The Importance of Blended Finance in Achieving SDGs and Directing Private Capital to ESG Projects

To achieve mandated Sustainable Development Goals (SDG’s) by 2030 and facilitate the growth of Environmental, Social and Governance (ESG) opportunities globally a substantial increase in investment is needed – from infrastructure projects like schools, hospitals, broadband networks, pipelines and roads to funding innovative national healthcare and technology initiatives.

However, unlocking such investment requires tackling significant obstacles that are currently choking the flow of capital.

Historically there has been a sharp distinction between public sector projects funded by governments, multilateral development banks (MDBs) and overseas development assistance (ODA), and private sector growth funded by commercial banks, finance institutions and other private investors. However, the capital flow from this architecture is proving to be insufficient to facilitate the growth needed to meet SDG targets or fund necessary ESG projects.  

An emerging solution is for development finance institutions (DFIs), which include the MDBs together with sovereign wealth funds (SWFs), and government agencies to look to mobilise private capital through Blended Finance

Blended Finance involves public funders using market-driven risk mitigation tools to mobilise multiples of additional private capital through reduced risk and enhanced returns. This approach has been demonstrated to achieve above market ROI while also achieving the social and environmental outcomes expected of SDG’s and investment in ESG.

Blended Finance can be structured in several ways to address specific barriers inhibiting the flow of private capital. For example:

  • Junior equity or guarantee;
  • Capped return;
  • J-Curve mitigation; or
  • Early investment.

In our view, the need for Blended Finance has never been greater and could be the single most important lever in delivering SDGs and much need private investment to ESG (Environmental, Social and Governance) opportunities globally.

With its extensive network of partners and consultants Neoqua is ideally placed assist its clients navigate through the various Blended Finance models.

Please contact info@neoqua.com to arrange a confidential discussion.

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