The world needs to invest $5 trillion annually by 2030 to facilitate the shift to clean energy, according analysis by the IMF and the International Energy Agency. In order to do that, we will need to creatively combine capital sources - it won’t come just from private capital. 

‍

Blended finance provides one blueprint for the potential impact of bringing together different sources of capital to finance projects or companies. 

‍

Commonly used for international development, blended capital helps derisk investments and loans. Outside development finance, many are applying similar principles to derisk other projects, from real estate to renewable energy. 

‍

Blended finance acts as catalytic capital to unlock commercial investment ($1 can unlock $4 of investment). It allows capital investors choose different risk tolerances - where those willing to take more risk can act as a capital cushion for investors who need to take less risk. 

‍

‍

‍

Lessons from blended finance:

‍

Here are some lessons from blended finance for applicable to climate venture investing. 

• Explore creative combinations of catalytic or concessional partners (beyond usual suspects like governments and DFIs).  

• Foundations or non-profits as well as meaningful partnerships with Indigenous communities can maximize impact and unlock new sources of capital. 

• Assess whether retail investors may provide an additional source of early stage capital. 

• Reg A or crowdfunding campaigns can help bring in early dollars to derisk an impactful vision.

• Consider different levels at which blended finance may be applicable 

• Blended LPs at the fund level, creative capital stacks at the company level, or blended project financing, even focused at the outcome level (see Figure 2) 

• Evaluate the potential costs and risks associated with balancing varied investor mandates

• Public benefits vs private returns, legal complexities with deal structure, or additional reporting and transparency requirements 

‍

‍