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15 Nov 21

OP-ED: BlackRock’s Climate Finance Partnership, a turning point for the SDGs and Climate investment?

OP-ED: BlackRock’s Climate Finance Partnership, a turning point for the SDGs and Climate investment?

At COP26, BlackRock announced an initial financial close of $673 million for its $1 billion Climate Finance Partnership Fund (CFP) – a blended finance fund that will deliver critical equity investment to at least 15 climate projects in emerging markets. This is a milestone event for the Sustainable Development Goals (SDGs), climate investment, and blended finance, that has the potential to turn the tide of how and in what volumes investment and capital flow into developing countries. Nothing of this scale has ever been achieved in the space, and it has all the key components to mobilize the $100+ billion of investment annually advocated at COP.

Blended finance deals like CFP will be critical to mobilizing private capital because the most significant barrier to private investment in developing countries is risk – the median sovereign risk rating is well beyond the mandate of most debt and equity investors. Blended finance uses catalytic funds from public and philanthropic sources to create investible assets with market risk-adjusted returns to increase private sector investment in emerging markets and sustainable development.

Climate action and blended finance are inextricably linked. Convergence’s recent State of Blended Finance 2021 Report found that about 50% of all blended finance transactions target SDGs that are related to climate change (e.g. Goal 7: Affordable and Clean Energy, Goal 13: Climate action).

The annual investment needs in developing countries to achieve the SDGs and Paris Agreement objectives is estimated at $4 – 4.5 trillion. With actual investment around $1.5 trillion, the gap is $2.5-3 trillion. If we’re ever going to get close to bridging this gap, it’s clear that we’re going to need more blended finance transactions at the scale of the CFP.

So, what is it about the CFP that we’re excited about? It hits nearly all the characteristics for a blended finance deal, as outlined in our State of Blended Finance report, that we believe are required to achieve scale investment in developing countries:

  1. Scale: CFP achieves investors’ need for $500+ million transactions – a rarity in the development finance and blended finance markets.
  2. Collaboration of catalytic funders: At least five funders have allocated $100+ million in one transaction – again, very rare.
  3. Standardization: CFP is a straightforward fund structure that can be replicated and that institutional investors are very familiar with.
  4. Aligned to investor interests/strategies: ESG, sustainable finance, climate finance, impact investing and responsible investment - and safeguarded from green washing by the presence of top-tier development / climate organizations

It’s important to mention these deals take time and an array of actors to reach successful close. In 2018 Convergence and Government of Canada supported Aligned Climate Capital, the small team that originally took this idea to the market, through our market acceleration program to structure the transaction when it was in an embryonic stage. Around then, BlackRock signed on as asset manager and has been joined by the French, German, and Japanese governments, the Grantham Foundation, and the Ikea Foundation.

Transactions like the CFP are rare, but they shouldn’t be. As BlackRock has demonstrated, they can make good financial sense and they’re one of the few ways forward we have of aiming more institutional money at the SDGs. We hope this transaction sets off a domino effect amongst institutional investors and donors alike, that sees many more transactions at this scale in the future. Let this be a turning point.

About the Author
Christopher Clubb

Chris Clubb has 20+ years of experience financing development projects in more than fifty emerging and frontier markets. Prior to joining Convergence, he was the Director leading European Bank for Reconstruction and Development’s (EBRD) financing/investment activities in its early transition countries where EBRD increased its annual investments five-fold to become the largest investor in these low-income countries. While at EBRD, Chris innovated and implemented in partnership with more than 20 donors many of EBRD’s blended finance programs – including the leading local currency program for SME finance and development. Prior to EBRD, Chris provided long-term financing to strategic European infrastructure projects while at European Investment Bank, provided cross-border financing to international buyers while at Export Development Canada, and started his banking/financing career in corporate banking at Toronto Dominion Bank. Chris has held senior strategic risk management positions at EBRD and EDC, including the design and implementation of an enterprise-wide risk management framework.