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Blended Finance Equity Fund

Description

Blended finance equity funds are vehicles that follow the blended finance structuring approach: leveraging catalytic capital from public or philanthropic sources to increase private sector investment in sustainable development. They aim to mitigate specific investment risks through the use of equity instruments and help to balance the risk/return profile of their investments. They are structured to overcome market barriers and leverage other investments to make otherwise commercially unviable projects viable.

 

Benefits

Blended finance equity funds help fill financing gaps, address market failures and leverage private sector capital for strategic projects. By reducing perceived risk, these funds improve the creditworthiness of projects and encourage further investment. Blended equity funds can also help create markets by demonstrating the viability of certain investments. This disciplined and focused approach ensures that funds are used effectively, efficiently, and transparently.

Due to the nature of the financial instrument (i.e. equity), these funds are typically dedicated to riskier investments than blended finance debt funds as they absorb early-stage risk, making them ideal for pioneering and high-risk initiatives.

 

Case Study

Climate Finance Partnership, a blended finance equity fund

In 2018, the creation of the Climate Finance Partnership (CFP) was announced by the French Development Agency (AFD), the German Ministry of the Environment (BMU), BlackRock, the Hewlett Foundation, the Grantham Foundation, the Quadrivium Foundation, and subsequently joined by the Japan Bank for International Cooperation (JBIC). The CFP is a blended finance equity fund aimed to accelerate climate investments in emerging markets. The fund combines public, philanthropic, and private capital to mobilize large-scale institutional investment in climate sectors.

A first tranche of USD 130 million of catalytic funds, supported by public and philanthropic foundations, had – at the time of writing – leveraged USD 540 million in private investment. The fund is managed by BlackRock, which made investment decisions in accordance with the founders' investment policy. The CFP targeted projects in Southeast Asia, Latin America, and Africa, with at least 25% of investments in Africa. Areas of focus included renewable energy generation, energy efficiency in the residential, commercial and industrial sectors, energy storage solutions and low-emission mobility services.

Ditrolic Energy is a good example of the types of equity investments made by the CFP. In 2024, the CFP invested in this Malaysian renewable energy developer, with the aim to support its pipeline of + 1GW of solar projects, targeting both commercial and industrial as well as utility-scale solar installations in Southeast Asia.  


Additional Sources

Locations
ASEAN, Malaysia, Bangladesh, Indonesia, Philippines
Year published
01 January 2018
De-risking tool
Blended finance
Risk category
Resource risk, Counterparty risk, Financial sector risk

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