Blended finance is struggling to take off
Hopes that it will fill a trillion-dollar financing gap seem far-fetched
ANDREW JOHNSTONE runs a fund that goes “where people have not gone before”. Launched in 2015, Climate Investor One finances renewable-energy projects that the market deems too risky, such as wind farms in Vietnam and hydropower facilities in Uganda. It uses grants from development agencies to attract capital from pension funds. That allows it to raise more cash. For every $1 in grants, it has secured $12 from the private sector.
The fund is an example of blended finance, where public or philanthropic money reduces the risk from investments for the private sector, using financial vehicles such as default insurance or loan guarantees. The mixed-up money either directly finances projects, often infrastructure in poor countries, or pays into a fund supporting many ventures. The idea took root in development circles in the late 2000s. Many still see it as a way for markets to plug the gap in financing the achievement of the UN’s sustainable-development goals, estimated to be a whopping $2.5trn a year.
This article appeared in the Finance & economics section of the print edition under the headline "Seeking scale"
Finance & economics August 15th 2020
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