the climate crisis and achieving the United Nations’ Sustainable Development
Goals (SDGs) will require a cross sector mobilisation by multiple actors across
the economy and society – from government, investors and banks, to communities,
non-governmental organisations (NGOs) and philanthropists. During the recent Blended Finance and Impact Week
forum hosted by the Organisation for Economic Cooperation and Development
(OECD), experts tackled key matters in blended finance such as impact
measurement, adaptation and mitigation to climate change, just transition,
regulation, and Covid-19 recovery.
Asset managers, sustainable infrastructure specialists, policy experts, environment representatives from the OECD and BNP Paribas’ sustainable business expert, Pierre Rousseau, joined a panel to discuss how institutional investors can harness blended finance to drive the scaling up of climate action in developing countries.
Panellists deliberated the opportunities, challenges and best practice examples of blended finance from across the investor spectrum, highlighting the importance of creating diverse, multi-disciplined coalitions between private finance and the public sector.
Importance of knowledge networks for climate action
A significant part of this process is translating specific non-financial knowledge, such as conservation expertise, to innovating on nature-based solutions.
“Blended finance solutions require replicability potential to scale up and address critical climate issues”
This cross-industry and regional knowledge sharing is essential in
the process explained Rousseau, who recommended that the banking sector must “interact
much more” with public sector experts, climate scientists, and institutions
such as development banks to accelerate the “chain of investment” towards the
transition in developing countries who need access to blended finance solutions.
Historically, the relatively smaller size of localised climate projects have limited access to traditional investor bases. This leaves a funding gap that needs addressing, and blended finance can be a vital tool in the fight to tackle the climate and biodiversity crisis whilst also ensuring a just transition. The OECD calculates that between 2012 and 2018, blended finance instruments such as guarantees and direct investment have mobilised over $200bn in private capital for development.
Education and awareness play a critical role in fostering inter-organisational discussions: just as the finance industry can learn from outside experts, there are also several areas of financial expertise which banks can share with consortiums, including “infrastructure financing, custody, transparency best practice” and other processes, Rousseau highlighted.
Standardisation critical for measuring impact
However, a collective vision for the development of blended finance is important: there must be a “willingness to create standardised systems to measure impact”, as often blended finance solutions require replicability potential to scale up and address critical climate issues, Rousseau said. Optimising and harmonising reporting is therefore a key component for development: “we need to find the correct way to measure and assess impact, and have the right data,” he added.
Leading the blended finance movement in banking
BNP Paribas has pioneered several blended finance projects to support climate action and nature-based solutions in developing countries, through consortiums with partners across the public and private sector. This ultimately addresses the just transition, and helps communities who may face financial exclusion as blended finance solutions enable access to institutional investor capital at a local and inter-regional level. Notable projects include:
Subnational Climate Finance (SCF) initiative: In 2020, BNP Paribas collaborated with Pegasus Capital Advisors, the International Union for Conservation of Nature (IUCN), Gold Standard, and R20 (Regions of Climate Action) to launch the Sub-national Climate Finance Initiative. SCF is a global funding instrument to mitigate climate change and strengthen community resilience projects, with an initial commitment of up to USD 150 million from the Green Climate Fund (GCF). SCF seeks to scale an untapped market of mid-scale climate resilient and low-carbon infrastructure, regenerative agriculture and nature-based solutions in developing countries. The SCF consortium works through four key components:
Tropical Landscape Finance Facility (TLFF): The TLFF is a combination of a grant fund and lending platform aimed at supporting climate friendly and social impact solutions in developing countries. A key project of TLFF was the PT Royal Lestari Utama (RLU), an innovative coalition which supported Michelin to scale up the production of natural rubber on degraded land and protect Indonesian rainforests. The TLFF was established as a coalition across the value chain:
The structure blends and sequences grants and concessional capital to mobilise private capital at scale for coral reef protection, therefore improving the invest-ability and financial resiliency of nature-based solutions. This is a public private partnership, which includes core Philanthropies, Member States, UN Organizations, Global Fund and Impact Investors. The funds approach includes several activities to support direct and indirect conservation. These target both the protection of the direct coral reef ecosystem and surrounding stressors – such as coastal agriculture, plastic waste management and new activities opportunities such sustainable tourism, fisheries and aquaculture. The funds will also invest in start-up developing technical solutions for coral reef conservation and its biodiversity regeneration.
The coalition was created as a new blended finance collective partnership between BNP Paribas, SYSTEMIQ, the United Nations Development Programme (UNDP), UN Capital Development Fund (UNCDF), the Prince Albert II of Monaco Foundation and Paul G. Allen Family Foundation.