Blended Finance Playbook

The UN Environment Programme estimates that meeting climate change, biodiversity and land degradation targets will require an investment of USD8.1 trillion in nature by 2050¹. Governments are under growing pressure to increase funding to meet these targets and are aware that public finance alone will not be sufficient to achieve these goals.

Public financing institutions are increasingly interested in ways to use their balance sheets to attract private investors and leverage private capital. Blended finance is an approach that involves the use of public funds to change the risk and return profile of investment projects in order to attract the private sector. According to Convergence, sectors such as energy and infrastructure, represent the large proportion of blended finance transactions today where projects create service, generate revenues and can clearly measure their financial return. Nature’s ecosystem services are not yet fully recognised in the economy with its metrics, monitoring and verification systems not fully developed.

Blended finance tools have a critical role in helping move nature investments into the mainstream. This report, produced by Earth Security Group in collaboration with HSBC, identifies 31 active investment vehicles (funds, facilities and bond instruments) which use blended finance as an approach to drive the protection of nature’s ecosystem services (just 5 per cent of the total blended finance vehicles at play across investment sectors). Their combined fundraising target is just over USD5.1 billion and the models offer important practical insights to grow this form of collaborative capital to accelerate global impact.

This brief intends to provide the public sector with a strategic view on how to use blended finance to catalyse private capital for nature-based solutions. It outlines the models, trends and opportunities for blended finance to shift their investment portfolios towards nature-positive results. The analysis and conclusions builds on a review of blended finance transactions that have reached pilot stage and focus primarily on nature-based solutions. These vehicles were identified through an assessment of transactions analysed by Convergence across all sectors, case studies by the Blended Finance Taskforce and instruments endorsed by the Global Innovation Lab for Climate Finance.