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31 Oct 19

Scaling blended finance solutions for conservation finance

Scaling blended finance solutions for conservation finance

Conservation finance is a set of mechanisms for investing in ecosystems, which generates additional, long-term, and more diversified sources of capital. In recent years, Convergence has been seeing growing interest in blended finance for conservation. Because conservation can be a slow and risky business and it can take decades to realize, verify and capitalize on ecosystem benefits, blended finance is one important tool for managing key risks and mobilizing private sector investment in conservation projects.

Our latest Data Brief considers how blended finance approaches have been deployed within conservation finance to date. The Convergence database has captured 30 blended finance transactions focused on financing conservation projects, which represent aggregate financing of $3.1 billion. To date, blended finance transactions with conservation mandates have largely focused on sustainable agriculture and sustainable forestry / reforestation, followed by land restoration. Other transactions have been focused on aquaculture, ecotourism, sustainable apparel, and water conservation.

Here are a few key findings from our latest Brief:

  • Conservation solutions have hit a scalable size: Blended finance transactions for conservation have been more than twice as likely to be $100-250 million in total size, compared to all blended finance transactions captured in Convergence’s database. This reflects, at least in part, the dominance of pooled vehicle structures in this space. Approximately two-thirds of transactions have been blended funds, including those with a wide lens (i.e., focusing on conservation broadly across multiple sectors) as well as those with a narrow lens (i.e., focusing on a specific conservation issue like oceans or sustainable coffee). The larger typical transaction sizes and pooled vehicle structures could indicate strong potential to scale private sector investment in this space.
  • Design-stage grants have been key for conservation: Relative to all blended finance transactions, solutions for conservation have been nearly twice as likely to benefit from design-stage grants. It can take time and resources to design finance mechanisms that generate cash flows, establish lawful and equitable land claims, and develop measurable targets. Nonetheless, the most common blended finance archetype in conservation finance has been concessional debt or equity, which appears in 70% of transactions. Concessional capital – including design-stage grants and concessional debt and equity – has been most commonly provided by development agencies and multi-donor funds (44% of commitments).

Conservation finance

  • Private sector organizations have been key financiers, but also sponsors: Each of the thirty blended finance transaction included in this data brief has mobilized capital from one or more private sector investors, primarily banks and corporates. Public capital is still critical: an equal proportion of commercial investments have been provided by traditional commercial investors (e.g., banks and corporates) and public institutions like MDBs and DFIs. Moreover, the private sector has also played a role as deal sponsor: approximately half of blended finance transactions focused on conservation have been led by the private sector. For example, Danone, Mirova-Althelia, and Terra Global Capital have all been among those at the forefront of piloting blended finance solutions for ecosystem conservation.

The analysis here demonstrates that blended finance is not new to conservation finance and that there is a growing body of evidence that can be used to refine and scale solutions with demonstrated success. Anecdotally, Convergence sees strong momentum behind conservation finance – among members and the broader community – given its critical role in climate change mitigation and adaptation.

Become a member and read the full brief.

About the Author
Justice Johnston

As a Manager, Justice is responsible for Convergence’s data and research activities, including building out Convergence’s database of historical blended finance transactions, documenting blended finance case studies, developing blended finance trends analysis and benchmarks, and coordinating webinars and workshops. Prior to joining Convergence, she worked at the MasterCard Foundation as Program Coordinator for the Financial Inclusion team. While there, Justice was responsible for contributing to new project development, managing current projects, updating project records and preparing strategic reports, as well as managing team organization and coordination. Prior to joining the Foundation, Justice was at the University of Toronto’s Munk School of Global Affairs completing her master’s thesis on Financial Inclusion and the Role of Government. She also has a variety of research and policy experience through her work at Scotiabank’s Government Communications, Policy and Research department, the G20 Research Group, and the World Wildlife Fund.

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