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Danish Climate Investment Fund Case Study

Authored by Convergence

The Danish state and IFU (The Danish Investment Fund for Developing Countries) established the Danish Climate Investment Fund (KIF) in 2012 to attract institutional capital to investments in low-carbon and climate-resilient projects in developing countries. KIF aims to support the achievement of the goals of the Copenhagen Accord.

KIF represents a best-practice example of utilizing blended finance—specifically a preferred return structure—to attract institutional investors to sustainable development investments. Under KIF’s unique preferred return structure, institutional investors receive preferential upside of up to 6% per annum, without exposing public money to disproportionate downside losses.

KIF presents several insights useful for others looking to create or invest in similar structures:

  • Open and regular communication between government and public pension funds builds trust and common language;
  • A collaborative design process is critical to understanding investors’ requirements and ensuring the capital structure is catalytic;
  • In blended finance, public investors often deploy instruments to reduce private investor risk; however, leveraging public money to alter the return profile is also a smart approach to attracting private capital; and
  • A deeply networked and experienced general partner–such as a development finance institution–is critical to attracting institutional capital to invest in markets where they do not have experience.
    01 Sep 17
    Region Focus
    Central Africa, East Africa, Southern Africa, West Africa, Sub-Saharan Africa
    Sector Focus
    Sub-Sector Focus
    Energy Efficiency / Emissions Reduction, Renewable Energy