The Net-Zero Asset Owner Alliance and Convergence Blended Finance announce the signing of a collaboration agreement to increase investment in climate and net-zero solutions in emerging and frontier markets.
The 66 members of the Alliance manage more than US$10 trillion in assets under management and are in the process of transitioning their portfolios to net-zero greenhouse gas emissions by 2050. Convergence is the global network for blended finance, dedicated to generating blended finance data, intelligence, and deal flow to increase private sector investment in emerging markets.
The climate investment needs in developing countries are estimated at over US$2 trillion annually, but the OECD reports that the amount of private investment mobilized has been stagnant at around US$14 billion.
Ahead of COP26, the official development finance community published the Climate Finance Delivery Plan, showing the trajectory for developed countries to deliver on the Paris Agreement goal of mobilizing $100 billion per year in climate finance to support developing countries. The plan outlines 10 clear collective actions that developed countries will take, which includes improving the effectiveness of private finance mobilization.
The median sovereign risk rating of developing countries is S&P-equivalent “B” – often insufficient to attract capital from institutional investors exercising fiduciary duty. However, blended finance has the potential to de-risk investments and achieve target investment returns.
This collaboration will build on the work the Alliance has already undertaken in the blended finance space. The Alliance released its Scaling Blended Finance discussion paper in November 2021, which (i) identifies obstacles to investing in climate solutions in emerging markets, (ii) argues that blended finance vehicles can mobilize investment at scale to help close the existing funding gaps and (iii) lays out several potential solutions for overcoming the barriers. The Alliance has also issued a Call to Asset Managers to collaborate in driving the development of blended finance vehicles.
The Alliance and Convergence will collaborate in 2022 to: (i) increase the Alliance members’ access to development finance and blended finance transactions seeking private investment, (ii) increase direct collaboration between the Alliance members and the official development finance community, and (iii) realize the intersecting recommendations of the Scaling Blended Finance discussion paper and the Climate Finance Delivery Plan.