Blended Climate Fund Faces $1.06B Standardization Risks

Blended Finance Keeps Evolving, But Standardization Remains Elusive

Climate Fund Managers' $1.06 billion final close for its Climate Investor II fund is the latest milestone in the rapidly maturing world of blended finance. The fund, which attracted backing from development finance institutions and private investors, aims to catalyze climate-related infrastructure projects in emerging markets.

However, the deal also serves as a reminder that standardization across this burgeoning field remains a work in progress. Blended finance structures, which combine public, philanthropic and private capital, have proliferated in recent years as investors and policymakers seek to unlock private capital for development and sustainability initiatives. But the diversity of models and approaches has made it challenging to establish consistent practices and benchmarks.

"There's still a lot of innovation happening in this space, which is great, but it also means there's less uniformity," said a senior executive at a leading asset manager focused on impact investing. "Investors are looking for more standardization to help them navigate the landscape."

Climate Fund Managers, a joint venture between Dutch development bank FMO, South African investment firm Sanlam InvestmentS and impact investor Climate Fund Managers, raised its $1.06 billion fund to provide a range of financing solutions for renewable energy, water and other climate-related projects in frontier markets. The fund, backed by institutions such as the Green Climate Fund and private investors, will use a blended capital structure to de-risk investments and crowd in commercial financing.

While the fundraising success underscores growing appetite for climate finance, the deal's complexity highlights the challenges of scaling blended finance models. Structuring the right risk-return profile for different investor types, aligning incentives across public and private stakeholders, and establishing robust impact measurement frameworks are just some of the hurdles fund managers must navigate.

"Blended finance is still very much a work in progress," said the asset manager. "But the potential is enormous if we can get the model right."