As 2023 draws to a close, we present Convergence’s standout content of the year – reports, case studies, blogs, and more that resonated with you the most in 2023!
Top Report: State of Blended Finance 2023
Drawing from the largest and most detailed database on historical blended finance transactions, this year’s report focuses again on blended finance for climate and presents new data and analyses on the global market for blended finance for both climate mitigation and adaptation, including insights on deal and investor trends. The report draws from expert voices including Brazilian Development Bank (BNDES), Climate Policy Initiative (CPI), E3G (Third Generation Environmentalism), and much more. The report found that:
The overall blended finance market reached a ten-year low in total financing — a trend that is symptomatic of larger macroeconomic challenges, such as inflationary pressures, mounting debt burdens, and geopolitical instability.
While adaptation blended finance continues to be under-represented, with only 15% of deals since 2013 having a pure adaptation focus, hybrid transactions, which address both climate mitigation and adaptation goals, represent an area of opportunity for the private sector to invest using an adaptation lens.
Just over half of the commitments to climate blended finance transactions between 2020-2022 have come from public sector investors. To achieve a net zero scenario, it is critical that private sector financing grows both in relative and absolute terms compared to public sources.
Top Op-ed: 4 ways DFIs can mobilize more private capital for the SDGs
Convergence CEO Joan Larrea and Dalberg Partner, Kusi H. present four ways Development Finance Institutions (DFIs) can mobilize more private capital towards the Sustainable Development Goals. These recommendations represent ways that DFIs must rethink how they will provide capital to fulfill their mandate to foster private sector activity where it is most needed. This op-ed is featured among Devex’s Global Voices for 2023.
Top Data Brief: Blended Finance & Leveraging Concessionality
This Data Brief expands upon a 2018 study by Convergence that benchmarked leverage ratios for a sample of 72 blended finance funds. Based on a larger sample of 340 transactions from Convergence’s database, this Brief found that every dollar of concessional capital has mobilized on average $4.1 in commercially priced capital, of which just under half ($1.8) on average has been sourced from private sector investors.
Among the key takeaways, the report recommends that to mobilize capital from private sector investors more effectively, providers of concessional capital must adopt private sector mobilization strategies and increase their transparency on financial terms and impact.
Not a member? You can read a blog with some key findings from the Data Brief here.
Top Case Study: Tropical Asia Forest Fund 2 (TAFF2)
Tropical Asia Forest Fund (TAFF2) was launched in 2018 by New Forests to provide institutional investors with exposure to sustainably managed plantation forests and nature-based solutions investments in Southeast Asia. With an overall target fund size of $300 million, TAFF2 employs a blended finance approach, which enables the Fund to achieve impact targets while delivering commercial returns.
TAFF2 presents important insights including:
The importance of involving communities to create shared interests in achieving conservation and climate objectives.
Technical assistance funds can increase the bankability of a Fund’s underlying investments.
Blended finance structures can be utilized to create financial returns alongside impact creation activities.
Investment readiness can play a role in increasing the odds and flow of successful outcomes by building a pipeline of investment opportunities well in advance.
Top Blog: Can Blended Finance work in fragile contexts?
In frontier and fragile markets, any significant or permanent resolution to mounting challenges is far too complex, nuanced and financially burdensome for any one organisation, government body or sector. Blended finance is one answer to the appeal for a new paradigm in fragile contexts. This blog discusses how blended finance can shift attitudes in the development and humanitarian sector from regarding aid recipients as victims of circumstance to active economic actors and facilitate long-term development solutions through tri-sector partnerships that support the resiliency, resourcefulness and entrepreneurial ambitions of vulnerable beneficiaries and communities.
Honourable mention: Evaluating the Impact of Blended Finance: Convergence’s Case Study Portfolio Revisited
Since 2015, Convergence has produced 30 case studies to provide detailed and comprehensive dives into individual blended finance transactions. These knowledge products build the evidence base for blended finance as a development tool and support practitioners and prospective investors in future blended finance endeavours. This report provides an ex-post analysis of Convergence’s portfolio of case studies to uncover the impact of these blended finance transactions, including development impact on job creation and CO2 displacement, financial performance by deal type, sector and size, and more.
Read the report here.