NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, April 12, 2019

Convergence has awarded a Design Funding grant to Aligned Intermediary(AI), co-funded by the David and Lucile Packard Foundation. The grant will support AI in the coordination and design of the Climate Finance Partnership (CFP), an unprecedented blended finance partnership between the world’s largest asset manager – BlackRock – and leading philanthropies and governments.

Government and philanthropic partners include the Governments of France and Germany, the William and Flora Hewlett Foundation, the Jeremy and Hannelore Grantham Environmental Trust, and the IKEA Foundation.

The consortium has jointly committed to develop a flagship blended private infrastructure equity fund for climate infrastructure projects and companies in emerging markets. The fund aims to be one of the biggest blended vehicles to-date targeting climate-related investments in developing countries.

The fund will seek to make investments in sectors such as renewable energy, energy efficiency, energy storage, and low-carbon, and electrified transportation in middle-income countries across Latin America, Asia, and Africa.

Middle-income countries represent the majority of the world’s poorest population and face massive climate finance shortfalls. For instance, according to the Asian Development Bank, for Asia to maintain its growth momentum, eradicate poverty, and respond to climate change, it will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year. Meanwhile, current annual investments in the region for infrastructure are only $881 billion.

”Emerging markets are difficult geographies for institutional investors to deploy capital into for a variety of reasons. However, if the largest asset owners are not provided with investible pathways into these markets, we simply will not achieve our climate targets as a global community, regardless of how much capital flows into North America and Europe in this sector,” says Peter Davidson, CEO of Aligned Intermediary. “The CFP provides one such pathway.”

The AI team designed the initial partnership and vehicle structure with inputs from over 60 investors, fund managers, project developers, development finance institutions, governments, and foundations, with support from the William and Flora Hewlett Foundation, David and Lucile Packard Foundation, and the John D. and Catherine T. MacArthur Foundation. Convergence’s grant funding will allow AI to continue building on the progress made over the past year in the feasibility stage of the fund’s design – by playing a lead coordination role to ensure the fund achieves its climate, capital mobilization, and investor-alignment objectives.

“What makes this partnership unprecedented? It’s size for one, but what really got our attention was the presence of a major asset manager like BlackRock,” says Joan Larrea, CEO of Convergence. “This signals to us that blended finance is no longer niche and that the heavyweights are adopting it as a structuring tool for entering challenging sectors and markets.”

The fund aims to utilize concessionary capital to mobilize and deploy a multiple of institutional capital. Concessionary investors will take catalytic positions in the fund to crowd in institutional investors.

The CFP has been developed under the auspices of the Task Force on Philanthropic Innovation, which is led by Laurence Tubiana, French Ambassador for COP21 and now CEO of the European Climate Foundation. It was officially launched in September 2018 in New York City by French President Emmanuel Macron at the One Planet Summit, following his launch of the Task Force in 2017.

“Convergence support is critical to enabling AI to provide the management and content-area expertise described in its name – allowing AI to be an intermediary with deep subject area expertise working to align disparate parties on shared climate objectives,” said John Morton, Senior Advisor to AI and the European Climate Foundation and Managing Coordinator of the CFP. “By steering the CFP toward an optimally-aligned partnership structure, as opposed to advocating for any single party’s interest, we are able to create the trust and necessary conditions for success.”

AI will use this funding to finalize activities such as vehicle design, managing the negotiation of fund terms, and supporting the production of relevant legal documentation.

Photo courtesy of miuenski miuenski.