Net-Zero Asset Owner Alliance calls for scaling blended finance to invest in emerging markets

29 November 2021

Emerging markets may need up to US $1 trillion a year to build a net-zero economy, yet developed nations have so far even struggled to deliver on a target of US$100bn climate finance.

The UN-convened Net Zero Asset Owner Alliance released a Scaling Blended Finance discussion paper investigating obstacles to investing in climate solutions in emerging markets and arguing that blended finance vehicles can provide the necessary structures to close the existing funding gaps in climate investment globally. Moreover, the paper lays out the potential solutions for overcoming barriers to scaling blended finance.

The paper emphasises the need for Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs), in particular, to better use blended finance mechanisms to mobilise and scale green private capital investment in Emerging Markets (EMs) and Least Developed Countries (LDCs). Other solutions proposed in the report include:

  • Enhancing the universe of investable projects and building capacity among all actors and stakeholders
  • Making private sector investment in funds eligible for official development assistance (ODA)
  • Pooling donor funds and standardising investment
  • Revising the incentives model of DFIs
  • Generating data points to be made available and accessible
  • Establishing ratings methodologies.

Günther Thallinger, Allianz SE Board Member & Chair UN-Convened Net-Zero Asset Owner Alliance explains:

“Financing the transition of the real economy is one of the key working areas of the Alliance both in developed and developing economies. However, the current economic risk-return profiles for some climate solutions and cleantech investments in emerging markets are not fit for purpose for private institutional investors, who must adhere to fiduciary duties and risk-baring capacities. In this context, scaling up the use of blended finance vehicles is a priority.”

The Alliance published a Call to Action to Asset Managers, in February, inviting them to build and work on blended finance vehicles collectively and ensure a climate-friendly and just transition in EMs and LDCs. This Scaling Blended Finance discussion paper contextualizes this Call to Action, and assesses that private sector investment in EMs has faltered due to three main obstacles: elevated risk perception; restricted market access; and lack of data transparency.

Blended finance addresses these factors respectively by: de-risking through the provision of a first-loss tranche; expanding market access through the preferred creditor status of MDBs and DFIs on the ground; and working with these same institutions for better data disclosure to close the gap between perceived and actual risk.

The discussion paper also invites feedback on the engagement questions to help build into future concrete steps around scaling blended finance.

Download the discussion paper here.

About the UN-convened Net-Zero Asset Owner Alliance

The 61 members of the UN-convened Net-Zero Asset Owner Alliance have committed i) to transitioning their investment portfolios to net-zero GHG emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial levels; ii) to establishing intermediate targets every five years; and iii) to regularly reporting on progress. The Alliance is convened by UNEP’s Finance Initiative and the Principles for Responsible Investment (PRI). The Alliance is supported by WWF and Global Optimism, an initiative led by Christiana Figueres, former Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC).

About UNEP FI

United Nations Environment Programme Finance Initiative (UNEP FI) is a partnership between UNEP and the global financial sector to mobilize private sector finance for sustainable development. UNEP FI works with more than 400 members – banks, insurers, and investors – and over 100 supporting institutions – to help create a financial sector that serves people and the planet while delivering positive impacts. UNEP FI aims to inspire, inform and enable financial institutions to improve people’s quality of life without compromising that of future generations. By leveraging the UN’s role, UNEP FI accelerates sustainable finance.

About the UN Environment Programme (UNEP)

UNEP is the leading global voice on the environment. It provides leadership and encourages partnership in caring for the environment by inspiring, informing, and enabling nations and peoples to improve their quality of life without compromising that of future generations.

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