Blended Finance for Climate Initiative
A platform to enable knowledge exchange around bringing different sources of finance together to accelerate Australia’s climate transition.
Overview
This Initiative aims to bring climate entrepreneurs together with investors from different sectors which have different roles to play across a project journey - from start up, through building and on to scaling up.
Australia requires $7- $9 trillion of capital to fund the climate transition (Net Zero Australia). We must continue to reduce GHG emissions across all sectors of the economy and to build resilience in local communities.
Australia has the financial resources to manage its transition but the latest Intergovernmental Panel on Climate Change 2023, AR6 Synthesis Report (IPCC Report) highlights the urgent need to keep global warming to at or below 1.5 degrees C to avoid the most serious consequences.
Accelerating the transition to a net zero economy is now urgent. Improved availability and access to finance will enable accelerated climate action. IPCC Report - Near Term Responses in a Changing Climate p.111.
Blended finance involves using catalytic capital from philanthropy, development banks or impact investors to fund start-ups to leverage in private capital and, once a track record and adequate scale has been achieved, institutional investment. The varied sources of finance have different risk appetites, return expectations, flexibility, time horizons and purposes. Ensuring that each source of finance plays its part at appropriate times within a transaction or over the life of an enterprise, can give us another tool to accelerate our climate transition.
Our Challenge
At a practical level, our challenge in blended finance for climate is to match the available funding and finance.
These have various risk appetites, return expectations, time horizons, flexibility, and impact objectives, with the various stages of investment to accelerate the testing, derisking, capability building, and building of track records in order to create and scale up more investible climate transition projects and enterprises.
Ensuring that each source of finance plays its part at appropriate times within a transaction or over the life of an enterprise, can give us another tool to accelerate our climate transition.
Australia can accelerate our climate transition by better coordinating the different sources of capital within Australia to enable more projects and enterprise to get through start up, building a track record and then able to attract institutional capital at scale. This includes catalytic capital (philanthropy, specialist investment vehicles and impact investment), through to scaling up via investment from private or, for very large-scale projects, institutional capital.
Australia's climate transition requires investment in renewable energy (especially in all forms of transport, manufacturing, and domestic power), a more circular economy, climate safe housing, sustainable food systems, training workers across these industries, and in building the communities resilience to managing increasing heatwaves, natural disasters and other stressors to maintain social cohesion and reduce economic loss.
Growing Understanding of Blended Finance
Blended finance is an important tool in helping innovative start-up businesses and transactions move from concept to scaled up, one the ground projects. It combines different sources of finance with different risk, return, time horizon, flexibility and impact goals to enable a positive impact on our climate transition (and other social and environmental outcomes).
Insights and Actions Report (December 2024)
Hosted by Melbourne Business School in collaboration with Faculty of Business and Economics and Melbourne Climate Futures’ Sustainable Finance Hub. Joan Larrea was an expert guest of Department of Foreign Affairs and Trade.
The Roundtable focused on answering the following question: What will it take to mobilise private and institutional finance alongside catalytic sources of finance to accelerate the climate transition and the achievement of the SDGs - in our region and in Australia?
Transition to a sustainable and inclusive economy requires significant capital. The aim will be to build on a trend from last year and increase blended finance funds, that is funds which bring together different types of capital, mixing from public and private sources including catalytic capital and capital to scale.
Download ReportInsights and Actions Report (August 2024)
Expert participants took part in a Roundtable meeting hosted by the Centre for Sustainability & Business at the Melbourne Business School on 23 July 2024.
Participants came from across the continuum of finance. It was the first time that such a group had met in Australia.
Blended finance is an approach which can help marshal local and international finance and funding to support Australia and our region’s climate transition. It responds to the acceleration opportunity reported in the IPCC Report. Blended finance involves using catalytic capital from philanthropy, development banks and/or impact investors to fund start-ups in order to leverage in private capital and, once a track record and adequate scale has been achieved, institutional investment. The varied sources of finance have different risk appetites, return expectations, flexibility, time horizons and purposes. Ensuring that each source of finance plays its part at appropriate times within a transaction or over the life of an enterprise, can give us another tool to accelerate our climate transition.
Download ReportBlended Finance Approaches
A platform to enable knowledge exchange around blended finance to accelerate Australia’s climate transition. The role of different sources of finance is described in this diagram:
Philanthropy
Philanthropy, especially endowed philanthropy, sits in a unique and powerful place in the continuum of capital.
Philanthropy has a special role to play in supporting a fair and inclusive climate transition and in nature conservation. Used for charitable purposes, philanthropy can benefit the community, such as advancing the natural environment and advancing health.
Philanthropy can play an important role as the risk capital of the not-for-profit sector and provide the catalytic capital required to initiate new enterprises and projects that will contribute to Australia’s climate transition.
In addition to making grants for charitable purposes, an endowed foundation can choose to allocate part of its corpus to impact investment; place responsible investment lens across its whole portfolio, and/or invest in climate transition funds and companies.
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Government Investment
The Blended Finance Initiative aims to grow blended finance approaches to support Australia’s climate transition and support nature positive outcomes.
Government investment includes Specialist Investment Vehicles, such as the Clean Energy Finance Corporation, that can provide concessional and innovative investment finance and sometimes grants to catalyse projects and help attract commercial investment.
Governments also work with development banks, such as the Asian Development Bank, which manages the Australian Climate Partnership in our region for the Australian Government. Development banks invest in developing countries on climate mitigation and adaptation and to achieve the UN Sustainable Development Goals.
Impact Investment
Impact investing is another form of catalytic capital, made with the intention to generate positive, measurable social and/or environmental impact alongside a financial return.
In the case of averting the worst consequences of climate change, impact investors are looking to reduce greenhouse gas emissions, increase circularity and build climate resilience.
Impact investors vary in their return expectations, their patience (term of investment) and flexibility. Many types of investors participate in impact investing including public and private foundations; family offices; banks and other institutional investors such as superannuation funds and insurance companies; governments; fund managers; community finance organisations; and individual investors.
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Private Capital
Private capital plays some important roles in blended finance for the climate transition.
The providers of private capital into blended finance transactions are usually investors with more flexibility and a higher risk appetite than institutional investors. This form of capital enables projects to build and scale up. It can be a bridge between concessional capital and institutional capital. Blended finance aims to match investors’ risk appetites, return expectations, patience, flexibility and impact focus with projects and enterprises at the right time. Private capital can be used in start-up stages (venture capital), but private capital often becomes involved at the building and scaling up stages, when some of the early risks have been tested, managed and mitigated.
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Institutional Investment
Scaling up a major infrastructure project or new venture requires significant capital.
Institutional investment can play a critical role in scaling up, for example, large scale renewable energy or green manufacturing projects. Projects need to be derisked, their business model proven, and to have established a track record of success before they can begin to attract institutional capital. An institutional investor is a company or organization that invests money on behalf of clients or member such as banks, superannuation funds, government entities (e.g. Future Fund) and insurance companies.
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