactions or incentivizes gender-lens investing through deploying financial instruments and TA simultaneously, there are opportunities for blended finance deal sponsors to break down silos to achieve dual social goals. Gender credits can help create a scalable, standardized framework for investors to understand the impacts of gender-lens investing. Meanwhile, gender advisory support can help transactions meet KPIs, and even unlock financial incentives such as reduced interest rates, that create momentum for reaching gender goals. By adopting these strategies, investors can more effectively align their financial goals with broader social and environmental impacts, driving progress towards a just and resilient transition.

1 For more information on how these credits are measured, visit the [W+ website](https://www.wplus.org/).

Breaking Down Silos: Integrating Gender and Climate Goals in Blended Finance Transactions

Integrating Gender & Climate in Blended Finance Transactions

*SINGAPORE | November 1, 2024* — The Rockefeller Foundation has awarded a grant to Convergence to enhance local mobilization of private capital towards climate action in emerging economies in Southeast Asia.

Developing countries in Southeast Asia typically have a higher-than-average exposure to climate-related shocks. These countries often have weak coping capacity due to a lack of financing, infrastructure, and institutional capacity. To date, climate adaptation and mitigation solutions in the region have been small scale, too risky, and funded mostly by public and philanthropic investors. Blended finance can mobilize new sources of capital from private investors, especially domestic institutional investors, to facilitate long-term solutions and partnerships that are instrumental in strengthening local capital markets and supporting vulnerable communities.

![rockefellerpr photo](//images.ctfassets.net/4cgqlwde6qy0/5ZvzBqEh8IhXYPD6qHAvX/caf566c4ecec1e5f3641d9bcd4eba585/rockefellerpr_photo.png)
*L to R: Eric Arndt, Director - Asia Regional Office, The Rockefeller Foundation; Ritesh Thakkar, Senior Advisor and Head of Asia Pacific, Convergence; Deepali Khanna, Vice President – Asia, The Rockefeller Foundation*

The funding from this grant will support two important blended finance initiatives: Convergence’s Asia Climate Solutions Design Grant Window (ACS) and the Catalytic Climate Finance Facility (CC Facility) Learning Hub, a joint initiative by Convergence and the Climate Policy Initiative (CPI). 

The ACS is a pioneering design funding program that supports the inception, design, and launch of innovative catalytic blended finance solutions. These solutions are geared towards accelerating climate adaptation and mitigation across developing markets in Asia. The funding from The Rockefeller Foundation will support solutions with innovative models of mobilizing local capital in key Southeast Asian markets like Indonesia, the Philippines, and Vietnam. 

“The lack of climate investments in the region presents a key barrier to climate action,” __says Ritesh Thakkar, Senior Advisor and Head of Asia Pacific at Convergence__. “With this funding, we hope to create a pipeline of investable blended finance solutions that will raise awareness of blended finance in the region and demonstrate how it can mobilize local financing at scale to address climate change and its adverse impacts on vulnerable communities.”

Understanding the enabling environments needed for blended finance to mobilize domestic capital—including the roles of policymakers, regulators, and local capital markets—is crucial. To this end, the Learning Hub aims to gather data, analytics, and critical insights from the ACS design funding portfolio and the wider climate finance ecosystem, enriching the field with indispensable knowledge and practices.

“This funding will support the Learning Hub in enhancing local capacity through knowledge-sharing in Southeast Asia,” __says Joan Larrea, CEO at Convergence__. “Using comprehensive data and research by CPI and Convergence, the Hub seeks to accelerate the adoption of climate blended finance structures, engage domestic private capital, and drive positive socio-economic and environmental outcomes.”

“Supporting solutions at the intersection of people, planet, and capital is central to The Rockefeller Foundation’s strategy to create opportunity while helping reverse the climate crisis,” __notes Deepali Khanna, Vice President - Asia at The Rockefeller Foundation__. “Our grant to Convergence will help unlock those kinds of solutions by mobilizing new sources of capital from private investors and facilitating long-term partnerships for green growth.”

__*The next cycle of the ACS Design Funding Window has launched, the deadline to apply is November 22, 2024. Find out more and apply [here](https://www.convergence.finance/design-funding/open-window/Asia-climate-solutions-design-grant)*.__

__About Convergence__ 
[Convergence](https://www.convergence.finance/) is the global network for blended finance. We exist to increase private investment in emerging markets and developing economies to advance the UN Sustainable Development Goals and Paris Agreement. Our members include private investors looking to diversify their portfolios, businesses seeking capital, as well as public agencies and philanthropic foundations looking to make their funds go further.

Convergence’s [Design Funding Program](https://www.convergence.finance/design-funding) operates as a market acceleration platform providing early-stage capital to support blended finance solutions in developing markets and nascent sectors to accelerate the number of investible transactions in the market targeting SDGs.

__About the CC Facility__ 
The [Catalytic Climate Finance Facility](https://www.ccfacility.org/) (CC Facility) is a partnership between Convergence and the Climate Policy Initiative (CPI) to accelerate the implementation of high-impact, ready-to-scale financial structures, filling a market gap in mobilizing private capital for climate action in developing economies. The initiative aims to be an ecosystem builder and address a market need in scaling blended finance structures and catalyzing capital for climate change.

__About the CC Facility Learning Hub__ 
The [Learning Hub](https://www.ccfacility.org/learning-hub) is CC Facility’s knowledge-sharing platform which aims to provide evidence and best practices that will help accelerate the implementation of climate blended finance structures, mobilize private capital, and achieve socioeconomic and environmental impacts. 

__About The Rockefeller Foundation__ 
[The Rockefeller Foundation](https://www.rockefellerfoundation.org/) is a pioneering philanthropy built on collaborative partnerships at the frontiers of science, technology, and innovation that enable individuals, families, and communities to flourish. We make big bets to promote the well-being of humanity. Today, we are focused on advancing human opportunity and reversing the climate crisis by transforming systems in food, health, energy, and finance.

__Media Contacts__ 
Gurpratap Singh 
Asia Communications Consultant, The Rockefeller Foundation 
c-gsingh@rockfound.org

Sijia Yi 
Head of Communications, Convergence 
sijia.yi@convergence.finance

The Rockefeller Foundation has awarded a grant to Convergence to enhance local mobilization of private capital towards climate action in emerging economies in Southeast Asia.

The Rockefeller Foundation Awards Convergence a Grant

The Rockefeller Foundation Awards Convergence a Grant to Support Local Capital Mobilization for Climate Action in Southeast Asia

*Toronto, 30 October 2024* — Today, Convergence, the global network for blended finance, launches its flagship report the State of Blended Finance 2024: Climate Edition. 

The report finds that the climate blended finance market saw its highest ever annual financing total in 2023, growing by 120% to $18.3 billion in aggregate investment from $8 billion the year prior. 

What is notable is that this increase is coming from the private sector and commercial capital, as the amount of donor capital entering blended finance has stayed constant. The report finds that private sector investment into climate blended finance increased by almost 200% in 2023, in addition to a 60% increase in commercial financing from development finance institutions (DFIs) and multilateral development banks (MDBs). 

This was the first year Convergence published two State of Blended Finance reports, one in the spring focused on the entire blended finance market, and the current edition focused on climate. The decision to publish an annual climate edition was in response to investors’ increasing focus on climate and the urgent need for up-to-date data. 

“The last edition of the report published this spring found that annual blended finance volumes reached a five-year high of $23 billion,” says Ayesha Bery, Manager at Convergence and a lead author on the report. “Taken together, the findings from the two reports, as well as the presence on a number of very large transactions recently, signal to us that the blended finance market is maturing and that private investors, long reticent, are investing in these structures at volumes never before seen.” 

Among private sector investors, financial institutions have been the most consistently engaged in climate blended finance, investing $7.2 billion and $4.2 billion in renewable energy and energy efficiency/emissions reductions respectively in the last three years. The report finds that institutional investors have also played a bigger role in climate blended finance. Over the past three years, 60% of all blended finance deals involving institutional investors have focused on climate initiatives, with financing from institutional investors rebounding sharply to $870 million in 2023, following a significant decline in 2022 and several years of relative stagnation.

“After years of seeing blended finance, and climate blended finance more specifically, fall short of expectations, the findings from this report are heartening. It’s telling us the market is finally getting smarter, more efficient, and bolder with how it uses limited catalytic capital,” says Joan Larrea, CEO at Convergence. “However, we have lost time. Achieving major results will require maintaining this direction, but progressing at a much faster pace.” 

While it has been a landmark year for climate blended finance, gaps remain. Climate adaptation continues to be underfunded, lagging behind mitigation, and private sector participation in these projects remains limited. The report noted 32 adaptation blended finance transactions between 2021 and 2023, with a total value of $3.5 billion, compared to 132 blended finance transactions targeting climate mitigation for 2021 to 2023, with a total value of $26 billion.. 

However, the report finds opportunity to increase financing flows towards adaptation through cross-cutting transactions, which contain both climate adaptation and mitigation components. Convergence has captured 63 cross-cutting blended finance transactions between 2021 and 2023, with a total value of $10 billion. These transactions contain elements that may be more familiar and are seen as less risky to traditional investors. The report finds that the growing maturity of the mitigation market may provide opportunities for blended finance to shift into transactions that bring in elements of adaptation. 

The report also focuses on countries’ Nationally Determined Contributions (NDCs), which will be renegotiated in early 2025. At this critical juncture, the report reflects on the challenges to implementing the NDCs and explores how blended finance can support governments in developing economies to create investment plans that can better direct investors to where climate financing is most needed. The report includes case studies on how blended finance has been integrated within NDC implementation in Indonesia, Rwanda, and Belize. 

Analysis in the report draws from Convergence’s Historical Deals Database, the largest and most detailed database of historical blended finance transactions, comprising 1,233 blended finance transactions with a total investment of $231 billion.

Read the State of Blended Finance 2024: Climate Edition [here](https://www.convergence.finance/resource/state-of-blended-finance-2024-climate-edition/view). 

__About Convergence__ 
Convergence is the global network for blended finance. We exist to increase private investment in emerging markets and developing economies to advance the UN Sustainable Development Goals and Paris Agreement.

Our members include private investors looking to diversify their portfolios, businesses seeking capital, as well as public agencies and philanthropic foundations looking to make their funds go further.

__Media Contact__ 
Sijia Yi 
Head of Communications 
Convergence 
sijia.yi@convergence.finance

Climate blended finance market sees 120% increase driven by private sector, new report from Convergence finds

Convergence launches State of Blended Finance 2024: Climate

Rand Merchant Bank (RMB) is a leading African corporate and investment bank and part of FirstRand Limited, one of the largest financial services groups in Africa. RMB offers their clients innovative, value-added advisory, funding, trading, corporate banking, and principal investing solutions. RMB has a deal footprint in over 35 countries in Africa, as well as a presence in the UK, USA, India, and China. 

We spoke with Alessandro Scalco, Blended Finance Lead, at RMB about their blended finance strategies, how they measure impact, their future in the blended finance space, and more.

__What can you tell us about your approach to using blended finance?__

Although blended finance is an evolving concept in Africa, RMB is very familiar with its features, for example the blending of different risk types in a capital stack. We have identified blended finance as an important capability in delivering on our ambitions for shared prosperity in Africa. We believe that an African corporate and investment bank should be driving blended finance in the region to help find solutions and close developmental funding gaps in Africa.

RMB is currently working on several blended finance deals in South Africa. We are sector agnostic working across a variety of sectors, including healthcare, affordable housing, financial inclusion, and women-led businesses.

__Can you tell us about the partners you work with and any commonalities and differences between them?__

We work with a variety of partners, including local development finance institutions (DFIs), international DFIs, institutional investors, corporates, foundations, and other investor types. One of our focus areas is fostering relationships with local DFIs to work towards closing development financing gaps in Africa. Many of the foundations we’ve engaged with are reassessing their grant programs and are interested in using innovative finance structures to create more impact with their grants.

What is clear from our blended finance engagements is that across the spectrum of stakeholders both impact and financial return is critical. However, different stakeholders have different priorities. Grant and concessional funders prioritize impact, aiming to catalyze investors into transactions to make them bankable. While commercial investors are more focused on financial returns. However, regardless of the type of stakeholder, impact is an essential component of blended finance transactions. For us striking the right balance between both sides, impact and financial return, is critical. 

__Can you share an example of a successful transaction that has benefited from your blended finance approach?__

Blended finance is quite new to RMB in the sense that we haven't structured for the market, but I’ll tell you about a transaction where we were the social investor. 

In March 2023, RMB provided upfront funding as a social investor for the Imagine Social Impact Bond, an outcomes-based funding model aimed at improving the health outcomes of adolescent girls and young women in South Africa. The South African Medical Research Council (SAMRC), in its role as outcomes funder, made payments based on the achievement of pre-agreed impact outputs and proxy-outcomes. As the social investor, RMB only received a return on the upfront funding provided. The outcomes funder is only required to make a payment to the extent that the impact outputs and proxy-outcomes are achieved by the programme implementer, Networking AIDS Community of South Africa (NACOSA). NACOSA delivers a package of interventions targeting the prevention and management of HIV/AIDS and pregnancy within the target population. Outcomes achieved each quarter are verified by an Independent Verification Agent (IVA).

The implementation risk of the program is transferred to RMB and the efficiency of public health service funding is increased. In addition to defining a package of health services that improves health outcomes for adolescent girls and young women in 14 schools based in Moretele and Newcastle, the program seeks to test the funding model for scale to enable greater investment from the private sector and achieve both financial and social returns.

Our goal with this transaction was to deepen our understanding of blended finance. It was a key step in our journey towards establishing our blended finance capabilities and getting buy-in from relevant stakeholders, as well as a proof-of-concept that these transactions can work. After seeing the impact that the transaction had and is currently having, we decided that we are quite well suited to structure blended finance transactions and take them to market.

We're already talking to SAMRC, NACOSA, and other organizations about how we can support future funding in the space and structure for that market. 

__What are some ways that RMB measures and evaluates the success and impact of blended finance transactions?__

We currently have a pipeline of about five transactions across healthcare, student accommodation, affordable housing, financial inclusion, and conservation. Measurement and evaluation of success is different for each transaction. The critical first hurdle for us in any transaction is what is the impact? That's always the first question we ask. Then, what is the commercial investor trying to get out of this? What is the return or the impact that they're trying to get and how can we get that right for them? The second aspect is looking at the implementer or the beneficiary of the transaction. What's critical is that there is a measurable outcome, a tangible impact resulting from the measures implemented. Another important element of measuring success for us is ensuring that there's a stretch element to the impact. We want to push the institution or the beneficiary to drive impact and go above and beyond what they might normally do, while still being sustainable and achievable.

In a market like Africa and South Africa you also need to be careful in striking that balance, because if you go too far many projects will fail from an impact perspective, which could lead to the perception that blended finance is ineffective. However, on the other hand if you choose easy targets, you could get criticism that transactions are not impactful enough.

We measure our success and impact by looking at the replicability, scalability, and additionality of each transaction. For example, if we are looking at an outcomes-based funding structure in the conservation space, success for us would be: 
i. creating a transaction that results in the conservation project securing the required funding to achieve scientifically tested and agreed upon success metrics 
ii. crowding in commercial investors to take on the implementation risk (but with the potential to outperform if successful) 
iii. developing the market for these types of instruments, thereby crowding new capital into conservation and shifting the way traditional grant/donation funding is channeled into these projects.

__As a corporate and investment bank, what are some unexpected challenges or opportunities you’ve experienced navigating blended finance transactions?__

Blended finance is still new to the market and a lot of energy is expended on explaining what it is. There is also the risk that some of the deals are too highly structured or complicated and will not be replicated or taken up by traditional investors (i.e. investors other than DFIs or impact focused investors). Access to deals seems to be a common theme in this space right now. This doesn’t mean there aren’t companies who need the capital, we just haven't bridged the gaps to provide funding to those businesses yet. 

The opportunity for us as a bank is to explore how we can close those gaps and create more bankable deals. We are in a good position as RMB to close this gap in that we have a variety of capabilities and skills at our disposal. Additionally, the brand backing goes a long way in legitimizing the importance of blended finance in Africa. 

The struggle we have as a bank is getting the deal size right. We acknowledge that we'll need to look at deals that are not our usual deal size, so we can build our blended finance capabilities. Too often the knee jerk reaction in Africa is to use a debt structure because it's more palatable to investors, but there is a need to use more patient capital. That's something we need to navigate.

__How does RMB apply a gender lens?__

We haven’t reached the maturity yet where we can say we specifically apply a gender lens on investments, but we look at it on a deal-by-deal basis.

The issue facing the South African market now is that there is a lack of investable deals, this is not to say there is a lack of businesses looking to be funded, but rather the traditional sources of funding (i.e. banks) won’t fund early-stage businesses, and if those businesses do find alternative funding, it will often be at a rate that will likely cripple them. It is important that we use blended finance to bridge this gap and create an enabling environment that will result in businesses, particularly those led by women and youth, being able to access patient and enabling capital to support them so they can grow and prosper. 

That’s the key here, by creating a universe in which you can do that you will then be able to apply a gender lens and a youth lens and fund the space more actively because people will feel confident that there is access to finance.

__How do you see RMB’s blended finance activities evolving in the future?__

At RMB we like to stay one step ahead of the market, but also one step abreast with the market. Evolution will be led by the demand in the developmental space. Climate and just transition are the focus right now, but that space is starting to get crowded. We need to identify the next developmental focus area and determine the funding nuances in that space. Healthcare, affordable housing, and water in particular, are becoming very topical on the African continent. It is going to be an evolving space and each of these sectors will have different funding needs. 

More patient capital will be required going forward, so I suspect we will see more “equity like” capital instruments (i.e. convertibles being introduced to bridge the gap between the needs of the market and the developmental funding need). I also believe the use of guarantees will become more prominent as a tool in blended finance, especially to catalyze investments into early-stage projects where the risks are higher or perceived to be higher. Blended finance is going to become more mainstream in Africa, however I would caution that we often overcomplicate blended finance, we structure the structure too much and that crowds out the market. We need to create structures that are replicable, scalable, and simple enough that investors can be comfortable and allocate capital to them.

Learn about Rand Merchant Bank's blended finance strategies, how they measure impact, their future in the blended finance space, and more.

Rand Merchant Bank Member Spotlight

Rand Merchant Bank Member Spotlight with Alessandro Scalco

This year [Climate Week New York](https://www.climateweeknyc.org/) will take place from September 22-27. Convergence will be an active participant, attending and contributing to several events related to blended finance and mobilizing capital for climate action. Read on to find out which events we’ll be part of.

Be sure to follow us on [Twitter](https://twitter.com/ConvergenceBF) and [LinkedIn](https://www.linkedin.com/company/convergenceblendedfinance/) to stay up to date with our activities at Climate Week.

__Convergence Delegation:__

[Joan Larrea](https://www.convergence.finance/about/team/GFACYZSAIE8qmmCKA8ywc), CEO

[Leah Pedersen](https://www.convergence.finance/about/team/1kS1ajAc1LUMVV4hriluTk), Senior Director, Market Acceleration and Design Innovation 

[Nnamdi Igbokwe, Ph.D.](https://www.convergence.finance/about/team/5jC79jvyo64BN1bsT2LA9k), Director, Knowledge and Thought Leadership

[Trang Vandelis](https://www.convergence.finance/about/team/krYvaWs2vQWU4u0C0quAO), Associate Director, Design Funding and Market Acceleration

[Andrew Apampa, CFA](https://www.convergence.finance/about/team/6vagDS0aL4cusKnOrWB6o), Manager, Content

[Ayesha Bery,](https://www.convergence.finance/about/team/3u0qeg7AKQCWmoY2QwG0s4) Manager, Content

[Nick Zelenczuk](https://www.convergence.finance/about/team/5qIV45tERJOL0ffxaqta3e), Manager, Content

[Kanwal Rathi, CFA](https://www.convergence.finance/about/team/6YaT2mRlnWCuTraU18DLk5), Senior Associate, Design Funding and Market Acceleration

[Robin Ivory](https://www.convergence.finance/about/team/5Oui37koFSY0v588c2aoBD), Senior Associate, Content

__Events__

| Date & time (GST)      | Event title   | Organizer     |
| ----------  | ---------- | ---------- |
| Sep 23, 8:30AM-10AM      | [Convergence Member Breakfast and Networking](https://www.convergence.finance/calendar/5s42tuFHH46nZMQdQCEZAX/view)     | Convergence  |
| Sep 23 | [How Investors Are Addressing the Climate Emergency](https://web.cvent.com/event/099266ad-f3ac-4d1a-81ea-9248eb90f14f/websitePage:28275658-8aa2-4dff-bd44-7b7463b818bb?RefId=Climate%20Week%20NYC%202024)    | ClimateTech IQ      |
| Sep 23, 11AM-3PM | Unlocking Nature Finance in the Global South: Policy Strategies, Barriers, and Capital Flow Challenges | Pakistan Environment Trust    |
| Sep 23, 1:05PM-1:35PM | Blended Finance as a Danish Strategy for Creating Impact and Return on a Greater Scale  | Danish Consulate    |
| Sep 23, 11AM-3PM | Blended Finance in Healthcare  | Devex, Vodafone Foundation, and MSD for Mothers       |
| Sep 23, 6PM  | Blended Finance as a Danish Strategy for Creating Impact and Return on a Greater Scale     | Danish Consulate    |
| Sep 23, 3PM-7PM     | De-Risking Our Future: a Howden and Microsoft Event - Climate Week NYC   | Howden & Microsoft       |
| Sep 23, 4:30PM-6:30PM       | Climate Gender Roundtable  | Convergence and Natixis IM    |
| Sep 23, 7PM-10PM  | Humanity Insured Private Dinner    | Humanity Insured    |
| Sep 24, 9AM-5:30PM   | Day Two of The Nature Hub @ Climate Week New York City 2024  | The Nature Hub|
| Sep 24, 8AM-1PM | Mobilizing Funds and Financial Instruments for the Green Economy| AYA earth Partners  |
| Sep 24, 9AM-10AM | Enabling NCS Investment: policy barriers and solutions| Forest Investor Club (FIC)|
| Sep 24, 1PM-2:30PM| FAST-Infra Label: Mobilizing the Private Sector for Sustainable Infrastructure | Global Infrastructure Basel, FAST-Infra, Bloomberg |
| Sep 24, 2:30PM-7PM   | Financing the Transition | Morningstar Analytics |
| Sep 24, 3:30PM-5PM      | Beyond the Horizon-Innovative Financing for Food Security | AVPN |
| Sep 24, 3:30PM-5PM      | Forest Investor Club Member Meeting |  Forest Investor Club (FIC), World Business Council for Sustainable Development (WBCSD) |
| Sep 24, 3:30PM-9PM  | Climate Leaders' Assembly: The New Chapter for Climate Action |  National Climate Change Secretariat of Singapore |
| Sep 24, 3:30PM-5PM   | First-of-a-kind (FOAK) finance |  Standard Chartered |
| Sep 24, 5PM-6PM     | Climate Adaptation and Resilience Investment Solutions Roundtable | Bechtel |
| Sep 24, 6:30PM-8:30PM | Collaborative Event w/ SDG Impact Finance Initiative (SIFI) |  Convergence and SIFI |
| Sep 24, 5:30PM-7:30PM   | Standard Chartered: Leaders in Carbon Reception| Standard Chartered |
| Sep 24, 2PM-6PM | NYCW Climate DealRoom| MUFG, Green Guarantee Company, and Institutional Investors Group on Climate Change  |
| Sep 24, 5:30PM-7:30PM     | 2X Investor Meetup| 2X Global |
| Sep 24, 10AM-12PM  | NDC Investment Summit SMIAC Investable Asset Classes Working Group GEMs3.0 Investor and Philanthropy Consultation| Sustainable Markets Initiative |
| Sep 24, 10AM-12PM| Facilitated discussions on Maximising benefits: practical advice for investing in and procuring Nature-based Solutions| Nature Hub |
| Sep 24, 1:30PM-5:30PM | Africa Investment Forum| AOS: Africa Investment Forum |
| Sep 25, 8AM-10AM   | Closing Brazil’s Climate Finance Gap| Climate Advisors |
| Sep 25, 8:30AM-11AM | Catalyzing Climate and Nature Solutions: The Role of Public, Private Philanthropic and Academic Collaborations in Blended Finance| Columbia U, WEF GAEA, et al |
| Sep 25, 8:30AM-6:30PM  | Inaugural SIRI Blended Finance Conference| SIPA Columbia University |
| Sep 25, 1PM-2PM  | Investing in Naure-based projects: managing the risks | FIC|
| Sep 25, 12PM-2PM  | NIEES Private Roundtable "Barriers and Opportunities for Financing Global South Energy Transitions| Duke University|
| Sep 25, 12PM-2PM | NYCW Global Capacity Building Coalition Lunch & Launch Event| Global Capacity Building Coalition (GCBC)|
| Sep 25, 2PM-5PM| High-Level Roundtable on Private Sector Engagement for NDCs 3.0| NDCs Partnership|
| Sep 25, 4PM-6PM   | From Patagonia to the Caribbean: Seizing the Climate Market Opportunity in LatAm | Reciprocal Studio|
| Sep 25, 8AM-11AM | Accelerating Global Connectivity and Progress Toward the SDG | Rockefeller Center| FP |
| Sep 25, 1PM-5:30PM | S&P Global Sustainable| Javits Center | S&P |
| Sep 26, 8AM-9:30AM | No Smallholders Left Behind: Empowering livelihoods & action through climate finance| Climate Action for Smallholders (CASH) Coalition |
| Sep 26, 1:30PM-3:30PM  | Girls First Finance Reception| Girls First Finance |
| Sep 26, 3:30PM-5:30PM   | Financing the ‘Just’ in Just Transition| Boston Consulting Group, World Business Council for Sustainable Development & Council for Inclusive Capitalism |
| Sep 26, 3:30PM-5:30PM| The People-Centric Energy Transition in Asia Pacific: The Now, The How, & The Future | AVPN and Boston Consulting Group|
| Sep 26    | Lab Endorsement Meeting and 10th Anniversary Summit  | Climate Policy Initiative (CPI)|
| Sep 26, 9AM-5PM | CLEM (Clean Energy Mechanism) - Making Clean Energy Transitions Profitable | Sustainability Economics|
| Sep 26, 4:30PM-6:30PM | Funding Collaborative Solutions on Climate Adaptation| Latimpacto, Trafigura Foundation and Dalberg |
| Sep 26, 9AM-12PM  | Catalytic Climate Capital Forum | RMI |
| Sep 27, 6PM-8PM | IMPACT EUROPE (formerly EVPA) - Member Event | IMPACT EUROPE (formerly EVPA) |
| Sep 27, 6PM-8PM | AVPN Members' Reception | AVPN, Impact Europe, Latimpacto, AVPA |

Convergence at Climate Week New York City

San Francisco and Toronto, September 19, 2024 — The Catalytic Climate Finance Facility (CC Facility) is announcing the opening of a new application round for high-impact, scalable blended financial structures in developing economies. These structures should have already demonstrated market traction and be poised for significant growth. [Applications must be submitted through the CC Facility website from September 19 to October 24, 2024.](https://www.ccfacility.org/apply)

The CC Facility offers up to USD 500,000 in grant funding, tailored technical assistance, and access to knowledge-sharing resources through a Learning Hub to help promising blended finance structures scale their impact. It offers targeted support in strategy, fundraising, and operations, with a focus on overcoming market barriers to mobilize private capital for climate action.

In addition, the program helps refine approaches to gender mainstreaming, impact measurement and management, and local capacity development while building effective operational and governance systems. The ultimate goal is to empower blended finance structures to drive business success, attract funding through targeted outreach, and accelerate their scale-up.

[A webinar outlining the program’s offerings is scheduled for October 9, 2024.](https://climatepolicyinitiative.zoom.us/webinar/register/9117238401121/WN_teIzEvO6R9m3sYm4-EfQhA)

“The CC Facility is committed to accelerating the flow of private capital into climate solutions,” said Joan Larrea, CEO of Convergence. “By providing targeted support and resources, we aim to empower innovative blended finance structures to overcome barriers and achieve significant scale.”

Dr. Barbara Buchner, Global Managing Director of Climate Policy Initiative (CPI), added, “We are seeking high-potential climate finance vehicles that have demonstrated market traction and are ready to expand their impact. Our program is designed to equip these solutions with the tools and expertise needed to attract investors and drive positive change.”

__ABOUT THE CATALYTIC CLIMATE FINANCE FACILITY__

The Catalytic Climate Finance Facility (CC Facility) is a solution to scale climate finance by filling a market gap in mobilizing private capital. The CC Facility provides a suite of acceleration services to market-ready blended finance vehicles in developing economies to help them reach scale. Through grant funding, technical support, and a learning hub, the CC Facility accelerates the implementation of high-impact financial structures, while providing resources to the broader ecosystem on how to best catalyze climate finance. The initiative is a partnership between [Climate Policy Initiative (CPI)](https://www.climatepolicyinitiative.org/) and [Convergence](https://www.convergence.finance/).

__MEDIA CONTACTS__

__Sijia Yi__ 
Head of Communications 
Convergence Blended Finance 
sijia.yi@convergence.finance 

__Júlio Lubianco__ 
Communications Manager 
Climate Policy Initiative 
julio.lubianco@cpiglobal.org 

__Sam Goodman__ 
Communications Associate 
Climate Policy Initiative 
sam.goodman@cpiglobal.org

CC Facility opens new round of applications, deadline October 24

CC Facility opens new round of applications, deadline Oct 24

*Toronto, 11 September, 2024* — Convergence awarded a proof-of-concept grant to Mekong Capital for its impact initiative, Mekong Earth Regeneration Fund (MERF). MERF is a USD 200 million blended finance vehicle that will provide growth-stage private equity funding focused on regenerative agriculture and sustainable land use business models in the Lower Mekong region. This grant is awarded through Convergence’s [Asia Climate Solutions (ACS) Design Grant](https://www.convergence.finance/design-funding/open-window/Asia-climate-solutions-design-grant).

The majority of the local population in the Lower Mekong region is dependent on agriculture and rural farming, making them severely and disproportionately affected by climate change. Over the past decades, changing agricultural land use practices have led to increased exposure to climate hazards and increased GHG emissions from the agriculture, forestry, and land-use sectors. Meanwhile, private investments in the local sustainable agriculture and forestry sectors remain low and mainly take the form of debt, which is unsuitable for many businesses looking for patient long-term equity financing to support them in adopting more sustainable agricultural practices. 

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 for 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.

MERF received funding from the Dutch Fund for Climate and Development (DFCD)’s Origination Facility for its initial design and to complete the feasibility study. This proof-of-concept grant from the ACS Design Grant will help Mekong Capital complete the final design of MERF, as well as the technical assistance facility and mobilize more sources of capital. 

“Mekong Capital and Convergence’s partnership will accelerate the mobilization of much-needed capital for climate adaptation and mitigation, while supporting farmers in the Lower Mekong region. Mekong Capital aims to lead the way in private sector investment and engagement in regenerative agriculture,” said Ellen Van, Mekong Capital Principal. “By leveraging blended capital to help private companies scale regenerative practices that replenish our natural assets and improve the lives of our farmers, MERF seeks to demonstrate that sustainable financial return and impact can co-exist.

"Mekong Capital’s Mekong Earth Regeneration Fund was selected due to its high potential for development impact, replicability in other sectors and geographies, and the team’s strong track record of engagement and regional presence," said Leah Pedersen, Convergence Senior Director, Market Acceleration and Design Innovation. “MERF is also a prime example of the field-building power of our funding. Through our grant, Mekong Capital, a mainstream private equity fund manager, will strive to enter the climate finance space for the first time.”

The ACS Design Grant targets critical climate mitigation and adaptation sectors in Asia including nature-based solutions, clean energy transition, and sustainable cities and infrastructure. It provides feasibility study and proof-of concept grants for innovative, high-impact and investible solutions using blended capital structures.

The ACS Design Grant is funded by four anchor donors: the Department of Foreign Affairs and Trade Australia, the Monetary Authority of Singapore, The Olayan Group, and UBS Optimus Foundation.

__About Mekong Capital__ 
Established in 2001, Mekong Capital is a private equity firm specializing in consumer-driven businesses. Mekong Capital’s investee companies are often among the fastest-growing and market-leading in Vietnam’s consumer sectors. Mekong Capital has completed 43 investments, with 28 fully exited, and currently advises two active funds. Mekong Capital provides proactive support to its investee companies to drive sustainable growth.

__About Convergence__ 
[Convergence](https://www.convergence.finance/) is the global network for blended finance. We exist to increase private investment in emerging markets and developing economies to advance the UN Sustainable Development Goals and Paris Agreement. Our members include private investors looking to diversify their portfolios, businesses seeking capital, as well as public agencies and philanthropic foundations looking to make their funds go further.

Convergence’s [Design Funding Program](https://www.convergence.finance/design-funding) operates as a market acceleration tool providing early-stage capital to support blended finance solutions in frontier markets and nascent sectors to accelerate the number of investible transactions in the market targeting SDGs.

__Media Contact__ 
__Sijia Yi__ 
Head of Communications 
Convergence 
sijia.yi@convergence.finance

Convergence awarded a proof-of-concept grant to to Mekong Capital for its impact initiative, Mekong Earth Regeneration Fund (MERF)

Convergence awards proof-of-concept grant to Mekong Capital

Convergence awards grant to support Regenerative Agriculture and Sustainable Forestry in the Lower Mekong Region

*This op-ed was originally published in [Next Billion](https://nextbillion.net/regulatory-roadblocks-holding-blended-finance-back-three-solutions/).*

After hitting a [10-year low](https://www.convergence.finance/resource/state-of-blended-finance-2023/view) in financing flows in 2022, [Convergence data shows](https://www.convergence.finance/resource/state-of-blended-finance-2024/view) that blended finance bounced back to a five-year high of $15 billion in 2023. Helped in part by multilateral development banks and development finance institutions [investing in greater sums in 2023](https://www.convergence.finance/resource/state-of-blended-finance-2024/view), several large-scale blended transactions came to market in close succession over the course of that year. One of these “whales” was the [SDG Loan Fund](https://www.convergence.finance/resource/SDG-Loan-Fund/view), a $1.11 billion investment vehicle, devised by Allianz Global Investors and the Dutch Entrepreneurial Development Bank and backed by the John D. and Catherine T. MacArthur Foundation, that looks to draw more institutional investors to climate, agriculture and financial services investments in emerging markets.

Despite this positive turn, several foundational questions facing blended finance remain unanswered. For instance, how can donor governments worldwide develop and adopt a coherent private sector mobilization strategy to tackle the SDG financing gap, one result of which would be greater support for blended finance? How can developing country governments play a bigger part in this process as donors, while helping to catalyze domestic institutional capital that remains [largely untapped](https://www.convergence.finance/resource/the-state-of-blended-finance-2021/view) when it comes to financing SDG investments? How can more standardized and simplified vehicles be developed to appeal to private sector investors? And how can greater transparency on blended finance transactions be encouraged?

These pivotal questions presuppose that highly regulated financial institutions like commercial banks and insurance companies can be seamlessly mobilized for development projects in emerging markets and developing economies (EMDEs). But they overlook a critical obstacle: the complex web of policies and regulations governing these institutions that deter them from investing or lending in EMDEs.

As blended finance looks to build upon its renewed momentum, it becomes more essential for the industry to address and overcome the regulatory roadblocks that hinder its ability to scale. Below, I’ll discuss these obstacles and some promising solutions, as outlined in [Convergence’s State of Blended Finance 2024 report](https://www.convergence.finance/resource/state-of-blended-finance-2024/view).

__Understanding the regulatory roadblocks to private investment in EMDEs__

There are several common regulatory roadblocks that make it difficult for private financial institutions and investors to invest or lend in EMDEs. Firstly, the mandates of many investors limit their ability to invest in developing economies. The [median sovereign risk rating in the 142 EMDEs](https://www.convergence.finance/api/file/e0a4c9f803514197dbe7d72b583fbed7:fcec65227ea9fc8124b1f31a9fee9c014f2660a8992b54fc55c13af2f6e4424ea29df8c01c0636f09ee2f01524478507d01785e66c9886c5b1bcdc643dbd58ba9d636fe64095c9227722da76116f2d56994eec2dc20a689dd663695617e9a122ae789737b6c8b508fd6281401a0c51748b38533bf668c4d9747963a5d6bd742330de9d965f39091d093cdd34d0ab900f) is “B-”, which is considered sub-investment grade, so most developing countries do not align with the criteria of many investors. Additionally, highly-regulated financial institutions like commercial banks and insurance companies are required by international standard setters to hold more capital in reserve for riskier assets. In some cases, these institutions must cap the investment amounts held in certain types of assets (particularly those below investment grade). This poses a challenge to investing in the developing market assets supported by blended finance, many of which lack official rating methodologies and thus assume the credit rating of the country in which they’re domiciled (i.e., the sovereign ceiling).

Secondly, under the Basel IV international banking reforms, standardized metrics have replaced the proprietary models formerly used by commercial banks when weighting their financial assets by their level of risk, to determine the amount of regulatory capital they must hold in reserve. This means that commercial banks may no longer be able to lower their risk-weighted assets (and the amount of regulatory capital they must hold in reserve) by independently rating an investment in the senior tranche of a blended finance vehicle as lower risk, to reflect the protection they receive from investors in the first-loss tranche who bear the initial losses on the fund’s investments. Commercial banks are typically only willing to make senior tranche investments, so without this rating flexibility, they may be further disincentivized from investing in blended finance vehicles as a stepping stone to investing in EMDE transactions with acceptable risk/return ratios.

Further, international regulators lack adequate access to accurate information on default and recovery rates in developing markets. This means that the ratings given to projects and institutions domiciled in developing markets (which support the risk weightings commercial banks use to calculate their regulatory capital requirements) may not accurately reflect the reality of investing in these markets.

Convergence’s [State of Blended Finance 2024 report](https://www.convergence.finance/resource/state-of-blended-finance-2024/view) represents the first time we’ve explored these issues in detail. In the report, we analyze some of the key regulations affecting whether and how private sector investors can structure and/or invest in blended finance vehicles as a means to increase their ability to participate and invest in EMDEs more broadly. This analysis dovetails with reports published by other organizations, with one [study from the Global Alliance of Impact Lawyers](https://gailnet.org/unlocking-legal-pathways-for-blended-finance/), for example, also discussing the legal and regulatory barriers to blended finance, and another [paper from the Overseas Development Institute](https://odi.org/en/publications/trillions-or-billions-reassessing-the-potential-for-european-institutional-investment-in-emerging-markets-and-developing-economies/) exploring how changes across Europe in national and EU investment regulations and financial market conditions might impact the contribution of European pension funds and insurance companies toward the investment needs of EMDEs.

__Three ways to address the regulatory hurdles facing private investment in EMDEs__

Given the impact these regulatory hurdles have on blended finance’s mobilization potential, what concrete steps can be taken to address them? We’ve identified three key action points:

Firstly, practitioners should adopt a multi-stakeholder approach to building mutual understanding on blended finance across the blended finance and regulatory communities. To that end, they should create a formal framework that provides policymakers and regulators with a starting point on how to approach blended finance, while also establishing multi-stakeholder platforms to encourage dialogue. Regulators need to be consulted early in blended transactions, and they must become more educated on the practice and scope of blended finance through indicative case studies of what worked and didn’t work. Ultimately, they must also coordinate with each other where necessary to address common barriers and obstacles, while protecting the integrity of the financial system. In so doing, supervisors should explore ways that their regulatory systems can be updated to cater to innovative finance, specifically blended finance.

The creation of domestic multi-stakeholder platforms encouraging dialogue and the sharing of learnings between the public, private and regulatory communities can help advance these efforts. One example of this kind of platform is the [Joint Committee on Climate Change](https://www.jc3malaysia.com/), established in 2019, which is a regulator-industry platform working collaboratively to build climate resilience within the Malaysian financial sector. These platforms should also have a dedicated dialogue on blended finance, to encourage momentum on bringing diverse stakeholders together in areas where the need for more blended activity has been recognized.

Secondly, supranational forums like the G7 or G20 should be used as the space for a policy dialogue between donors and regulators on capital allocation rules for blended finance, with donors and institutional investors partnering to better calibrate concessional tools to existing regulations. Supranational forums should facilitate peer-to-peer learning between countries on the experience and practice of blended finance through a formal knowledge exchange within their working groups on sustainable finance. Any learnings from these efforts can inform the forums’ policy decisions on any regulatory issues related to blended finance, and can ultimately feed through to standard setting bodies.

Finally, practitioners should prioritize data transparency, to showcase the actual risk of investing in developing markets to regulators and institutional investors. Development finance institutions and multilateral development banks could support the mobilization of private investors by sharing the payment track records of their portfolios more extensively. Such data is consolidated in the database maintained by the [Global Emerging Markets (GEMs) Risk Database Consortium](https://www.gemsriskdatabase.org/), and its release would illustrate that well-structured project finance in developing economies is not as risky as regulators and investors may assume. A first step was taken toward providing this information in March 2024, with the publication of a [GEMS report](https://pressroom.ifc.org/all/pages/PressDetail.aspx?ID=28082) showcasing aggregate data on the recovery rates of investments with private and sub-sovereign borrowers in EMDEs. However, the report does not give the level of granularity that rating agencies or private investors need to inform their models and revise current capital allocation rules. With access to a more comprehensive data set, rating agencies could be more actively involved in rating blended funds and instruments to better reflect the credit enhancement benefits from first loss and/or junior tranche investors. This could enable regulators to consider reducing the risk weights for senior investor positions in structures protected by first loss, thereby helping to draw more large institutional investors into the market.

With the market for blended finance rebounding, and the urgency of scaling financing toward the SDGs only heightening as we approach 2030, practitioners must get creative in understanding the roadblocks that private investors face when investing in developing markets — and finding new ways to address them. The measures discussed above would go a long way toward creating an environment where large private investors can ramp up their involvement in blended finance, and in the markets where this capital is most needed.

Learn about three ways to address the regulatory roadblocks preventing blended finance from scaling

Regulatory Roadblocks are Holding Blended Finance Back

Opinion: Regulatory Roadblocks are Holding Blended Finance Back

ResponsAbility is an impact asset manager. Since 2003, they have invested over $15 billion in impactful projects and currently manage $5 billion in assets divided into three investment themes: climate finance, financial inclusion, and sustainable food. Beyond these three core themes they also offer tailor-made and Fund of Funds investment solutions, totaling at $1 billion. 

Blended finance makes up a significant portion of their portfolio. Structured blended finance debt strategies account for over $1.3 billion of responsAbility's assets under management, a figure that’s expected to grow rapidly, especially in climate finance. Two new structured blended finance debt strategies have been launched recently: the Climate Smart Agriculture and Food Systems strategy in March 2023 and the Asia Climate Strategy in November 2023.

We spoke with Henk Nijland, Head Business Development, DFIs & Public Investors, at responsAbility, about their blended finance strategies, how they measure impact, their acquisition by M&G plc., and more.

__Can you tell me about your background and experience in blended finance?__

Blended finance has been a central theme throughout my career. I began my professional journey at the Dutch Ministry of Economic Affairs, where I worked on promoting investments from Dutch companies in Eastern Europe. These investments often required de-risking through subsidies and political risk insurance – what we now recognize as blended finance, even though the term wasn’t in use at the time. 

I later spent 20 years at FMO, the Dutch Development Bank, where I held roles as a banker and head of investment teams focused on financial inclusion, infrastructure, and renewable energy. FMO is well-known in the blended finance arena. I was involved in 2014 with a Climate strategy, which provides green lines to financial institutions and direct lending for smaller project finance transactions. This strategy is managed by responsAbility. FMO’s $20 million investment in the strategy, alongside other notable investors like KfW and IFC1, was a key milestone. Today, the strategy has grown to around $613 million, demonstrating the long-term impact and scalability of blended finance.

1. [Project detail - GLOBAL CLIMATE PARTNERSHIP](https://www.fmo.nl/project-detail/33148)

__Can you tell me more about the Asia Climate Strategy and responsAbility’s role?__

In November 2023, we launched the Asia Climate Strategy, which targets corporates in Asia that operate in sectors with high CO2 reduction potential, including renewable energy, energy efficiency, e-mobility, and circular economy. A cornerstone of this strategy is our innovative "Climate Impact Assessment and Monitoring Framework", which ensures transparency and aims to achieve direct CO2 savings of an estimated 16 million tons2 over the lifetime of the investments. 

KfW, the anchor investor in the junior tranche3, and FMO, in the senior tranche4, play critical roles in this strategy. Additionally, a German family office invested in the senior tranche. In the strategy’s second closing in August 2024, M&G plc’s Life business invested $100 million5, bringing the strategy’s size to over $200 million. This example highlights how blended finance can effectively mobilize private sector capital at scale.

2. Calculations based on USD 500 million strategy
3. [Boost for the transformation in Asia: KfW supports mobilisation of private capital with the responsAbility Asia Climate](https://www.kfw.de/About-KfW/Newsroom/Latest-News/Pressemitteilungen-Details_788544.html)
4. [Project detail - ResponsAbility Asia Climate](https://www.fmo.nl/project-detail/63058)
5. [responsAbility Asia Climate strategy surpassed USD 200 million at second closing](https://www.responsability.com/en/press-releases/responsability-asia-climate-strategy-surpassed-usd-200-million-at-second-closing/)

__How do you measure the impact of responsAbility's blended finance deals?__

We take a rigorous approach to impact measurement, which we call the “4 eyes” principle. It involves two key teams: our in-house impact team and our Climate Advisory Specialist team. The latter comprises local technical experts who work hand in hand with an Investment Officer to estimate the impact of portfolio companies’ projects before and after investment. These specialists gather and analyze climate impact data, which is then validated and reported by our impact team - the two pairs of eyes. 

We’ve also developed a carbon measurement tool that tracks and reports climate impact, ensuring our data is accurate and transparent. Typically, we engage reputable external partners to review the fund’s portfolio carbon impact at the end of its life, further ensuring the veracity of our impact reporting. 

__Last year responsAbility was acquired by M&G plc, can you talk a bit about this and what the acquisition might signal for the impact investing and blended finance space?__

In May 2022, M&G plc., a leading international savings and investment company, acquired responsAbility. This acquisition underscores the growing interest among mainstream investors in impact investing and blended finance, as well as the increasing importance of sustainability in investment decision-making. What makes this acquisition particularly noteworthy is M&G’s active involvement in our recent initiatives. For example, in January 2023, M&G committed $274 million to two sustainable food strategies6 in Latin America and Asia, and in August, M&G’s Life business invested $100 million in the Asia Climate Strategy7. 

These large private investments highlight M&G’s strong commitment to impact investing and serve as a positive signal to other large institutional investors to engage more actively in this space, particularly in our pioneering structured blended finance strategies. 

6. [responsAbility announces first closings of two Sustainable Food strategies totaling USD 274 million](https://www.responsability.com/en/press-releases/responsability-announces-first-closings-of-two-sustainable-food-strategies-totaling-usd-274-million/)
7. [responsAbility Asia Climate strategy surpassed USD 200 million at second closing](https://www.responsability.com/en/press-releases/responsability-asia-climate-strategy-surpassed-usd-200-million-at-second-closing/)

__How do you see responsAbility's blended finance activities evolving in the future?__

Since our inception in 2023, we’ve raised over $2 billion in blended finance across various strategies, including the Global Climate Partnership strategy, the Access to Clean Power strategy, and the Social Bond focussed on financial inclusion, health, water, and sanitation. The Asia Climate Strategy, our newest flagship blended finance strategy, has a target size of $500 million and has already raised over $200 million, we expect to secure the remaining $300 million within the next year. 

Looking ahead, we’re committed to developing more high impact blended finance strategies, particularly in financial inclusion and climate finance, covering both mitigation and adaptation. We’re excited about the future and look forward to collaborating with Convergence and its members to further promote blended finance as a tool to mobilize private investments at scale to reach the SDGs.

Learn about responsAbility's blended finance strategies, how they measure impact, their acquisition by M&G plc., and more.

ResponsAbility Member Spotlight

responsAbility Member Spotlight with Henk Nijland

*This op-ed was originally published on [ImpactAlpha](https://impactalpha.com/three-africa-led-blended-finance-models-mobilizing-billions-for-development/).*

Innovations are accelerating Africa’s economic transformation. 

After two decades of continued economic growth, lingering impacts of the COVID-19 pandemic and recent global economic pressures have knocked the continent [off track](https://african.business/2023/09/resources/how-can-africa-salvage-the-sustainable-development-goals#:~:text=Aggravated%20by%20the%20Covid%2D19,50%25%20of%20the%20continent's%20population) on almost all Sustainable Development Goal targets. Substantial resources – $1.3 trillion a year or 42% of Africa’s $3.1 trillion gross domestic product in 2023 – are [required](https://uneca.org/chapter/economic-report-africa-2020/long-term-financing-sustainable-development-africa) to achieve the SDGs in Africa by 2030. Africa’s SDG financing gap is [equivalent](https://www.oecd-ilibrary.org/docserver/8d414b19-en.pdf?expires=1718889277&id=id&accname=guest&checksum=2E7DD53C40FE5B6BCD2ED20EB49846C7#:~:text=This%20annual%20sustainable%20financing%20gap,held%20stock%20of%20financial%20assets) to 0.2% of the value of global financial assets or 10.5% of African held financial assets. 

The resources exist, yet the current global financial architecture has not delivered. Meanwhile, the continent’s development finance institutions, or DFIs, and multilateral development banks, known as MDBs, are using innovative blended-finance solutions to mobilize appropriately priced private capital.

Here we highlight three first-of-their-kind approaches to blended finance by African DFIs and MDBs that can serve as models for future investment.  

__Sustainability-linked bond from the Development Bank of Rwanda__

The International Development Association, or IDA, Private Sector Window is a pool of concessional funds deployed through the World Bank Group to catalyze private sector investment in the poorest and most fragile countries. Rwanda’s development bank took advantage of this scheme to credit-enhance its first sustainability linked bond, becoming the first development bank to do so.

The Development Bank of Rwanda used $10 million of IDA funds to collateralize the $24.8 million 7-year local currency bond issuance, effectively reducing the risk for investors and the cost of borrowing for the bank. In the event of a default, investors have the recourse to take ownership of the collateral. The development bank’s funds were kept in escrow at the National Bank of Rwanda and were invested in Rwanda government bonds of the same tenor as the bond issuance.

This blended-finance structure not only reduced the cost of capital for the development bank but also enabled them to diversify away from their dependence on traditional funding sources (e.g. lines of credit or government funding). As a result, the bond was oversubscribed, with demand from over 100 investors. 

__Takeaway:__ The Development Bank of Rwanda’s application of concessional funding helped strengthen local capital markets and is a proof-of-concept with the potential to be replicated by other national development finance institutions in the continent.

__Green+ Class C shares from The Eastern and Southern Africa Trade and Development Bank__

In 2022, the Eastern and Southern Africa Trade and Development Bank [launched](https://www.tdbgroup.org/tdb-class-c-green-shares-launched-at-cop27-with-african-development-bank-being-first-investor-to-commit/) a novel financial instrument, dubbed “Class C shares” to reduce reliance on donor funding and provide a pathway to attracting institutional investors with investment-grade exposure. Class C shares [mobilized](https://www.tdbgroup.org/tdb-shareholders-approve-a-record-capital-increase-programme-of-usd-1-5-billion/) an additional $1.5 billion into the bank’s authorized capital stock while attracting non-traditional pools of capital including impact investors. Building on this success, at COP27 the development bank [issued](https://www.tdbgroup.org/tdb-class-c-green-shares-launched-at-cop27-with-african-development-bank-being-first-investor-to-commit/) a new category of Green+ Class C shares to increase climate finance flows into the continent. 

This latest equity instrument is the first of its kind within the development bank community, enabling institutional investors to support climate action with risk capital. Every dollar invested will be [leveraged](https://www.tdbgroup.org/tdb-class-c-green-shares-launched-at-cop27-with-african-development-bank-being-first-investor-to-commit/) up to four times into qualifying projects and transactions. To avoid diluting existing shareholders, this share class adds a new layer to the bank’s funding structure. While these shares do not come with direct voting rights, Green+ Class C shareholders receive senior priority over Classes A and B in the event of a liquidation. Two investors, the African Development Bank and the Clean Technology Fund (through AfDB), have cumulatively [committed](https://www.afdb.org/en/news-and-events/press-releases/african-development-bank-and-tdb-join-forces-deploy-clean-technologies-cut-carbon-emissions-africa-68580) $30 million to date. 

Global institutional assets worldwide stand at $400 trillion, the majority of which is invested outside low- and middle-income countries due to concerns around real and perceived risk. 

__Takeaway:__ The Eastern and Southern Africa Trade and Development Bank’s thematic Green+ Class C shares are a great example of how development banks can use their credibility to create viable pathways for global private investors to deploy capital in developing countries. 

__Hybrid capital notes from African Development Bank__

In the wake of calls by the G20 to review multilateral development banks’ ‘capital adequacy frameworks,’ and find ways to boost their lending capacity, African Development Bank has pioneered a new form of capital. Hybrid notes, issued by the bank earlier this year, are an interest-bearing asset like a bond, but low-ranking in repayment seniority (behind regular bonds), like equity. This equity-like characteristic means that hybrid notes can be leveraged to expand lending and provide an alternative to shareholder capital from governments.

The issuance was priced at a coupon rate of 5.75% and was oversubscribed by $6 billion (i.e. there was demand for 8 times what was sold). Interested investors included hedge funds, asset managers, central banks, and pension funds amongst others. This approach can be scaled as the size of the issuance is 6% of AfDB shareholders’ equity, whilst S&P Global has [said](https://www.cgdev.org/blog/one-small-step-afdb-one-giant-leap-all-mdbs) that it would be comfortable with a multilateral development bank issuing hybrid capital of up to a third of total equity. 

__Takeaway:__ These hybrid notes should be replicated. They both help the bank diversify its equity funding base away from fiscally constrained governments and provide private commercial investors an opportunity to support the development agenda at scale.

__Looking ahead__

Standardization and scale of financial products are key to mobilizing commercial capital towards Africa’s development priorities. The approaches articulated above demonstrate several patterns including credit enhancement, investment grade pathways for private capital, diversification of funding sources, and bolstering capital that should be replicated by other DFIs and MDBs across the continent. 

The ability of African development banks to be in the vanguard of financial innovation makes them arguably the most important and relevant financial institutions to lead the continent’s future growth and economic renaissance.

Learn about three first-of-their-kind approaches to blended finance by African DFIs and MDBs that can serve as models for future investment.