Title: Unleashing Impact: A Strategic Guide to Blended Finance, Simplified
Keith Ippel, the co-CEO and founder of Spring, spearheads a leading impact investing ecosystem that has raised over $51 million in early-stage capital. To further maximize the potential of impact investing and make it mainstream, we can utilize a proven approach: a diversified portfolio.
One such approach gaining traction in the impact investing world is blended finance, which leverages philanthropic capital to allow various organizations and investors to collaborate and invest together while achieving their individual objectives. Blended finance targets investment barriers such as risk and misaligned returns.
Understanding Blended Finance
Blended finance essentially involves the use of public or philanthropic capital to increase private sector investment in sustainable development. This approach allows organizations with varying risk and return objectives to invest together, achieving their individual goals while working together.
Moving Forward With Blended Finance
Blended finance has garnered momentum due to its ability to deploy capital into non-traditional investment opportunities. This can include climate issues, impact real estate, and other urgent challenges. For example, nine Canadian families recently announced a deployment of $405 million for climate action through a blended finance structure.
Beyond environmental benefits, blended finance can also help address funding imbalances, ensuring equitable access for underrepresented groups. One case study is the collaboration between the Sorenson Impact Institute, Raven Indigenous Capital Partners, and the Raven Indigenous Impact Foundation.
Best Practices
Blended finance is just a tool—not a complex formula. It can be integrated into any impact investing strategy, and investors should start small, gain experience, and educate themselves before making substantial contributions.
Evaluating the Risks
Blended finance has been used in various projects addressing significant challenges, providing a wealth of data for de-risking new deals. Investors should consider factors like testable risk factors, expertise from co-investors, impact strategies, and technical assistance funding.
In conclusion, blended finance offers the potential to mobilize investments for the greater good while aligning with investors' risk, return, and purpose goals. It's an approach that can be led by the community for the community, offering an opportunity for each organization to contribute and collaborate.
Enrichment Data:
Blended Finance Definition
Blended finance refers to a financing approach that combines concessional public or philanthropic capital with private capital to invest in sustainable development projects. This blending is done to reduce risks and make such projects attractive to private investors who might otherwise perceive them as too risky or unprofitable.
The Role of Blended Finance in Impact Investing
Blended finance is a tool that can enhance the potential of impact investing by balancing risks, returns, and impact goals. It allows different organizations and investors with varying risk and return objectives to collaborate and invest while achieving their goals.
Advantages of Blended Finance
- Risk Reduction: Blended finance helps mitigate the perceived and real risks faced by private investors, making sustainable projects more attractive.
- Private Capital Attraction: It pulls in private capital that might not invest otherwise, particularly in projects focused on the UN Sustainable Development Goals in developing countries.
- De-Risking Mechanisms: Blended finance structures seek to use limited public resources to catalyze private sector investment—however, most non-concessionary capital often comes from public sources, highlighting the importance of improving de-risking mechanisms.
- Integrated Infrastructure Financing: Blended finance facilitates projects integrating grey and green infrastructure, yielding both financial returns and social or environmental benefits.
- Outcome-Based Mechanisms: It provides incentives for sustainability by linking financial transactions to predefined milestones.
- Technical Assistance and Capacity Building: Blended finance often includes technical support and capacity building, helping financial institutions and projects undergo transformations aligned with international sustainability standards.
Challenges and Criticisms of Blended Finance
- Private Investment Mobilization: Critics argue that blended finance has yet to fully mobilize sufficient private investment to meet the UN Sustainable Development Goals.
- Effectiveness and Scalability: There's a need to improve the effectiveness and scalability of blended finance mechanisms to maximize its potential in impact investing.
- Alignment of Objectives: The challenge is ensuring that the objectives of all stakeholders are aligned throughout the investment process.
[1] OECD Report On Blended Finance: Challenges and Opportunities (2018): https://www.oecd.org/daf/static/files/29549-oe1d-blended-finance-challenges-opportunities-2018.pdf[2] World Bank Group: Blended Finance (2023): https://www.worldbank.org/en/topic/blendedfinance[3] GIIN Report: Making the Case for Blended Finance (2020): https://thegiin.org/insights/research/making-case-for-blended-finance/[4] GIIN and WRI Report: Advancing Environmental and Social Outcomes in Infrastructure Investment (2023): https://thegiin.org/insights/report/advancing-environmental-social-outcomes-infrastructure-investment/[5] World Bank Group, DFID, Government of Norway, German Development Bank, and German Development Cooperation: Leveraging Commercial Markets for Impact (2018): https://www.worldbank.org/en/publication/Leveraging-Commercial-Markets-for-Impact
Keith Ippel, being a key figure in the impact investing world with his leadership at Spring, could potentially advocate for the benefits of blended finance to attract more investors. The collaboration between Raven Indigenous Capital Partners, the Sorenson Impact Institute, and the Raven Indigenous Impact Foundation is an example of how blended finance can be utilized effectively by underrepresented groups.
