Unleashing the Blended Finance Revolution

The next 5 years need to see a dramatic acceleration in the flow of capital to developing countries to invest in building socially just, net zero and nature positive economies. Some estimates suggest annual investment requirements of well over $2.5 trillion per year in developing countries (and over $3 trillion including China), much of which will need to be provided by the private sector. The most critical sectors in which this capital needs to be invested include power, transportation, housing, industry, health, education, agriculture and nature.

The challenge of mobilising and deploying this capital well is not new. But the magnitude of the investment requirements and the speed with which capital needs to be deployed is a step-change from previous periods. This is where blended finance can make a huge difference. At its core, blended finance has two over-arching principles. The first is that it targets a combination of public and private returns – what is also called a combination of impact and value creation. The second is that blended finance investment models aim to share risks and returns across public and private sectors in a way that play to the respective strengths of government and commercial actors. This makes blended finance a brilliant way of opening up new innovative areas of investment – from clean energy to regenerative agriculture to primary healthcare systems to sustainable tourism projects to better waste management systems – where public capital is scarce and private capital is still learning how to evaluate the opportunities and risks.

The last few years have laid the foundations of the blended finance revolution, with an acceleration of learning, standards and deal pipelines across the world. Top private financial institutions are all setting up their blended finance and impact investing teams. Governments are building their specialised vehicles to develop critical projects around environmental and social goals which can attract both public and private capital. Multilateral development banks, together with bilateral development finance institutions, are scaling up their efforts in a space where they have long had a presence. And philanthropic capital is looking for the opportunity to shift resources from purely grant-making activities to much more creative, highly leveraged investment models that have impact at their heart.

Indonesia has been one of the pioneer countries in unlocking this revolution with creative, ambitious vehicles such as PTSMI’s SDG One, which has deployed almost $1 billion in key projects across the economy. More than that, Indonesia has been providing the intellectual capital for this new investment era through the work of the THK Forum and the resulting multi-stakeholder commitment to a Global Blended Finance Alliance. This new Alliance has the potential to scale and transform the flows of capital needed for better growth in the Global South. On the one hand, it will accelerate the learning needed to put the right financial structures and risk-sharing systems in place, helping with the scale-up. On the other, it will build and share the practical experience needed to analyse and monitor the impact of the capital flows, helping to improve the quality of its deployment. The Alliance is the right coalition at the right time. On behalf of the Blended Finance Taskforce and Systemiq, it has been an enormous privilege to work with the THK Forum and the Government of Indonesia to bring the Alliance to life. We look forward to partnering closely with the Alliance going forward and helping it to become a flywheel for net positive growth in developing economies across the world.

Jeremy Oppenheim Founder and Senior Partner, Systemiq

THK STEERING COMMITEE, acting president, Global Blended FINANCE ALLIANCE