Written in collaboration with Thomas An, Associate, Market Acceleration & Design Funding (former).
Since its inception eight years ago, Convergence’s Design Funding program has granted over $22 million in design-stage funding to 72 blended finance solutions, fostering the development and implementation of early-stage initiatives that attract private capital towards emerging markets and the Sustainable Development Goals. To date, 28 of these supported solutions have collectively mobilized $2 billion in follow-on capital from a diverse array of public, philanthropic, and private investors. The $2 billion also includes capital mobilized through joint-run programs, such as the SDG Impact Finance Initiative, and the Catalytic Climate Finance Facility in collaboration with the Climate Policy Initiative.
This blog delves into how these solutions have successfully attracted substantial capital, breaking down the types of investors involved and the specific financial vehicles utilized. We also spotlight three projects—Mirova’s Gigaton Empowerment Fund, BlackRock’s Climate Finance Partnership, and The Nature Conservancy’s Blue Bonds—which together account for nearly 70% of the total capital mobilized. By examining these case studies, we aim to provide insights into what makes certain blended finance models effective and scalable, as well as highlight lessons learned from smaller-scale projects like Africa GreenCo, which showcase innovative approaches in high-impact sectors.
Over half of capital mobilized in the form of private, commercial capital
Figure 1: Breakdown of the Design Funding Program’s $2B Capital mobilization figure based on investor and capital type
Most notably, approximately 78% of the total capital mobilized originates from capital providers seeking market-rate financial returns, including $1.19 billion from exclusively private commercial investments. This commitment underscores the effectiveness of these blended finance solutions in instilling confidence and attracting substantial interest from commercially oriented investors.
Contributing further to this mobilization, nearly 14% of the total capital was sourced as concessional funding with below-market rate return expectations from development agencies and similar entities. These development agencies play a pivotal role by offering more favorable terms that lower investment risk, thereby encouraging private investor participation in high-impact projects that might otherwise be overlooked.
The remaining portion of the total capital mobilized comprises philanthropic and non-return seeking concessional capital, with $157 million allocated in grants. While we see grants more commonly used at the investment stage in transactions in the broader blended finance market, most grants secured by vehicles within our portfolio have been directed toward either earlier-stage design and scale-up activities or technical assistance, providing critical support for vehicle structuring and implementation.
These funding structures have a strong demonstration effect, showcasing how blended finance can effectively mobilize private capital.
Fund and bond vehicle types mobilized almost all of the capital
Figure 2: Proportion of capital mobilized disaggregated by vehicle type
As illustrated in Figure 2, the Design Funding portfolio demonstrates a significant concentration of capital mobilization in fund and bond vehicles. Fund-type vehicles have attracted $1.29 billion, accounting for 64% of the total $2 billion mobilized, while bond and note-type vehicles have garnered $550 million, representing 27%. These figures are consistent with prevailing trends in the broader blended finance market as documented by Convergence.
Investors’ familiarity with fund structures plays a crucial role in enhancing their participation in these transactions. Funds facilitate the aggregation of diverse projects or companies, making them an efficient vehicle for investing in diversified portfolios. Bonds and notes in our portfolio, on the other hand, have been primarily utilized for sector-specific solutions such as the blue or green economy. The issuers rely on external certifications to verify targeted impacts and adherence to established standards, thereby attracting investors interested in specific developmental objectives.
Outliers in this landscape include facilities, companies, and impact bonds—nuanced and needs-based blended finance structures that have yet to replicate at scale. At Convergence, we remain eager to support applications proposing unique and innovative financial vehicles across these structure types, recognizing their potential to drive impactful solutions in the future.
Taking Bets Leads to Whale deals and Scaled Development
Of the Convergence grant portfolio’s $2 billion of capital mobilized, three solutions represent nearly 70% of the mobilization figure, collectively raising $1.3 billion. The three whale solutions include the Mirova Gigaton Fund, Blackrock’s Climate Finance Partnership (CFP), and The Nature Conservancy’s Blue Bonds for Ocean Conservation.
Mirova’s Gigaton Empowerment Fund has mobilized $331.5 million in capital. The fund is designed with an intentional gender lens, integrating gender-focused investment strategies and business practices. The Fund also is positioned to become the largest-scale initiative addressing the electricity gap. Convergence’s design-stage grant supported the fund in improving its gender strategies to meet the 2X Certification criteria, pursue a credit rating and attract private investors. The fund has already begun making strides in the clean energy sector in emerging markets, investing in three energy projects thus far across the Africa Region. A contributing factor to the success and scale of the fund is Mirova's experience with managing other blended finance funds. Mirova draws upon its previous experiences and learnings for the Gigaton Empowerment Fund to demonstrate to investors the financial soundness and viability of the fund.
Climate Finance Partnership (CFP), a private equity fund managed by BlackRock, represents one of the largest blended finance transactions to date, aiming to reach a financial close of $1 billion, and marking an unprecedented amount of capital mobilized towards achieving the SDGs. Its structure, size, catalytic contributions and investment strategy position it as a scalable and replicable climate-focused transaction in emerging markets. The Fund has invested in five projects in the wind and solar industries, most notably contributing to accessibility and affordability of energy in Kenya, and supporting Brazil’s national transition to low-carbon energy. A unique aspect of the CFP is its substantial catalytic tranche, which has received over $100 million in concessional contributions. The private equity fund aims to generate the highest industry-wide concessional to private mobilization ratio by prioritizing investments in middle-income markets.
The Belize Blue Bond for Ocean Conservation has mobilized $400.8 million of capital to date since its launch in 2021. The solution gained Convergence’s support in its early design and structuring stages because of its innovative structure, which supports economic development by refinancing sovereign debt to strengthen national marine conservation efforts. The Belize Blue Bond has made serious waves, reducing national debt by 12%. The initial Blue Bond launched in the Seychelles was successful, and served as a model for subsequent blue bonds in other SIDS, including the Belize Bond, and then, the Barbados Bond launched in 2022, and Ecuador Debt-for-Nature Swap in 2023. The structuring of all these transactions leveraged blended finance to demonstrate the bonds structure viability and replicability, and reduce the need for concessional capital in future Blue Bonds.
While these three whale deals showcase effective ways to increase commercial contributions towards the SDGs, relatively smaller scale solutions in the design funding portfolio have innovative models that not only generate significant impacts, but can also have strong demonstration effects for other blended finance practitioners.
One example is Africa Greenco (AGC), which has mobilized approximately $23 million in debt, equity and grant commitments, and $122.5 million in guarantee commitments since Convergence’s contributions. Africa faces a persistent and widespread issue of unreliable and insufficient energy access with nearly 600 million individuals lacking access to electricity in 2022. Despite being a continent rich in energy resources, Sub-Saharan Africa accounts for over 75% of the global population living without electricity. AGC emerged as an innovative solution to this pervasive problem, functioning as an intermediary off-taker and service provider of renewable energy across the Southern Africa Power Pool, and mitigating the risk of power purchasers defaulting to unreliable independent renewable energy companies. This helps strengthen the region’s renewable energy sector, boosts investment in clean energy projects, and enhances the reliability and affordability of energy across Africa. Africa GreenCo has signed three power purchase agreements as of 2023: the 25 MW Ilute Solar PV Project in Western Zambia, an 85 MW solar project with AMEA Power in South Africa, and most recently, the 30MW Sable Solar Project in Zimbabwe. These agreements are facilitating the development of 140 MW of clean energy capacity. Despite the company’s smaller mobilization size, it has provided valuable learnings to the renewable energy market in Africa, as well as delivering substantial impacts to residents and businesses across the region. Since its inception in 2015, there has been a rise in similar renewable off-taker models across the African region. AGC has continued to build on its success, recently signing a facilities agreement with Stanbic Bank and Standard Bank to prepay for 130 MW of electricity imports into Zambia.
Conclusion
“The Design Funding approach offers significant leverage for donors, philanthropists, and impact investors to accelerate the race to address key global development objectives,” says Leah Pedersen, Convergence Senior Director. “The impressive track record of Convergence’s Design Funding initiative underscores the effectiveness of accelerating the launch of new blended finance structures to attract more private sector capital and highlights the catalytic role of grant funding in structuring impactful financing solutions.” By providing design-stage grants, Convergence enhances the viability of early-stage projects and de-risks investments, signaling to private investors that these initiatives are likely sound both financially and in terms of impact. As these projects scale and replicate, they have the potential to contribute significantly to sustainable development in emerging economies. Through design funding, Convergence directly advances its mission to increase private investment in emerging markets and developing economies, supporting the achievement of the SDGs.
