Blended finance: Making systems change a reality
Tatevik Dadivanyan is a climate finance specialist in the Climate strategy and delivery department at the EBRD. She works on climate co-financing strategy, product development, concessionality approaches and private climate finance mobilisation, and is particularly in charge of new program development with multilateral climate funds (GCF, CIF, Gef). Prior to joining the EBRD, Tatevik worked on development finance at the French Treasury.
At the Impact beyond the deal workshop, the European Bank of Reconstruction and Development (EBRD)’s presentation focused on how the bank uses blended finance to achieve systems change for climate. All the Bank’s investments are fully aligned with the Paris Agreement and the Bank is a major investor in green and climate projects across its regions. In 2023, the EBRD made over EUR 6.5 billion in green investments. As a private sector focused institution, the Bank strategically combines technical assistance, policy support, and investment to encourage green market-based transitions in its countries of operation (CoOs). This multi-pronged approach supports the pursuit of systemic impact for economy-wide decarbonisation and climate resilience. The Bank is also scaling up its efforts to support Nature and address the biodiversity crisis – blended finance will be crucial in these areas, too.
A key component to the effective delivery of EBRD investment is carefully designed blended finance structures. Fit-for-purpose blended finance structures allow the Bank to overcome barriers hindering investments in climate mitigation and adaptation, and other environmental protection and enhancement activities. It also helps make investments economically sustainable in the medium and long-term, and phases out the need for concessionality over time. Further, blended finance can help mobilise private climate finance, without which the scale of investment needed to address the climate and biodiversity crises cannot be met. The success of blended finance is possible thanks to dedicated donor support from various bilateral and multilateral sources (e.g., the multilateral climate funds, the European Union, bilateral support from states, etc).
EBRD’s presentation covered some of its current initiatives to support systems change in different sectors, ranging from renewable energy auctions to country-sector platforms (e.g., the North Macedonia Just Energy Transition Investment Platform launched at COP28). Concrete examples and case studies demonstrated how blended finance is a powerful and flexible tool to adapt to different market conditions and overcome specific barriers.
The Development Guarantee Group and Key Fund Investments also presented two insightful case studies.
The first example showcased how the Green Guarantee Company (GGC) has mobilised private investments for climate in emerging markets and developing economies (EMDEs) through risk-sharing. The equity capital provided by donors allowed the GGC to offer guarantees and reach a mobilisation rate of x10 for climate projects, that would otherwise be considered below investment grade. A key lesson learned from this example was that often it is perceived risk, rather than actual risk, hindering investment in EMDEs.
A second case study from the Key Fund Investments explained how debt and small grants are used to bring about transformative change by unlocking social investment in diverse communities, with relatively high unemployment rates, in the UK (such as Bradford, Cleveland, etc). Such support allows to strengthen local social enterprises that drive inclusive growth.
The event concluded with interactive discussions and brainstorming with the audience on the presented case studies. Two key takeaways were the importance of understanding underlying barriers and the interactions between different stakeholders within the system. Importantly, the crucial role of blended finance was emphatically reiterated. Blended finance offers a high level of flexibility (thanks to blending ratios and the multitude of instruments – risk-sharing instruments, results-based payments, concessional loans and concessional equity, etc), which enables these instruments to help address investment barriers and prompt systems change. Lastly, the need for technical assistance and policy dialogue was also stressed as integral to achieve lasting impact for systems.