In February 2021, the UK Foreign, Commonwealth and Development Office (FCDO) launched the COP26 Blended Finance Platform, supported by CDC Group and Convergence. This initiative is focused on identifying blended finance solutions that mobilize more climate finance and investment to emerging markets and developing countries, specifically targeting institutional investors, asset owners and asset managers. The Platform is designed to help deliver additional financial commitments to climate/environment structures and projects that can be showcased and achieve financial close at or following COP26 in Glasgow in November 2021, hosted by the UK Government.
Impetus for the Initiative
The annual investment needs for climate and environment projects in developing countries are estimated by UNCTAD at USD 1.2 - 2 trillion. Despite at least 35% of current development finance and blended finance flows targeting climate action, there is strong consensus that blended finance remains an under-utilized tool to mobilize private investment to climate finance in developing countries.
Blended finance helps create market-equivalent risk-return investment opportunities to catalyze private investors to invest into projects that would otherwise not meet their investment criteria, especially for developing countries where the median sovereign risk rating is S&P-equivalent “B,” a level of risk beyond the mandate of most asset owners and asset managers.
According to Convergence’s database – the world’s largest database of blended finance transactions – over 600 blended finance transactions have mobilized nearly USD 144 billion in aggregate financing. Climate finance transactions aligned to Sustainable Development Goals (SDGs) 7 (Affordable & Clean Energy), 13 (Climate Action) and 11 (Sustainable Cities) represent over half of all aggregate flows in the blended finance market. However, annual blended finance flows to the climate finance SDGs remain far below the annual investment needs for power projects, climate change mitigation and climate change adaptation and resilience. For example, the annual investment gap for mitigation alone is estimated at USD 380-680 billion.
What you need to know
The COP26 Blended Finance Platform aims to bring together public, philanthropic, and private investors to finance a sustainable future, by committing to a set of focused activities that aim to:
- Educate public and philanthropic organizations of the need to allocate catalytic capital to create market-equivalent investment opportunities for private investors
- Build awareness of prospective public, private and, philanthropic organizations to fund climate/environment blended finance vehicles
- Identify and coordinate multiple blended finance vehicles to successfully raise concessional and commercial capital prior to, during and after COP26 in Glasgow in November 2021
As part of this initiative, the UK FCDO and Convergence have established a Working Group of development organizations (ministries, development agencies, philanthropic foundations, and donor climate funds) to develop and distribute relevant data and research on blended finance climate solutions and identify and support blended finance vehicles seeking institutional private capital, focused on power projects, climate change mitigation and climate change adaptation and resilience.
__Get familiar with blended finance transactions aligned with the COP26 agenda. __
Please contact Safia Gulamani at [email protected] if you have data and insights to contribute to the COP26 Blended Finance Platform.