1、RETURN TO CONTENTS|1CONVERGENCE STATE OF BLENDED FINANCE 2023STATE OFBLENDED FINANCE2023CLIMATE EDITIONCONVERGENCE STATE OF BLENDED FINANCE 2023|2TABLE OF CONTENTS4 ACKNOWLEDGEMENTS5 LETTER FROM CEO6 GLOSSARY OF KEY TERMS9 EXECUTIVE SUMMARY13 INTRODUCTION15 About Blended Finance16 Report Methodology

2、&Overview17 PART I:MARKET OVERVIEW18 Overall Blended Finance Market19 Sources of Financing to Climate Blended Finance20 A Look at Last Years Report21 The Macroeconomic Environment 24 PART II:DEAL TRENDS25 Climate Mitigation v.Climate Adaptation v.Hybrid27 Vehicles31 Regions&Countries34 Income Levels

3、35 Recipients37 SDG Alignment38 Archetypes&Instruments41 PART III:INVESTOR TRENDS42 Overall Landscape44 Private Sector Investors47 VOICES FROM THE FIELD:Interview with Alexander Kennedy,Head,Sustainable Finance Solutions,Standard Chartered 50 Multilateral Development Banks(MDBs)/Development Finance

4、Institutions(DFIs)52 Development Agencies&Multi-Donor Funds52 Philanthropic Organizations54 VOICES FROM THE FIELD:Interview with Stefanie Fairholme,Managing Director,Head of Investments,GEAPP55 Impact Investors56 PART IV:MITIGATION 57 59 61 63 67 68 71&ADAPTATIONMitigation Blended FinanceVOICES FROM

5、 THE FIELD:Interview with Cecilia Tam,Acting Head of Energy Investment Unit at the IEAMitigation Blended Finance Investors Adaptation Blended FinanceVOICES FROM THE FIELD:Interview with Jay Koh,Managing Director and Co-Founder,The LightSmith GroupNature-Based SolutionsAdaptation Blended Finance Inve

6、stors72 PART V:COUNTRY-LEVEL PLATFORMS 73 74 74 75 75 IN CLIMATE BLENDED FINANCEUNPACKING JETPsHow similar is the JETP model to Blended FinanceWhat Challenges has the JETP Model FacedHow can the JETP Model be ImprovedKEY RECOMMENDATIONS FOR JETPs CONVERGENCE STATE OF BLENDED FINANCE 2023|376 PART VI

7、:WHERE CAN BLENDED FINANCE CONTRIBUTE77 1.Establishing a Common Taxonomy forAdaptation Finance78 2.Mitigating Currency Risk79 3.Framing Country-Level Platforms&Partnerships80 4.Optimizing the Use of Technical Assistance81 5.Reducing Financing Costs ThroughNational Green Banks81 6.Managing Transition

8、 Finance for CoalDecommissioning83 PART VII:RECOMMENDATIONS84 86 1.MDBs&DFIs Should Integrate Climate&Private Sector Mobilization KPIs into their Operating Models&Prioritize Data&Analytics87 VOICES FROM THE FIELD:Interview with MAS on How Governments&Regulators Can Support the Net Zero Transition88

9、89 3.Incorporate&Integrate Philanthropic Capital4.Empower LDCs&Championing Bottom-up Approaches91 APPENDIX92 A DEEP DIVE ON THE JETPS92 How Similar is the JETP Model to Blended Finance?93 What Challenges has the JETP Model Faced?94 Are Donors Learning from the Experience of Prior JETPs?95 How can th

10、e JETP Model be Improved?96 Are there any Signs that the JETP Model is Evolving?97 Are JETPs Scalable?2.Optimize Structures to Navigate Non-FinancialRisksACKNOWLEDGEMENTSSUGGESTED CITATION:Convergence Blended Finance(2023).The State of Blended Finance 2023:Climate Edition.Convergence Report.CONVERGE

11、NCE 2023.All rights reserved.You may reproduce and distribute the material in this document for non-commercial purposes,subject to following credit:(i)Source:Convergence and(ii)a link to the original source on the Convergence website.It should only be reproduced or distributed as a part of wider mat

12、erials created by you.Unless you have received prior written consent from Convergence,you may not reproduce or distribute this document on a standalone basis or use this document for commercial purposes.DISCLAIMER:This document is provided for information purposesonly.Itdoesnotconstituteanofferto se

13、ll or a solicitation to any person in any jurisdiction.Any investment terms described herein are purely informational.This document should not form the basis of or be relied upon relating to any investment.The information set out herein may be subject to updating,completion,revision,verificationanda

14、mendmentand such information may change materially.Brazilian Development Bank(BNDES)Climate Policy Initiative(CPI)E3G(Third Generation Environmentalism)Global Infrastructure Hub(GI Hub)Glasgow Financial Alliance for Net Zero(GFANZ)Impact Investing Institute(III)International Energy Agency(IEA)Intern

15、ational Monetary Fund(IMF)International Union Conservation of Nature(IUCN)Monetary Authority of Singapore(MAS)Ministry of Finance and Economic Planning of RwandaNicholas Institute for Energy,Environment&Sustainability at Duke UniversityRocky Mountain Institute(RMI)Standard CharteredThe Lightsmith Gr

16、oup|4CONVERGENCE STATE OF BLENDED FINANCE 2023We would like to thank the following organizations for their thought leadership and contributions to this years report:RETURN TO CONTENTS|5CONVERGENCE STATE OF BLENDED FINANCE 2023As we introduce the 7th edition of Convergences State of Blended Finance,p

17、olitical and business leaders are increasingly recognizing climatechangeasthedefiningcrisisofourtime.Yetwiththeclimatecrisissquarelyuponus,thegrowthrateforpublicfinancingforclimateisindecline,privateclimatefinancingvolumeshave lagged,andblendedfinanceflowsforclimatehaveregressed.Concreteactionisurge

18、ntlyneeded,andblendedfinance astructuredformoffinancialcollaborationbetweenpublic,privateandphilanthropicactorsmustbeutilizedmoreambitiouslytomobilize private investment at scale into climate solutions tailored to the unique realities of developing economies.That is why we again focus this report on

19、 climate blended finance.Our2023editionhighlightscountry-levelchallenges and opportunities,spotlighting regions with potential for positive developmentsandidentifyingareaswhereblendedfinancecanimmediately and materially contribute.At Convergence,we recognize climates centrality to the investment wor

20、ld,includingtheblendedfinancemarket.Butwealsoacknowledgethe need for data and trends analysis on other sectors,themes,andaspectsoftheblendedfinancespace.Convergenceispleasedto announce that,beginning in 2024,we will publish two“State of BlendedFinance”reportsperyear.Thefirst,tobeissuedinthespring,wi

21、llencompasstheentireblendedfinancemarketand the second,to be released in the fall,will serve as our climate-focused edition.We hope this 2023 reports data,trends,insights,and recommendations serve as an impetus for donors and investors alike,toincreasetheflowofcapitalintotheplacesthatneed it most as

22、 part of an urgent,comprehensive response to confront the greatest collective challenge of our lifetimes.JOAN M.LARREA CHIEF EXECUTIVE OFFICER,CONVERGENCELETTER FROM CEOAPPENDIX|RETURN TO CONTENTS|6CONVERGENCE STATE OF BLENDED FINANCE 2023A/B LOANS AND BONDSFinancialinstrumentsused by a selection of

23、 multilateral investors,specificallymultilateraldevelopmentbanks(MDBs).In an A/B loan structure,the MDB or multilateral acts as the lender of record,providing a portion of the loan for its own account(A loan),with the loan balance funded by the B loan participation(typically a commercial bank or ins

24、titutional investor).Principal and interest on the loan are paid to the lender,which is then distributed on a pro rata basis.An A/B bond functions similarly.The MDB originates an A/B loan with the borrower.The A loan is funded by the MDB,while the B loan is funded by a special purpose vehicle via is

25、suance of a B bond to institutional investors in the capital market.ADAPTATION BLENDED FINANCETheuseofblendedfinancestructurestodeliverprivatesectorinvestment to climate adaptation transactions in developing countries.BLENDED FINANCETheuseofcatalyticcapitalfrom public or philanthropic sources to inc

26、rease private sector investment in developing countries to realize the Sustainable Development Goals(SDGs).Blendedfinanceisastructuring approach,not an investment approach.BLUE ECONOMYThesustainableuseofocean resources for economic growth,improved livelihoods and jobs,and ocean ecosystem health.CARB

27、ON CREDITAcarboncreditrepresentsa volume of greenhouse gas(GHG)emission reduction,typically about one metric tonne,createdbyaspecificprojectoractivity,suchasreforestation.Carboncreditsareverified/certifiedby specialist agencies such as Gold Standard.Credits are sold by credit generating projects,on

28、a“carbon market”to buyers who are seeking to“offset”theirownGHGemissionproductionwith the carbon reduction represented by the credit.The exchange facilitates carbon neutrality.Partofthecreditverificationprocessensuresathresholdofadditionalitythatis,theGHGemission reduction would otherwise have not o

29、ccurred if the project was not implemented.CARBON MARKETTheprimaryandsecondaryfinancialmarketswherecarboncreditsaretraded.Carbon credits represent one metric tonne of GHG emission reduction.In the primary carbon market,companies buy and sell carbon credits based on their emissions allowances determi

30、ned by relevant domestic and supranational regulations.In the secondary market,companies,banks and other market actors engage in trading of carbon credits to provide liquidity to the market and hedge exposure to future price increases in carbon credits.CARBON OFFSETCarbonoffsetsareusedbynet emitters

31、 of GHG to“balance-out”an equal shareoftheiremissionsoutput.Offsetscomeinthe form of carbon credits which are bought and sold in the carbon market,with each carbon credit representing one metric tonne of atmospheric carbon reduction.The exchange facilitates“carbon neutrality”equal to the carbon cred

32、it value.Carbon credits are generated by companies(in a cap-and-trade system)or projects that are funded with carboncreditproceeds.Offsetsareoftenusedbyentitiesinanefforttoachievenetzeroemissions.CATALYTIC CAPITAL/FUNDINGFinancialinstruments allocated to transactions with the intent to mobilize priv

33、ate sector investment.The definitionofcatalyticcapitalcanvarywidely.Inthisreport,catalyticcapitalonlyreferstofinancialinstruments priced below-market(concessional),with evidence of the intent to mitigate investment risks and/or enhance the expected returns for private sector investors and deployed t

34、hrough one of Convergences four blending archetypes:(i)concessional debt/equity,(ii)concessionally priced guarantees/insurance,(iii)project preparation or design-stage grant funding,and(iv)technical assistance grant funding.GLOSSARY OF KEY TERMSAPPENDIX|RETURN TO CONTENTS|7CONVERGENCE STATE OF BLEND

35、ED FINANCE 2023CARBON CAPTURE,UTILIZATION AND STORAGE(CCUS)CCUS involves the capture of CO2,generally from large point sources like power generation or industrial facilities that use either fossil fuels or biomass as fuel.If not being used on-site,the captured CO2 is compressed and transported by pi

36、peline,ship,rail or truck to be used in a range of applications,or injected into deep geological formations such as depleted oil and gas reservoirs or saline aquifers.CLIMATE ADAPTATION FINANCEClimateadaptation involves channeling investment toeffortsfocusedonadjustingtothealreadyapparentandexpected

37、effectsofclimatechange.Suchclimatechangeeffectsinclude,butarenotlimited to,rising ocean levels,the increasing temperature of the oceans,increased frequency and intensity of extreme weather events(hurricanes,droughts,monsoons),and irregular seasonality.Climate adaptation interventions are often linke

38、d to the concept of the improved“resiliency”of humankind to the changing biological,ecological and geological systems of the planet.The term resiliency encompasses,but is not limited to,resilient food systems,resilient livelihoods and resilient natural systems,like biodiversity.CLIMATE BLENDED FINAN

39、CETheuseofblendedfinancestructurestodeliverprivatesector investment to transactions that explicitly aim to produce outcomes that combat and/or respondtotheeffectsofclimatechange in developing countries.CLIMATE MITIGATION FINANCEClimatemitigationfinanceconsistsofchannelinginvestmenttowards interventi

40、ons explicitly aimed at limiting the current level of GHG emission output produced by human activity to reduce the future consequences of climate change.It also involves investing in effortsdealingwiththeremovalofGHGfromtheatmosphere through carbon sequestration methods.CONCESSIONAL CAPITALFundsprov

41、idedonbelow-market terms within the capital structure of afinancialtransactiontoreducetheoverallcost-of-capital for the borrower and/or provide additional downside protection to more senior investors(ifinafirst-lossposition).Concessionalcapitalcanbeprovidedthroughadiversityoffinancialinstruments,inc

42、luding debt,equity,grant funding,and mezzanine capital.CONSERVATION FINANCEInvestmenttargeting the support and management of natural systems,including land,water,air,and naturalresources.Conservationfinanceisdistinctfromclimateadaptationfinanceinthatit can also produce climate mitigation outcomes an

43、d exclusively targets natural capital.Climate adaptationfinanceincludesthetargetingofhuman systems impacted by climate change.CURRENCY SWAPTwopartiesagreetoexchange principal/interest payments of a loan in one currency for an equivalent loan in another currency.Investors/borrowers use currency swaps

44、 to hedge(at least partially)their exposure to currency risk.GREENHOUSE GASSES(GHGS)Gases,produced both as a result of human activity and natural occurrences,that are trapped in the atmosphere and increase the temperature of the planet.The main GHGs are carbon dioxide,methane,nitrous oxide,water vap

45、or and fluorinatedgasses(synthetic).JUST ENERGY TRANSITION PARTNERSHIP(JETP)Afinancingmechanismdesignedtodeliverlargescalefinancingtoemergingmarketsfor the decarbonization of the energy sector that is also inclusive of domestic development priorities.Funding for JETPs are led by public resources fro

46、m the International Partners Group(IPG),a group of donor governments(primarily advanced economies)as well as the mobilization of private sector capital.To date,JETPs have been announced for South Africa,India,Indonesia,Senegal and Vietnam.JUST TRANSITIONClimatemitigationandadaptationeffortsinemergin

47、gmarketsanddeveloping economies that are conscious of other development goals to ensure equitable transitions to greener economies.APPENDIX|RETURN TO CONTENTS|8CONVERGENCE STATE OF BLENDED FINANCE 2023LEVERAGE RATETheratioofconcessionalcapital(below market-price)to all commercial capital(marketprice

48、d)inafinancialtransaction.Commercial capital includes capital from private,public,and philanthropic sources.MITIGATION BLENDED FINANCE Theuseofblendedfinancestructurestodeliverprivatesectorinvestment to climate mitigation transactions in developing countries.MOBILIZATION RATETheratioofconcessionalca

49、pital(below-market-price)to commercial capital from only private sector sources.NATIONAL ENERGY MATRIXAcountryscomposition of all primary energy sources from which secondary energy sources,like electricity,is produced.This includes both renewable energy sources and non-renewable energy sources.The e

50、nergy matrix is distinct from the power generation matrix which is only concerned with the sources that are used in electricity production.NATIONALLY DETERMINED CONTRIBUTIONS(NDCS)Thecountry-specificcommitmentstocutGHGemissionsand/oradapttotheeffectsofclimate change required by all parties to the Pa

51、ris Agreement and the collective commitment to limit globalwarmingto1.5oC.NDCsmustdefinehowtargets will be met,outline how progress towards thegoalswillbemonitoredandverified,andbeupdatedbythecountryonafive-yearcycle.NATURAL CAPITALTheplanetsstocksofwater,air,land,and renewable(wind,solar energy,tre

52、es)and non-renewable resources(mineral deposits).The term links the economic concept of capital(resources,goods or services which are used for the creation of other resources,goods or services)to the natural environment.Certain natural assets providefreeflowingbenefitstofosterand/orenablehuman activ

53、ity.These particular types of natural capital are called ecosystem services.NATURE-BASED SOLUTIONSEffortstoprotect,manage and/or rehabilitate ecosystems that can assist in addressing societal challenges,such as food insecurity,climate change vulnerability,and human health.Nature-based solutions are

54、rooted in the concept that healthy natural capital assets are both critical to functioning natural ecosystems and sustainable economic development by yielding sharedbenefitstomodifiedorhuman-builtsystems.NET ZEROAstatewherebytheamountofgreenhouse gasses emitted into the atmosphere is equal to the am

55、ount of greenhouse gasses being removed from the atmosphere.Reaching globalcarbonnetzeroeffectivelystopstheprocess of the progressive warming of the planet.Netzerocommitmentsaremadeatdifferentlevels of economic granularity,for example,at the supranational level,sovereign level,industry level,orcompa

56、nylevel.NetzeroisdifferentthanAbsolute Zero Emissions,in that the latter refers to the complete cessation of greenhouse gas emittance.The net zero Emission(NZE)Scenario is a model proposed by the International Energy Agency outlining the investment requirements in low-emission and emission reduction

57、 technologies to reach net zero CO2 by 2050.Under the framework,developed economies reach net zero by 2045,China by 2050 and emerging economies after 2050.SMALL ISLAND DEVELOPING STATES(SIDS)A distinct group of 58 developing countries that face unique social,economic,and environmental vulnerabilitie

58、s.They are particularly vulnerable to natural disasters and the impacts of climate change.RETURN TO CONTENTS|9CONVERGENCE STATE OF BLENDED FINANCE 2023This years edition of the State of Blended Finance once again focuses on climate.Climate change continuestobecentraltotheblendedfinance market and to

59、 sustainable development more broadly.Officialflowstolower-andmiddle-incomecountries,includingofficialdevelopmentassistance(ODA),increasingly target climate objectives.In 2020,a third of bilateral ODA from the Organization for Economic Co-operation and Development(OECD)Development Assistance Committ

60、ee(DAC)countries wenttoclimatefinance;forMultilateralDevelopmentBanks(MDBs),the share was almost a quarter.Yet in 2021,only 27.6%of allocable bilateral ODA pursued climate objectives,dropping back to the trends observed between 2015-2019.Although the aggregate ODA numbers have increased by 59%as pro

61、viders report over$83 billion in annual climate financetowardsthe$100billiontargetsince2013,privateinvestmentmobilizedbyofficialdevelopmentfinanceforclimateis,onaverage,lowertodaythanbefore the 2015 Paris Agreement.The decline mirrors challengesintheoverallblendedfinancemarketin2022,which saw a 45%d

62、rop in deal volume and a 55%decreaseinclimateblendedfinance.A 2021 report from the International Energy Agency(IEA)projects that over$1 trillion per year will need to be invested in emerging markets through 2030 to get them tracking towards net zero emissions by 2050.And when accounting for adaptati

63、on costs,the number is likely much higher.Alone,emerging markets cannot meet investment needs,particularly amidst the complex and changing macroeconomic landscape.Yetthecurrentflowofpublicandprivatefunds remains inadequate.Scalingandachievingclimatefinanceisthechiefimperative.However,discussions on

64、increasing climate financequantitiesmustbematchedwithambitionsto improve quality,particularly in emerging markets.There must be increased focus and accountability on howclimatefinanceisprogrammedanddisbursedindeveloping countries.Otherwise,quantity discussions alone may prove fruitless.Indeed,there

65、are many institutional impediments in developing regions,suchasdeficientandunstableregulatorysystems,inefficientpoliciesandlawsthatwillsupportthetransition,andineffectivegovernmentplanning tocreatepathwaysformulti-stakeholderfinancingpartnerships.These are some of the root causes of country risk for

66、 which reforms are ongoing.Recognizing the aforementioned challenges and in view of the above trends,it is apparent thatmobilization of private investment must be prioritized as an explicit goal of development finance,andmustbechampionedbytheMDBsand Development Finance Institutions(DFIs)within their

67、 operating models,andscarce concessional capital must be deployed efficientlyand judiciously in order to maximize its leverage.Furthermore,beyond prioritization,a deeper understandingofhowclimateblendedfinancingmechanisms and solutions can be applied and designed at local,national,and regional scale

68、s can also contribute to increasing resilience to climate extremes and uncertainties.As emerging markets and developing economies(EMDEs)grapple with the dual challenges of pursuing rapid development and transitioning to low-carbon economies,innovativefinancingmechanismslike blendedfinancehavebecomei

69、ncreasinglyrelevant.Thereportthereforespotlightsblendedfinancetransactions that seek climate mitigation and adaptation outcomes in EMDEs by examining practical applications and impacts.In PART Iofthereport,blendedfinancedataandinsights provide a market overview with a look back to last years report

70、and an assessment of the current challenges,macroeconomic impacts,and exogenous shocks that have equally shaped the broader climate financemarketandtheclimate-relatedblendedfinancemarket.Thissectionalsoreviewsrecentdownturns in sustainable investment and points atspecificopportunitieswhereblendedfin

71、ance can serve as an active mechanism to respond to the globalchallengesthatadverselyimpactfundingflows.EXECUTIVE SUMMARY12RETURN TO CONTENTS|10CONVERGENCE STATE OF BLENDED FINANCE 2023AUSTRIAIn PARTS II&III,climate data,deal trends,and investor trends are presented.Climate blended financetrendsarea

72、nalyzedthroughthreelenses:mitigationblendedfinance;adaptationblendedfinance;andhybridblendedfinance.They are further broken down across vehicle type,geographic region and country,country income level,recipients,SDG alignment,and archetype and instruments.Investor trends focus on investor activity an

73、d investor type and incorporate stakeholder perspectives of key market participants engaging in climateblendedfinance.PART IV provides a comparative breakdown of mitigationblendedfinanceandadaptationblendedfinancetransactionsbyanalyzingandcontrastingdealand investor types,addressing fundamental chal

74、lenges and barriers to catalyzing private capital,and revealing solutions,opportunities,and viable business cases for scaling.Nature-based Solutions are highlighted along with associated funding challenges and opportunities.The disparity between mitigation and adaptation blendedfinanceisfurtherexplo

75、redthroughkeystakeholderinterviewswithexpertsinthefield.PART V explores country-level platforms in climateblendedfinanceandevaluatesJustEnergyTransition Partnerships(JETPs),as a partnership modelformobilizingclimateblendedfinance.JETPsare analyzed and compared through stakeholder interviews that ide

76、ntify strengths,challenges,opportunities,and recommendations.PARTS VI&VII highlight key areas where blendedfinancecancontributeandofferspecificrecommendations on the role climate blended financecanplayindrivingprivateinvestments at scale while identifying the appropriate blended financearchitectures

77、indevelopingregions.123RETURN TO CONTENTS|11CONVERGENCE STATE OF BLENDED FINANCE 2023WHERE CAN BLENDED FINANCE CONTRIBUTE?KEY FINDINGS FROM THIS YEARS REPORT INCLUDE:Despite capturing a similar deal count in 2022 comparedto2021intheoverallblendedfinancemarket,Convergence found that total deal volume

78、 decreased by approximately 45%in 2022andabout55%inclimateblendedfinance,reachingaten-yearlowintotalfinancing.Thesetrends are symptomatic of larger macroeconomic challengesimpactingfinancingflowstoEMDEs,characterizedbyinflationarypressures,mountingdebt burdens,and geopolitical instabilities.Climateb

79、lendedfinancetransactionsaccountedforunder40%ofallblendedfinancedealsin2022,down 10%when compared to each of thepreviousfiveyearswhereclimate-focusedtransactions accounted for 50%or more of the annual deal count.Climateblendedfinancetransactionshavebeenconcentrated in Sub-Saharan Africa(SSA)(48%of t

80、ransactions between 2020-2022),followed by Latin America and the Caribbean(24%).The proportion of transactions that are focused in SSA grew 14 percentage points between 2017-2019 and 2020-2022,representing an absolute increase of nearly 90%.Just over half of the commitments to climate blendedfinance

81、transactionsbetween2020-2022 have come from public sector investors.Development agencies comprised a growing share of public sector activity,accounting for 49%of commitments in 2020-2022 and are increasingly the primary suppliers of concessional capital.Since 2017,Convergence has captured$12.9 billi

82、on of investment committed to climateblendedfinancetransactionsbycommercialinvestors.However,financingflowsfromtheprivatesectoraredecliningfrom$7.13 billion between 2017-2019 to$5.87 billion between 2020-2022.Adaptationblendedfinancecontinuestobeunder-represented,with only 15%of deals since 2013 hav

83、ing a pure adaptation focus.Thisequatesto$7.5billionintotalfinancing,compared to$64.2 billion for pure mitigation and$18.5 billion for hybrid transactions.Hybrid transactions,which address both climate mitigation and adaptation goals,represent an area of opportunity for the private sector toinvestus

84、inganadaptationlens;45%ofinstitutionalinvestmentsintoclimatefinance are in hybrid solutions,compared to 35%in mitigation and 20%in adaptation.Giventhetrendsoutlinedabove,blendedfinancelevels will need to exponentially increase if they are to contribute meaningfully to meeting the SDGfinancinggapby20

85、30.Tothisend,thisreportidentifiesseveralkeyareaswhereblendedfinancecandirectlyandimmediatelycontributetomobilizing private sector investments for climate.Adaptation Finance:If the broader climate financecommunitybeginstoeffectivelyoutlinea more expansive taxonomy for adaptation,concessional players

86、could pay for adaptation benefitsthatareotherwisenotmonetizable,thereby mobilizing private investment.Currency Risk:Blendedfinancecandirectlyaddress currency risks in volatile and high-interest markets by strategically combining public and privatecapital.Suchde-riskingcaneffectively open the door fo

87、r substantially greater engagement from risk-averse private institutional investors in emerging market climate projects.Country-Level Partnerships:As a structuring approach,blendedfinanceplacespartiesintospecificrolesthatalignwiththeirmandates.Conceptually,blendedfinancecanframecountry-level partner

88、ship design through its existing language for identifying each stakeholders roles,requirements,and motivations.123RETURN TO CONTENTS|12CONVERGENCE STATE OF BLENDED FINANCE 2023Technical Assistance:The provision of technicalassistance(TA)throughblendedfinancestructuringcanoffertargetedsupporttovariou

89、saspects of climate projects,including boosting capacity,facilitating monitoring and reporting,and supporting the enabling environment for climate investments.Reduce Financing Costs for Private Investors:By creating National Green Banks,for example,blendedfinancecanhelplowerthecostof capital through

90、 credit enhancements or loan guarantees and concessional loans for climate projectfinancing.Coal Decommissioning:Blendedfinanceisacriticaltoolinfacilitatingtransitionfinancinganddecommissioning initiatives,which often require anuancedfinancialapproachgiventheircostandcomplexities.Inparticular,usingp

91、ublicfinancetomanage phase-out programs and incorporating carbon credits in renewable transactions as a complementaryfinancinginstrumentinablendedstructure is a workable approach.RECOMMENDATIONSThisreportidentifieskeyrecommendations for increasing blended climate transactions and mobilizing private

92、sector capital for climate projects in EMDEs.MDBs and DFIs should integrate climate and private sector mobilization KPIs into their operating models and prioritize data and analytics.Navigatingnon-financialrisksandpoliticaldependencies will be crucial to optimize the potentialofblendedfinance.Philan

93、thropic capital must be incorporated andintegratedinblendedfinanceasaviablesource of catalytic funds.Lower-and middle-income countries must be empowered to lead bottom-up approaches to country-levelfinancingplatforms.4153264INTRODUCTION|RETURN TO CONTENTS|13CONVERGENCE STATE OF BLENDED FINANCE 2023I

94、NTRODUCTIONClimatefinancestandsatacriticaljuncture.Althoughglobalclimatefinanceflowshavegrownconsistentlyover the past decade,they still lag far behind what is needed to meet the goals of the Paris Agreement1.One recent study estimates that delivering net zero willrequireover$6trillionofclimatefinan

95、ceannuallybetweennowand2030andover$7trillionby2050 a total of almost$200 trillion.Yet,current global climatefinanceisonlyexpectedtosurpass$1trillionforthefirsttimein2022.Despite the pressing need for ambitious climate action,recenttrendsindicatepublicfinancingforclimate,while increasing,has seen the

96、 overall growth ratedecline,privateclimatefinancingvolumesdwindle,andclimateblendedfinance,morespecifically,regress.Inparticular,aggregateclimateblendedfinanceflowsfrom private sector investors have declined,as has financingfromDFIsandMDBsforclimatemitigationand adaptation.This troubling trajectory

97、underscores the urgency for increased concessional capital from donors and philanthropic sources to attract the trillions in commercial investment required to steer the globe towards net zero emissions.Thestarkrealityisthatclimateblendedfinancecurrently operates well below the threshold demanded by

98、global climate goals.In theory,abundant private capital stands ready to be mobilized for the climate transition.However,challenging investment climates inmanyemergingmarketsrevealaharshtruthwithout enhanced risk-sharing and greater public sector willingness to shoulder potential losses,substantialpr

99、ivateflowsintotheseregionsremainarduous.Current incentives to attract private capital are proving sluggish and disproportionate to the scale 1 At COP15 in 2009,developed countries committed to a collective goal of mobilizing$100 billion per year by 2020 to support climate action in developing countr

100、iesINTRODUCTION|RETURN TO CONTENTS|14CONVERGENCE STATE OF BLENDED FINANCE 2023and urgency of the crisis.Climate change will not idle as developing countries undertake institutional reforms or attain coveted investment-grade status.While such systemic reforms have merit,the pressing goal of halving e

101、missions within a decade necessitates immediate,decisive action within existing developing country frameworks.As the window for action narrows,the onus lies on public funders to urgently catalyzeblendedfinancestructuresthatabsorbrisksimpeding private sector participation.To this end,in a recent repo

102、rtonfinancingthenetzerotransitionin emerging markets,BlackRock states public grants andgrantequivalentfinancinghavebeentootargetedon funding for individual projects rather than being used to mitigate risks more broadly to crowd in private investment.Toeffectivelymobilizesubstantialprivatecapital,sig

103、nificantvolumesofpublicresourcesmustbe deployed strategically and provide substantial de-risking support at the facility level rather than project-specificcapitalallocation.Convergenceestimatesthattomobilizesufficientprivate investment for developing countries to reach net zero,over$500 billion in c

104、oncessional capital is needed through 2035 in the energy sector alone.Yet,concessionalflowstoclimateblendedfinancedealshavestagnatedsince2017,showinglittle sign of an upward trajectory.This stagnation poses a severe threat to both mitigation and adaptationeffortsinemergingmarkets.Mitigationprojects

105、face increasing pressure as rising interest rates tighten the grip on commercial bank lending.Meanwhile,inherently burdened by perceived risks and diminished returns,adaptation deals struggle to attract commercial capital.Intheclimatefinanceequation,theprivatesectorremains a critical player.It is no

106、w imperative for commercial banks,institutional investors,corporations,and other private sector investors to urgently commit and align their investments with the growing global climatefinanceneeds.Inleveraginginstrumentssuch as guarantees and TA to de-risk transactions,blendedfinancecanserveasthemec

107、hanismtoattractprivate investment.However,the chronic shortfall of concessional capital remains a formidable obstacle.Further,theimportanceofcountry-levelfinancingcannot be overstated when charting the course toward sustainable development and climate resilience.EMDEs often bear the brunt of climate

108、 change impacts,yet their access to the vast pools of private sector capital remains limited.Here,in these regions,the need for uncovering the appropriate blendedfinancearchitecturebecomesparamount.Blending public and private capital,strategically tailoredtolocalcontextsandriskprofiles,canactas a po

109、werful catalyst for driving the necessary investments at scale.However,to harness this potential,itiscriticaltostructuretailoredfinancialinstruments and risk mitigation strategies that align with the unique challenges and opportunities that characterize these developing economies.The path forward in

110、volves fostering partnerships amonggovernments,internationalfinancialinstitutions,philanthropic entities,and private sector playerstoestablisharesilientfinancialecosystemthatcaneffectivelychannelresourcestowardthemost pressing development and climate objectives.“The path forward involves fostering p

111、artnerships among governments,internationalfinancial institutions,philanthropic entities,and private sector players.”INTRODUCTION|RETURN TO CONTENTS|15CONVERGENCE STATE OF BLENDED FINANCE 20234321Private CapitalDevelopment Funding(Public&philanthropic funders)Market-rateConcessionalFigure 1:Typical

112、Blended Finance Mechanics and StructuresPrivate equity or debt funds with concessional public or philanthropic funding attracting institutional investmentBond or note issuances with concessionally priced guarantees or insurance from public or philanthropic fundersGrant funding from public or philant

113、hropic funders to build capacity of investments to achieve expected financial and social returnGrant funding from public or philanthropic funders to design or structure projects to attract institutional investmentSTRUCTURESenior Debt Or EquityFirst-Loss CapitalSTRUCTUREDebtEquityGuaranteeSTRUCTUREDe

114、btEquityGrantTAfacilityEXAMPLE STRUCTURESBlended Finance StructureMobilizingSTRUCTUREDebtEquityBlendedfinanceusescatalyticcapitalfrompublicor philanthropic sources to increase private sector investment in developing countries to realize the Sustainable Development Goals(SDGs)and climate goals.Blende

115、dfinanceallowsorganizationswithdifferentobjectivestoinvestalongsideeachotherwhile achieving their own objectives(whether financialreturn,social/environmentalimpact,or a blend of both).The main investment barriers for private investors addressed by blended finance are:high perceived and real risk and

116、poor returns for the risk relative to comparable investments.Blendedfinancecreatesinvestableopportunitiesin developing countries as means to deliver more development impact.Blendedfinanceisastructuringapproach.Itisnotan investment approach,instrument,or end solution.Figure 1 highlights four common b

117、lended finance structures:Public or philanthropic investors provide funds on below-market terms within the capital structure to lower the overall cost of capital or to provide an additional layer of protection to private investorsPublic or philanthropic investors provide credit enhancement through g

118、uarantees or insurance on below-market termsThe transaction is associated with a grant funded TA facility that can be utilized pre-or post-investment to strengthen commercial viability and developmental impactTransaction design or preparation is grant funded(including project preparation/design stag

119、e grants)ABOUT BLENDED FINANCE12Concessional capital and guarantees or risk insurance are used by the public or philanthropic sector to create an investment opportunity with acceptable risk-returnprofilesfortheprivatesectorbyde-risking the investment orimprovingtherisk-returnprofiletobring it in lin

120、e with the market for capital.Concessional funding includes scenarios where the public or philanthropic funder takes a higher risk profileforthesameorlowerrateofreturn.Design-stage grants are not direct investments in the capital structure,but improve a transactions probability of achievingbankabili

121、tyandfinancialclose;similarly,TA funds operate outside the capital structure to enhance the viability of the endeavor and improve impact measurement.Itisimportanttonotethatblendedfinancecanaddress a subset of SDG targets that are investable or on a pathway to investability.According to an analysis c

122、onducted by the Sustainable Development Solutions Network(SDSN,a global initiative of the 12INTRODUCTION|RETURN TO CONTENTS|16CONVERGENCE STATE OF BLENDED FINANCE 2023Figure 2:AlignmentbetweenblendedfinancetransactionsandtheSDGs17:Partnerships for the Goals8:Decent Work&Economic Growth9:Industry,Inn

123、ovation&Infrastructure1:No Poverty7:Affordable&Clean Energy10:Reduced Inequalities5:Gender Equality 2:Zero Hunger13:Climate Action3:Good Health&Well-Being100%70%52%42%31%27%25%24%15%11%UN),approximately half the funding required to achieve the SDGs in developing countries can be in the form of inves

124、tment.For example,blended financeishighlyalignedwithgoalssuchasGoal8(Decent Work and Economic Growth)and Goal 13(Climate Action)while less aligned with SDGs such as Goal 16(Peace,Justice and Strong Institutions).In addition,emerging trends suggest blended financeiskeytocreatingapathwaytoinvestabilit

125、yfor Nature-Based Solutions(Nbs)business models,addressing the undercapitalized climate SDGs(Goal 14(Life Below Water)and Goal 15(Life on Land).The State of Blended Finance is Convergences annual reportonblendedfinancetrends,opportunities,andchallenges.The 2023 edition provides an updated analysisof

126、theblendedfinancemarketandfollowsthe 2022 edition with a continued thematic focus on climate.The report is based on Convergences continuousdataandintelligencecollectionefforts,as well as input from Convergences 165 member institutions and other stakeholders.Convergence curates and maintains the larg

127、est and most detailed database of historical blended financetransactionstohelpbuildtheevidencebaseforblendedfinance.Giventhecurrentstateofinformation reporting and sharing,it is not possible for this database to be fully comprehensive.Still,it is the best repository globally to understand blended fi

128、nancesscaleandtrends.Convergencecontinuestobuild out this database to draw better insights about the market and disseminates this information to the developmentandfinancecommunitiestoimprovetheefficiencyandeffectivenessofblendedfinancetoachievetheSDGs.AlldatainthisreportreflectsConvergencesdatacolle

129、ctioneffortsasofDecember31,2022.Information is collected from i)credible public sources such as press releases,ii)information sharing agreements with key data aggregators like the OECD,and iii)data validation exercises with Convergence members and partners.To be included in Convergences database,a d

130、eal must meet three main criteria:Thetransactionattractsfinancialparticipation from one or more private sector investor(s)The transaction uses catalytic funds in one or more of the following ways:Public or philanthropic investors provideconcessional capital,bearing risk atbelow market returns to mob

131、ilize privateinvestment,or provide guarantees orother risk mitigation instruments Transaction design or preparationis grant funded Transaction is associated with a TAfacility(e.g.,for pre-or post investmentcapacity building)The transaction aims to create development impact related to the SDGs in dev

132、eloping countries.REPORT METHODOLOGY&OVERVIEW123PART I:MARKETOVERVIEWPART I|RETURN TO CONTENTS|17CONVERGENCE STATE OF BLENDED FINANCE 2023PART I|RETURN TO CONTENTS|18CONVERGENCE STATE OF BLENDED FINANCE 2023PART I:MARKET OVERVIEWOVERALL BLENDED FINANCE MARKETIn 2022,Convergence launched its inaugura

133、l climate-focused State of Blended Finance.This years edition once again zeroes in on the core component of the blendedfinancemarketknownasclimateblendedfinance2blendedfinancetransactionsthatseektogeneratepositiveoutcomesinthefightagainstclimate change in EMDEs.This report draws on Convergences Hist

134、orical Deal Database(HDD),the most comprehensive database offinanciallyclosedblendedfinancetransactionsin the market.Our HDD comprises over 1000 transactions,485 of which are climate-focused.Aggregate transaction value totals$198 billion,withclimateblendedfinancedealsaccountingfor55%or$109 billion o

135、f the total market size.Over thelastdecade,theblendedfinancemarkethascomprised 77 deals per year on average,with 41 deals per year targeting climate outcomes.In the lasttenyears,themedianannualfinancingvolumefor the overall market totaled$14 billion,while the medianfinancingvolumeforclimateblended f

136、inancedealsstandsat$7.69billion.Acloserlookatthebroadermarketofblendedfinanceacrossa range of data dimensions can be found on Convergences website.Overall,Convergence has captured more than 6800 financialcommitmentstoblendedfinancetransactions,disbursed by 1800 unique investors.About 1000,or 55%of i

137、nvestors made at least one commitment toaclimateblendedfinancetransaction,formorethan 3200 total commitments.The overall average investmentsizeforblendedfinancedealscurrentlystands at$22 million and$30 million when isolating climateblendedfinancetransactions.2093320940201969422

138、020874620240020020822102014 2015 2016 2017 2018 2019 2020 2021 2022 2023$8.6B$10.1B$5.4B$5.3B$13.7B$11.4B$5.0B$7.7B$7.7B$11.7B$8.0B$14.3B$13.2B$13.6B$10.5B$18.5B$8.4B$12.6B$2.1B$2.4BFigure 3:Transactioncount,totalblendedfinancemarket

139、vsclimateblendedfinancemarket,2014October2023Figure 4:Aggregate annual deal volume,total blended financemarketvsclimateblendedfinancemarket,2014October2023Deal CountTotal Size(USD Billions)All blended finance dealsClimate blended finance deals2023 Climate blended finance deals to dateClimate financi

140、ng2023 Climate financing to dateTotal financing2023 Total financing to date2Transactionswereconsideredclimate-focusedfirstbasedontheiralignmenttoselectSDGs:SDG2(ZeroHunger),SDG7(CleanEnergy),SDG11(SustainableCities),SDG13(ClimateAction),SDG14(LifeBelowWater)andSDG15(LifeonLand)andsecond,manuallyveri

141、fiedbyConvergencetoverify evidenceofexplicitclimateoutcomes.SDG2wasaddedasafiltertothisyearsreport.SDGalignmentisverifiedandassignedtotransactionsinthe Historical Deals Database by Convergence while conducting deal sourcing activities.This process includes both evaluating self-assignment of SDGs to

142、transactions by deal sponsors and investors,as well as further research performed by Convergence.All 2023 deals to datePART I|RETURN TO CONTENTS|19CONVERGENCE STATE OF BLENDED FINANCE 2023SOURCES OF FINANCING TO CLIMATE BLENDED FINANCEBased on investment amounts captured by Convergence from 2017 to

143、2022,private sector investors are the main source of capital to climate blendedfinancetransactionsbyvolume.Theprivate sector invested an average of$2.3 billion in commercialcapitaltoclimateblendedfinancedeals.Thisisexpectedgiventhat,bydefinition,blendedfinancetransactionsmustincludetheparticipationo

144、f at least one private sector investor on market terms.However,privatesectorclimatefinancingtotalshaveplateaued.Aggregatefinancingflowsfrom private sector investors decreased by 45%in 2020-2022 from totals registered between 2017-2019.Additionally,Convergenceobservedthatfinancingfrom the DFIs and MD

145、Bs dropped by 3%over the two periods.An important consideration is not just theincreaseoffinancinglowsbuttherateofincreaseas well.Climate Policy Initiative(CPI),a donor-funded advisoryorganizationaddressingglobalcapitalflowstoclimatefinance(speakingtobothemerginganddevelopedmarkets),findsthatwhilecl

146、imatefinancinghasincreased,thegrowthofprivatefinancehasslowed over the past couple of years.20020202543210$1,635M$2,051M$1,381M$714M$796M$2,670M$2,774M$1,653M$3,375M$758M$1,115M$446M$2,032M$1,458M$76M$1,303M$790M$3,432M$2,687M$151M$838M$108M$1,088M$1,679M$308M$553M$486M$2,038M$

147、1,766MFigure 5:Sourcesoffinancingtoclimateblendedfinancedeals,2017-2022USD BillionsConcessional(Non-ODA)DFI/MDB(Market Rate)ODAPrivate Sector Financing(Market Rate)Other Public Sector Financing(Market Rate)Despite capturing a similar deal count in 2022 compared to 2021,Convergence found that total d

148、eal volume decreased by approximately 45%in 2022andabout55%inclimateblendedfinance,reachingaten-yearlowintotalfinancing.Moreover,climateblendedfinancetransactionsaccountedforunder40%ofallblendedfinancedealsin2022,whileineachofthepreviousfiveyears,climate-focused transactions accounted for 50%or more

149、 of the annual deal count.Convergencecontinuestoresearchdealflowforthecurrent year.The preliminary totals for 2023 stand at 20 blended transactions,11 of which incorporate a climatefocus,andaggregatefinancingof$2.4billionoverall,with 96%or$2.3 billion directed towards climateblendedfinance.PART I|RE

150、TURN TO CONTENTS|20CONVERGENCE STATE OF BLENDED FINANCE 2023A LOOK BACK AT LAST YEARS REPORT The State of Blended Finance Report for 2022 extensivelyexploredtheblendedfinancelandscape,with a particular thematic focus on climate-related investments.Notably,the report highlighted that climate-oriented

151、 investments constituted a substantialshareofblendedfinancecommitmentsin recent years,accounting for two-thirds of such commitments.Moreover,the report underscored theincreasingsignificanceprivateinvestorsattributetoclimatefinance,asevidencedbytheirgrowingcommitment to environmental,social and corpo

152、rate governance(ESG)strategies and alignment with net zero transition objectives.Despite this mounting interest in climate-aligned development goals,the“.the report highlighted that climate-oriented investments constituted a substantial share ofblendedfinancecommitments in recent years.”As shared wi

153、th Convergence:“Private and public investment flows have increased.Annual climate finance flows are crossing the$1 trillion mark for the first time in 2021.But growth can no longer be incremental.CPI found that climate finance increased at an average annual growth rate(CAGR)of 7%per year between 201

154、1-2020,but climate finance must increase 20%every year to stay within range of the 1.5C goal and avoid the worst impacts of global warming scenario.”According to a recent CPI report,privatefinanceis expected to continue to grow as the 30 largest global commercial banks have cumulatively committedann

155、ualclimatefinancingof$870billionin 2023,up from the$600 billion committed in 2021.Conversely,the recent growth seen in public financingmaybemovingintheoppositedirection,as only six of the 27 largest national and bilateral DFIshavesetspecificclimateinvestmenttargets.DFIs and MDBs are also key supplie

156、rs of capital to climateblendedfinance,withthevastmajorityofinvestmentdeployedonmarkettermsfrom2017to2022,DFIs/MDBs supplied$2.2 billion of commercial capitalperyeartoclimateblendedfinancedeals.In terms of concessional investment deployed to mobilize commercial investment into the climate blendedfin

157、ancemarket,ODA3 allocated by OECD DAC members averaged about$1.3 billion per year from 2017-2022,while concessional investment from non-ODA sources(e.g.,concessional instruments from philanthropic sources and impact investors)averaged$675 million per year.Critically,the supply of concessional capita

158、l to climateblendedfinancedealshasbeenstagnatingsince 2017(only a minor increase from$967 million per year between 2017-2019 to$1.08 billion 2020-2022)and is nowhere near the levels required to reach key mobilization targets,such as the United Nations Conference on Trade and Developments(UNCTAD)rece

159、nt estimate that$6 trillion in climate finance to developing economies by 2030 is needed to reach just half of their Nationally Determined Contributions(NDCs).The OECD has noted similar trends,findinglittle change in the proportion of ODA disbursement to climate-related investment since 2017,and res

160、earch by the DFI Working Group on Blended Concessional Finance notes that DFI market rateandconcessionalallocationstoclimatefinancedeals have not exhibited any real growth since 2019.3ODA-eligibleinvestmentsinclude:DFI/MDBconcessionalinvestmentsderivedfromdonorgovernmentshareholderpaid-incapital;who

161、llydonorfunded capitalpools(facilities,funds)administeredbyDFIs/MDBsonaconcessionalbasis;donorgovernmentfundedmultilateralorganizations(GuarantCo)or investmentfunds/facilitiesinvestingonaconcessionalbasis(GreenClimateFund);anddirectconcessionalinvestmentsfromdonorgovernmentsto blendedfinancetransact

162、ions.PART I|RETURN TO CONTENTS|21CONVERGENCE STATE OF BLENDED FINANCE 2023Climateinvestmentandblendedfinanceinitiativesnavigate a complex web of challenges in the ever-evolving global macroeconomic landscape.Thesechallenges,characterizedbyinflationarypressures,mounting debt burdens,and geopolitical

163、instabilities,profoundlyinfluencetheflowofclimateblendedfinancefunds.Theworld,havingweathered the intertwined crises of the COVID-19 pandemic,escalatinggeopoliticalconflict,andnatural disasters,now grapples with a stark reversal of decades of development progress.Withglobalinflationreachingatwenty y

164、ear high of nearly nine percent in 2022,central banks initiated aggressive monetary tightening measures to curb demand-sideinflationarypressures.However,thisswift tightening has cast a shadow over developing countries.Thespillovereffectsofinterestratehikestriggeredsignificantcapitaloutflowsandcurren

165、cydepreciations across low and middle-income countries.As a result,balance of payment pressures anddebtvulnerabilitiesintensified,withnearly 60 percent of low-income countries already in or at high risk of debt distress,a stark contrast to the 22 countries in a similar predicament in 2015.These real

166、ities,coupled with a fragile global growth outlook andpersistentinflation,havealarmedinvestorsasemergingeconomiesriskprofilescontinuetoincrease.The invasion of Ukraine by Russia has further exacerbated conditions for investing in emerging markets.Supplychaindisruptionshaveamplifiedinflationarypressu

167、resanddecreasedthepurchasingpower of investments.Short-term cost volatilities due to the war in Ukraine have resulted in increased energy costs,slowing down the energy transition across Asia.This,coupled with Southeast Asias abundance of coal,has contributed to continued coal power generation.Additi

168、onally,ODA has had to pivot toward addressing urgent humanitarian needs,such as food security,further diverting funds away from climate interventions.To compound these challenges,many EMDEs face the stark reality of being highly vulnerable to climate change,enduring threats like extreme weather even

169、ts and rising sea levelsthatnecessitatesignificantinvestmentsinclimate resilience.“The world,having weathered the intertwined crises of the COVID-19 pandemic,escalating geopolitical conflict,andnaturaldisasters,now grapples with a stark reversal of decades of development progress.”THE MACROECONOMIC

170、ENVIRONMENTreporthighlightedacriticalchallengethedecliningflowofblendedfinancetowardclimateinitiatives.While the private sector exhibited a heightened appetite for climate-related investments,particularly those aligned with purpose,ESG,and sustainable finance,itgenerallydisplayedareluctancetoinvesti

171、n developing countries and emerging markets.Thisiswhereblendedfinancesrolebecomesincreasingly vital as a tool to mobilize private capital for climate opportunities in these regions.The report underscored the need to increase the supply of concessional capital and expand knowledge inclimateblendedfin

172、ancetomeetthesurgingdemand for climate-aligned investments.Additionally,it highlighted increases in climate adaptation investments,includingpositivegrowthfromspecificinstitutional private equity and venture capital investors.While the 2022 report provided invaluable insights intotheoverallblendedfin

173、ancelandscape,the2023report will,in addition,narrow its focus to explore how to empower nations to navigate their unique developmentalandclimatechallengeseffectively.In placing greater emphasis on the intricacies of country-level challenges and opportunities concerning the development of country-led

174、 climate blended financearchitectures,the2023editionaimsto cast light on areas and regions ripe for growth and positivedevelopmentsinclimateblendedfinance.PART I|RETURN TO CONTENTS|22CONVERGENCE STATE OF BLENDED FINANCE 2023Interest Rates,Currency Risk,&Debt Servicing:Amidst these challenges,interes

175、t rate hikes in advanced economies have played a pivotal role indirectingthecurrentsofclimateblendedfinance.Designedtocombatrisinginflation,thesehikes have rerouted cross-border capital as investors seek more stable environments with comparable returns,diverting resources away from riskier markets i

176、n developing economies.This shift threatens to create liquidity crises in these nations,potentially endangering funding for climate-related projects.This scenario exposes thevulnerabilityofclimatefinancetoexternalmonetary policy decisions,illustrating how macroeconomic developments can ripple across

177、 borders,making it more challenging forclimatefinancetoscale.Forex(FX)volatility is an additional hurdle thatclimatefinanciersmustnavigate.Thisphenomenon is acutely felt as the US dollar appreciates relative to currencies in developing economies.Not only does borrowing in hard currency become more c

178、ostly,but repayment profiles,expressedinlocalcurrencyequivalents,become unpredictable.This,in turn,augments creditriskforclimateblendedfinanceinitiativesasthe elevated risk potentially erodes project viability and increases overall investment risk.The issue of rising debt in developing economies has

179、 also emerged as a macroeconomic impedimenttoclimateblendedfinance.Asthese countries grapple with the economic repercussions of the COVID-19 pandemic,they findthemselvescompelledtoallocatesignificantresourcestoreliefefforts.Theresulthasbeena mounting debt burden that has increasingly strained their

180、ability to invest in climate adaptation andmitigation.Thisfiscalpositionhasleftdeveloping economies at a crossroads as many must prioritize internal recovery or longer-term climate change adaptation investments.Macroeconomic Concerns for Emerging Market&Developing EconomiesEMDEsarecurrentlycaughtina

181、fiscalquagmire,forced to address multiple crises while wrestling with long-term climate commitments.Achieving their climate goals,particularly those enshrined in the Paris Agreement,necessitates a substantial increase in capital spending.Climate mitigation andadaptationefforts,whichdemandsignificant

182、financialresources,requiretransitioningtolow-carbon economies,fortifying climate-resilient infrastructure,and disseminating sustainable practices across sectors.Balancing immediatefiscalvulnerabilities,fulfillingclimatecommitments,and securing funds for climate action becomes an intricate challenge.

183、EMDEs mustsecurethenecessaryfinancialresourcesand manage their debt sustainably,lest they fall into a vicious cycle of weak growth,unsustainable debt,and austerity.Althoughglobalfinancialconditionshaveeasedinthesecondhalfof2023,globalfinancialstabilityrisks remain.The macroeconomic challenges and ex

184、ogenousshocksfacingclimateblendedfinanceare diverse and multifaceted and underscore the imperative to adopt robust risk mitigation strategiesandblendedfinancingmechanismsthat can respond to the realities of the current macroeconomic landscape.Blendedfinancehasalwaysbeenatooltosolvelarge-scaleglobalp

185、roblems.Inthespecificcontextof the current macroeconomic setting,blended financeisexceptionallyaptinmitigatingcountryrisk and currency risk concerns.“The issue of rising debt in developing economies has also emerged as a macroeconomic impediment to climate blended finance.”PART I|RETURN TO CONTENTS|

186、23CONVERGENCE STATE OF BLENDED FINANCE 2023Country Risk:By employing credit enhancement instruments likeguarantees,blendedfinanceeffectivelyaddresses the concerns that often deter private investors from entering high-risk or developing countries.Guarantees act as a protective shield against potentia

187、l losses due to factors such as political instability and currency devaluation.The backing of reputable DFIs or MDBs enhances a projects creditworthiness,attracting private investors who may have strict investment grade mandates.According to World Bank estimates,every$1 invested in improving creditw

188、orthiness leverages$100 of additional private sector financing.Therefore,creditworthinessandcreditenhancement should be major priorities for stakeholders seeking to reduce borrowing costs andtapintomorefinancialresources.This sort of credit enhancement approach has proven successful in several insta

189、nces.For example,GuarantCoofferscreditenhancementfor infrastructure projects to an acceptable level to enable local currency credit investors(e.g.,banks and institutional investors)to extend longer-term debt.Using this type of guarantee also allows for efficientleverageofcapitalwherebyGuarantCocan l

190、everage 3x for each$1 of donor capital in the form of guarantees.Such guarantees enhance the credit quality of these projects,making them more enticing to private sector participants.Relatedly,the Multilateral Investment Guarantee Agency(MIGA),a member of the World Bank Group,extends political risk

191、insurance and credit enhancement to global private sector investors,assistingtheminnavigatingcountry-specificrisks.Ultimately,by mitigating country risk and elevatingcreditratings,blendedfinanceenablesprojects in riskier countries to align with the investment grade mandates of institutional investor

192、s.Thisinfluxofprivatecapitalisessentialfor accelerating climate and development initiativesinemergingmarketswherefinancinggapspersist.Blendedfinancemechanismsincorporating credit enhancements continue to prove their mettle in fostering sustainable development and mobilizing private sector funds to a

193、ddress pressing global challenges.Currency Risk:Blendedfinancecanalsobeaviableinstrumentfortackling currency risk in sustainable development and climate initiatives.Currently,the lack of a robust market for foreign exchange swaps makes them mostly an illiquid instrument.Concessional resources suppli

194、ed by donors or development banks could be more heavily used to buy down the cost of illiquid exotic currencies.For example,TCX(Currency Exchange Fund)has become a vital source for international funders in providing cross-currency swap solutions for currency mismatches on loans to protect against ex

195、changeratefluctuations.InMyanmar,TCXusesblended donor funding to subsidize the interest rate levels of local currency loans to meet the central bank rate regulation.TCX created a local currency funding option at below-cap rates for international investors by converting a$10 million subsidy to cataly

196、ze$80 million of funds in local currency.Blendedfinancemechanismscaneffectivelylower FX volatility risks by facilitating swaps for localcurrencyfinancing.Thisisespeciallycrucialin regions like Myanmar,where rapid currency depreciation can erode the value of returns for investors.In this tumultuous m

197、acroeconomic environment,blendedfinanceemergesasahighlyapttoolfor mitigating country risk and currency risk concerns,thus serving as a critical instrument in the pursuit of climate change mitigation and adaptation goals.“.by mitigating country risk and elevating credit ratings,blended finance enable

198、s projects in riskier countries to align with the investment grade mandates of institutional investors.”PART II:DEAL TRENDSPART II:DEAL TRENDS|24CONVERGENCE STATE OF BLENDED FINANCE 2023PART II|RETURN TO CONTENTS|25CONVERGENCE STATE OF BLENDED FINANCE 2023PART II:DEAL TRENDSCLIMATE MITIGATION V.CLIM

199、ATE ADAPTATION V.HYBRID This report will explore climate blended finance through three lenses:mitigationblendedfinance;adaptationblendedfinance;hybridmitigation-adaptationblendedfinance.Mitigation Blended FinanceThegoalofmitigationblendedfinanceistolimittheimpacts of climate change by reducing carbo

200、n dioxide(CO2)and other greenhouse gas(GHG)emissions from human-made sources into the atmosphere.Mitigation transactions may additionally seek to remove GHGs from the atmosphere through carbon“sinks”4.Overall,mostclimateblendedfinance,bybothtransactioncountandaggregatefinancingvolume,is focused on m

201、itigation.Since 2013,approximately 58%of the annual climate deal count within the Convergence database is exclusively focused on mitigation,representing more than$64.2 billion in totalmitigationfinance.Blendedmitigationdeals also tend to be the largest type,with the median deal size over this period

202、 being$90.9 million,versus$43.0 million for hybrid and$34.5 million for adaptation.Moreover,blended mitigation deals have a higher leverage ratio of 6.1,compared to 3.9 for hybrid and 2.7 for adaptation.Mitigation transactions tend to be more attractive to investors than adaptation deals for several

203、 reasons.Generally,mitigation activities are easier todefinebecausetheyarelinkedtoareductioninGHG emissions.Since GHG reduction is a familiar target,this can also mean it is easier for investors to understand the impacts of their commitments.Additionally,mitigation deals can be more readily linked t

204、o revenue-generating activities,making returns on investment more apparent.Adaptation Blended FinanceAdaptation transactions target adjustments to the already apparent or expected consequences of climate change,including the intensity and frequency of extreme weather events,rising sea levels,and les

205、s predictable and changing crop-growing seasons.Adaptation blended deals have historically struggled to attract investors,yielding only$7.5 billion in aggregatefinancingsince2013.Onaverage,onlyapproximately six adaptation deals per year have been recorded.Investors may hesitate to fund adaptationble

206、ndedfinancetransactionsbecausethere is an ongoing perception that adaptation dealsareriskierandpresentlowerfinancialreturns.Moreover,the size of the deals may be too small to meet investor criteria,and timelines for investment may be too long.Lastly,the lack of standardized criteriacouldleadtodiffic

207、ultiesinmeasuringtheoutcomes of adaptation initiatives.Due to the hesitancy of private investors,public investors have been the primary funders of adaptation transactions.Within the past decade,public sector investors have increased their commitments to focus specificallyonadaptationfinancing.In2015

208、,forthefirsttime,theParisAgreementestablishedaglobalgoal on adaptation,and in 2019,nine MDBs made a joint commitment to double the total level of adaptationfinanceprovidedtoclientsto 1234 Carbon sinks are anything that remove more carbon from the atmosphere than they release.The process by which car

209、bon sinks remove carbon fromtheatmosphereiscalled“carbonsequestration”.Biologicalcarbonsinksincludeoceans,mangroveforests,andsoil.Artificialcarbon sinksarehumancreatedsitessuchaslandfills,ortechnologicalprocessessuchasdirectaircaptureofCO2.PART II|RETURN TO CONTENTS|26$18 billion annually by 2025.Tw

210、o years later,in 2021,MDB flows of finance for adaptation surpassed their pledgetoincreasefinanceforadaptation and reached$19.2 billion.Hybrid Mitigation-Adaptation Blended FinanceHybrid climate transactions contain elements of bothmitigationandadaptationfinance.Sectorscanalso be considered hybrid i

211、f they seek to address mitigation and adaptation outcomes,such as the sustainable agriculture sector.Sustainable agriculture canbenefitclimatemitigationbyimprovingsoilhealthand increasing carbon sequestration through organic material,and climate adaptation by increasing food security in vulnerable p

212、opulations.Hybrid opportunities represent a particular opportunity for investors to recognize the investment potential of adaptive and resilient solutions.Convergence found that 45%of institutional investments into climate financeareinhybridsolutions,comparedto35%in mitigation and 20%in adaptation.A

213、s shared by Cecilia Tam,Acting Head of the Energy Investment Unit at the IEA:“There is a need to start looking at the adaptation/energy nexus,because we need to find projects that are commercial and near commercial.It may be difficult to find commercial projects in other sectors,where the revenue st

214、reams arent necessarily there yet.A better understanding of adaptation investments in the energy sector can help to spur investments in adaptation investments.”Hybrid,orcross-cuttingblendedfinancetransactions,comprise approximately ten transactions annually since 2013.Overall,the total value of hybr

215、id transactions is$18.5 billion.Hybrid transactions can occur in various sectors,including infrastructure,financialservices,housing,andrealestate.The largest portion of hybrid deals(27%),however,are transactions that focus on agricultural inputs and farm productivity,since the characteristics of thi

216、s sector tend to be well-positioned to produce dualmitigation-adaptationbenefits.For example,the Planting Climate Resilience Project is a$217 million project situated in the Northeast region of Brazil with the goal of improving smallholder farmer productivity on degraded agroecosystems,particularlyt

217、hosesufferingfromwaterscarcityanddrought.It aims to introduce technologies for water harvesting,storageandrecycling,anddiversificationstrategies to strengthen rural populations resilience.The project contains mitigation elements by introducing low-emission technologies to increase farmer productivit

218、y and adaptation by focusing on producing climate-resilient agriculture.2013$3.7B$0.3B2014$8.1B$0.3B$0.2B2015$4.3B$0.9B$0.2B2016$3.0B$1.8B$0.5B2017$4.9B$4.7B$0.4B2018$12.0B$1.5B$0.2B2019$4.9B$1.6B$1.2B2020$3.0B$4.2B$0.5B2021$8.0B$1.4B$2.0B2022$3.6B$1.1B$0.2B2023$0.6B$0.6B$0.9B$1.3BFigure

219、6:Aggregateannualfinancingflowstomitigationblendedfinance,adaptationblendedfinance,andhybridblendedfinancedeals,2013-October2023USD BillionsMitigation dealsHybrid dealsAdaptation dealsPART II|RETURN TO CONTENTS|27VEHICLESConvergences database categorizes blended transactions across five primary fina

220、ncial vehicle types;Bonds/notes(including both privately placed issuances and listed instruments on public exchanges)Companies(i.e.,direct private equity and debt financingofbusinessesonbothmarketrate and below market rate terms)Facilities5Funds(i.e.,limited partnership private equity and debt funds

221、,as well as funds-of-funds)Projects(i.e.,greenfieldandbrownfieldprojects,projectfinanceandprogramsfundedthroughacombination of market rate and below market rate capital)ProjectsSince2017,climateblendedfinancehastypicallybeenstructuredasgreenfieldandbrownfieldprojects.Apartfrom 2020,project transacti

222、ons have been the most common transaction type on an annual basis over the past six years,on average comprising 40%of climate blendedfinancedealsperyear.Project structures also account for the largest shareoftotalfinancingvolumetoclimateblendedfinance,bothonanabsoluteandproportionalbasis.From 2020-2

223、022,projects mobilized an average ofapproximately$4.4billionofclimatefinanceannually(fundswerethesecondmosteffectivemobilizersofclimatefinanceatabout$2.1billion).Proportionally,projects received an average of 55%oftotalannualclimateblendedfinanceflowsbetween 2020-2022,down slightly from 59%between 2

224、017-2019.However,it is notable that projects are the only blended transaction type to experience a progressive decline in their share of totalannualclimateblendedfinanceflowsinrecentyears,whileflowstoblendedbonds,companies,and particularly funds,have remained constant.This is partly a product of the

225、 growing proliferation of smaller project transactions integrating mitigation(emissionsreduction)componentsintobrownfieldprojects otherwise targeting separate development objectives(job creation,food security).Ofthe123climateblendedfinanceprojectscapturedby Convergence between 2017-2022,94 or 77%wer

226、e projects targeting purely mitigation outcomes,while only 7%were exclusively focused on adaptation Figure 7:Numberofclimateblendedfinancetransactionsbyvehicletypeperyear,Convergencedefinesablendedfacilityasanearmarkedallocationofpublicdevelopmentresourceswithprivatecapitalatthevehicl

227、elevel,for deploymenttowardsaspecificrecipientorintervention.Thisalsoincludesrisk-sharingfacilities,orbilateraltransactions,typicallybetweendonoror publicentitiesandfinancialintermediaries,wheretheconcessionalcapitalhelpsmitigatepotentiallossesonunderlyingloansoriginatedbythe financialinstitution.36

228、575151717185Bond/NoteCompanyFundProject23321Facility2002120192022PART II|RETURN TO CONTENTS|28outcomes.Convergence has observed little year-on-year change in this composition.In fact,the share of adaptationblendedfinanceprojectsdropstolessthan 1%(2020-2022)when consi

229、dering the entire blendedfinancemarket.Climateblendedfinanceprojectscontinuetobe heavily oriented towards renewable energy,particularly,the creation of new renewable energy assets.Nearly 75%of projects between 2017-2022 were in the renewable energy sector.While activity has remained buoyant,the size

230、 of renewable energy projects has declined in recent years.Of the approximately$13.1 billion channeled into climateblendedfinanceprojectsbetween2020-2022,$6.9 billion(53%)went to renewable energy projects.This is a reduction from$13.6 billion or 73%oftotalclimateblendedfinancingbetween2017-2019.Addi

231、tionally,the average size of renewable energy projects dropped from$347 million(2017-2019)to$171 million(2020-2022).Aconfluenceoffactorsisresponsibleforshrinkingblendedcapitalflowstotherenewableenergysector.Firstly,some segments of the sector are experiencing agraduationeffect.Blendedstructuresforla

232、rger,utility-scale renewable energy projects are being replacedbywhollycommercialfinancingasperceivedand real investment risks converge.Conversely,smaller projects present additional risks,like high counterparty risk,that still necessitate blended financeriskmitigationmechanisms.Thecurrentmacroecono

233、mic landscape is also fuelling the decline.In the rising interest rate environment,international commercial banks,a critical provider of project financetoblendedrenewableenergyprojects,have restricted lending operations due to their inability to offloadexistingexposureswithoutsignificantloss.Finally

234、,there has been a growing frequency of renewable energy projects in least developed countries(LDCs)40%ofenergyprojectsin2020-2022 took place in an LDC,up from 33%in 2017-2019.While these projects tend to be smaller($44.1 million median LDC transaction size vs.$124.5 million median transaction size i

235、n non-LDCs),they require greater shares of concessional capital and capital from public investors and attract comparatively lower levels of investment from the privatesector,theirneedforscaledclimatefinanceinvestment is arguably most urgent.The inclusion ofblendedfinanceinstrumentsthatfocusonkeyrisk

236、factors,specificallycreditandpoliticalrisk,suchasthoseofferedbyMIGAundertheInternational Development Association Private Sector Window(IDA PSW),is vitally important to enable participation from private sector investors.“Climateblendedfinanceprojects continue to be heavily oriented towards renewable

237、energy.”Figure 8:Annual climate deal volume by vehicle type,2017-2022 (USD Billions)$0.2$0.3$0.4$0.9$0.4Bond/Note$1.8$1.0$1.0$0.7Company$0.1$1.9$0.7$1.5$0.2Facility$2.0$2.6$1.6$2.3$1.4Fund$7.5$8.8$3.2$5.1$5.9$2.2Project2002120192022$2.6$0.2$0.1PART II|RETURN TO CONTENTS|29FundsBlended fun

238、ds for climate have declined noticeably in recent years,comprising just 11%of climate blended financedealsin2022,downfrom26%in2017.Thetotal annual aggregate value of funds has also fallen,dropping to$1.8 billion per year between 2020-2022 from$2.4 billion in 2017-2019.This downtrend in activity has

239、been experienced equally across the climate sub-themes,with mitigation,adaptation and hybridclassifiedfundscomprising36%,24%and 40%of all climate funds from 2017-2022.The downturn is symptomatic of the macroeconomic factors challenging the wider investment industry.Preqin noted that globally,private

240、 equity,venture capital,and,to an extent,private debt fund activity reducedsignificantlyin2022,resultingfromlower company valuations and as restricted risk appetitesfuelcapitalflightfromemergingmarkets.Fundraising challenges are particularly acute for new fund managers as risk aversion among private

241、 sector investors is concentrating capital in the hands of fewer,more established fund managers.This trend is evident in Convergences historical data,with the median size of funds increasing to$112 million in 2020-2022 from$96 million in 2017-2019,despiteonlyfivefundsclosingin2022.Moreover,our fundr

242、aising dataset illustrates the capital raising challengesofthepastyearonly8%offundsactively looking for capital tracked since last years reportachievedafinancialclose.The role and importance of concessional capital availabilityaremagnifiedinthisenvironment,especiallyfor new fund managers.For example

243、,TA funding can enhance fund managers capacity to improve due diligence approaches for better pipeline management.Relatedly,Clarmondial leveraged TA funding from the Global Environment Facility(GEF)to establish its impact monitoring and reporting system for its Food Securities Fund($67.5 million).Fo

244、llowing key proof-of-concept support from Convergence to stand up the fund,TA grants enhanced the funds operational viability,creating a more attractive investment for investors.Private equity funds have comprised a greater share of climate blended fund activity in recent years,accounting for about

245、55%of all climate blended funds launched since 2020(vs.34%of climate blended funds between 2017-2019).Conversely,the proportion of private debt funds for climate has gradually declined since 2020,making up 23%of climate blended funds on average per year(2020-2022)vs.36%of climate blended funds per y

246、ear between 2017-2019.Aggregate deal volume of private debt climate blended funds plummeted even more steeply,dropping by 82%in 2020-2022“.technical assistance(TA)funding can enhance fund managers capacity to improve due diligence approaches.”PART II|RETURN TO CONTENTS|30from 2017-2019 totals.On the

247、 other hand,total investment into private equity climate blended funds grew by 42%.It is clear that in the context of the currentfundraisingdifficulties,fundsareinastateoftransitionintheclimateblendedfinancemarket.The spread between required returns on private equity and private debt has narrowed du

248、e to rising interest rates and equity devaluations.However,as debt costs rise,private debt climate blended funds are exposed to increasing levels of credit risk as default concerns grow.Together,these trends may push private sector investors towards equity markets,where they can capture greater upsi

249、de with comparable levels of risk.Company devaluations and FX risks will also likely limit investment pipelines for General Partners(GPs)in emerging markets.This volatile macroeconomic landscape underscores the need for a more robust supply of concessional capital into fund structures tohelpGPsreach

250、financialcloseandreduce capital costs for ultimate borrowers,effectivelyexpandingtheuniverseofpotentialinvestees.BondsAs discussed in a recent report published by Convergence,blended bonds(sovereign and corporate)haveyettogainsignificanttractionorscale,includingintheclimateblendedfinancespace.Despit

251、e blended bonds accounting for a progressively greater proportion of annual blendedclimatefinancingvolumesince2017(2%oftotalclimateblendedfinancein2017to9%in2022),climate-focused bonds have only accounted for 11%of climate blended transactions per year on average between 2020-2022.Additionally,Conve

252、rgence has not observed a secondary market for blended climate bonds.All bond transactions captured in our database were privately placed and held to maturity for their impact attribution.Thepastyearhasbeenturbulentforfixed-incomeinstruments,especially in emerging markets.According to the World Bank

253、 Global Economic Prospects Report,one in four emerging market sovereignshaseffectivelybeencutofffromtheinternational bond market due to a high debt accumulation,high interest rates and reduced access to credit.Likewise,Amundi and the International Finance Corporation(IFC)noted in their Emerging Mark

254、et Green Bonds report,that sovereign issuances of Green,Social,Sustainable,and Sustainability-linked(GSSS)bonds fell by over 45%in 2022,while corporate issuances of GSSS bonds grew by just 6%,drivenmainlybyfinancialinstitutions.Despite these recent downward trends,sovereign andcorporateblendedbondsh

255、avesignificantmobilizationpotentialforclimateblendedfinance.Amundi found GSSS bonds,particularly green bonds,tobemoreresilientthantheoverallfixed-incomemarket and expects emerging market issuances to rebound in 2023 and 2024.Blended bonds also presentanefficientchannelforinstitutionalinvestorsto all

256、ocate risk capital to assets that match long-term liabilities,and according to a Bank of America study,investment-grade corporate issuances in emerging markets yield about 60 basis points(bps)above US corporates.When comparing corporate green bonds to otherwise identical conventional instruments,gre

257、en bonds yielded over seven bps more in 2022(what is referred to as a“greenium”).Institutional investors and asset managers are poised to play a largerroleinclimateblendedfinanceasrestrictedcommercial bank balance sheets limit traditional projectfinancesourcesandstructures.Bondsareanattractive vehic

258、le to grow their participation and have 12Figure 9:Breakdown of climate blended funds by investment strategy,2017-2022EquityDebtMixed200202021202234%34%8%15%48%7%41%46%27%28%46%84%32%77%14%45%16%PART II|RETURN TO CONTENTS|31East Asia&the Pacific20%13%Europe&Central Asia4%6%Global11%4%Lati

259、n America&the Caribbean23%24%Middle East&North Africa5%4%South Asia14%14%Sub-SaharanAfrica34%48%Figure 10:Proportionofclimateblendedfinancedealsbyregionalbreakdown,2017-2022alreadybeendeployedintheblendedfinancemarketfor energy asset refinancing,green infrastructure and sector-agnostic green financi

260、ng.However,bonds need to scale6 to tap into this investor class.Convergence has observed that the size of climate blendedbondsistrendingintherightdirection the median size of bonds grew to$70 million in 2020-2022 from$46.5 million in 2017-2019.Secondly,climate blended bonds can provide the requisite

261、 credit risk mitigation to speculative rated bonds to secure institutional investor investment while also delivering cost of capital relief for borrowers7.This is particularly important for lower-income countries(CCC rating and lower),who are facing reduced growth prospects amid mounting debt pressu

262、res(only 33%of all green bonds(sovereign and corporate)issued in emerging markets in 2022 were investment grade).A few marketsinLatinAmerica,specificallyBrazil,Colombiaand Mexico,are showing noticeable promise for the scaled use of blended climate bonds,including local currencybonds.Earlyeffortstoco

263、ntrolinflationarenowpayingoffasselectmarketsofferyieldsexceeding many developed markets,backed by high rates and stable currencies.Emerging Asia(excl.China)is also a leader in GSSS issuance,accounting for over$330 billion in cumulative outstanding issuances in mid-2022.Climateblendedfinancetransacti

264、onshavebeenconcentrated in SSA(48%of transactions between 2020-2022),followed by Latin America and the Caribbean,which accounts for 24%of climate blended financedeals.AccordingtotheConvergencedatabase,thegeographicspreadofclimatefinancetransactionsintheblendedfinancemarkethaschangedslightlyinthe thr

265、ee preceding years(2017-2019).In particular,the proportion of transactions that were focused in SSA grew 14 percentage points between 2017-2019 and 2020-2022.This represents an absolute increase of nearly 90%,with 40 deals targeting the region in the former three years and 75 in the latter.Additiona

266、lly,there was a decrease in the proportion of deals targetingEastAsiaandthePacific,from20%in2017-2019 to 13%in 2020-2022.Convergence data further suggests the volume of climateblendedfinanceflowsacrossregionsdoesnot perfectly mirror transaction distribution,with the largestvolumeoffinancingfrom2020-

267、2022flowingtoLatin America and the Caribbean.Two large deals drive this.One is PUMA II,a$2.1 billion project led by Klabin S.A.to grow its existing pulp and paper REGIONS&COUNTRIES6 Many large-scale private sector investors are governed by liquidity requirements that prevent investment in publicly l

268、isted securities below a$250 million threshold.7 Prior to 2013,bond guarantees could“uplift”the issuance credit rating,even above the sovereign rating ceiling.Following regulatory changes in 2013,creditupliftsareonlytenablethroughfull(100%)bondguarantees.However,blendedfinancetoolsincludingconcessio

269、nalpartialguarantees,concessionallyfundeddebtservicereserveaccountsorsubordinatedconcessionalnotescanineffectimprovethecreditoutlookofanissuanceand aligned it with investment grade characteristics.-2022PART II|RETURN TO CONTENTS|32manufacturing facility using equipment to reduce the com

270、panys environmental impact.The second is a$1.2 billion project,sponsored by Lenzing AG,that involves the construction of LD Celulose,agreenfielddissolvingwood pulp plant located in Minas Gerais,Brazil.Meanwhile,transactions in SSA tend to be more frequent but smaller,with the largest transaction cap

271、tured between 2020-2022 being the$750 million Bumbuna II hydropower project,sponsored by Blue International and located on the Seli River in northern Sierra Leone.Over the past three years,aggregate blended financeflowstowardclimatepeakedin2021beforedeclining in 2022.In 2022,only East Asia and the P

272、acific,andSouthAsiasawanincreaseinthevolumeofclimateblendedfinance.Despitethisincrease in South Asia,overall,it was one of the regionswiththelowestvolumesoffinancingflowtowards transactions($2.9 billion from 2020-2022),along with Europe and Central Asia($2 billion)and Middle East and North Africa($7

273、00 million).Southeast Asia and South Asia will be increasingly importantregionsinthefightagainstclimatechange,giventheirdependenceoncoal;coalplantsinAsiaandthePacificaccountforone-fifthofglobalemissions and the dependency on the commodity is expected to continue.The challenge is acute,given that coa

274、l plants are relatively young and heavily owned by state-owned enterprises.Here blended financehasapotentiallysignificantapplicationintheearly retirement of coal using Energy Transmission Mechanisms(ETMs),as championed by the Asian Development Bank(ADB).ETMs,as envisioned,will be country-level blend

275、ed financefacilitiesusedtoacquirecoalpowerassetsand retire them earlier than the plants previously expected lifetime,while providing enough time to build up renewables that support a transition.Sellers ofcoal-firedassetsusefundsfromtheirsalestoinvest in the transition,while a complementary clean ene

276、rgy facility supports renewable energy deployment.Blendedfinancecanbeusedtohelpstructureassettransfersandprovidefinancialincentivestoassetowners to phase out the plant early.In this way,blendedfinanceisneededtoensurethattheassetowner has the revenue stream that will allow them to offsetthelossesthat

277、comefrombringingdownacoalplant early.This is particularly important in countries such as Indonesia,where the devaluation of public assets is illegal.While still in its early days,ADB is currently piloting ETMs in Indonesia,the Philippines,Vietnam,Pakistan,and Kazakhstan.Whenlookingatthevolumeofclima

278、tefinancingoverall,CPI shared their most recent estimates indicatingthemajorityofclimatefinanceisconcentrated in North America,Western Europe,andEastAsiaandthePacific,primarilyChina.In2021 and 2022,most of this(more than 80%)was spent domestically,highlighting the importance of a domestic enabling e

279、nvironment where investors perceivehighercertainty.Thedifferencesinfindingsfrom the HDD can be partially attributed to the focus 432102020$0.7B$2.4B$5.0B$0.2B$0.7B$1.3B2021$0.4B$0.6B$2.3B$2.8B$1.3B$0.4B$3.8B2022$1.9B$0.1B$0.9B$1.8B$0.5BFigure 11:Volumeofclimateblendedfinancebyregion,2020-

280、2022East Asia&the PacificMiddle East&North AfricaGlobalSouth AsiaEurope&Central AsiaLatin America&the CaribbeanSub-Saharan AfricaUSD Billions“Southeast Asia&South Asia will be increasingly important regions in the fight against climate change,given their dependence on coal”PART II|RETURN TO CONTENTS

281、|33of each data set.CPI attempts to capture all forms ofclimatefinancetransactions,includingthosewithout a concessional element,unlike the HDD,which requires transactions to contain concessional finance.Manyofthesenon-concessionaltransactions are found within China,especially those that are led by s

282、tate-owned enterprises.The most frequently targeted countries by climate blendedfinancetransactionsoverthepastthreeyears have been Kenya(14 transactions),Nigeria(13),India(12),Brazil(10)and Colombia(9).From anaggregatefinancinglens,thelargestfinancingflowsbetween2020-2022havetargetedBrazil($4.7 bill

283、ion),followed by India($2.2 billion).Brazil been home to several large-scale transactions launched since 2020,including the previously mentioned LD Cellulose facility($1.2 billion)and the PUMA II project($2.1 billion).Likewise,India hasbenefitedfromtheGreen Growth Equity Fund($741 million),a fund th

284、at allocates capital to environmentally conscious enterprises in India with afocusonrenewableenergy,resourceefficiency,e-mobility,andenergyservices;andAxis Bank($400million),afinancialinstitutionthatsecured funding to help grow its lending exposure to thee-mobility sector in India.There are three re

285、corded climate blended financetransactionsinUkraine.Thecountryhasrecently emerged as a potential hub for green-led reconstructionefforts,withgovernment officials campaigningforfinancingtobecomeaworldleaderin low-carbon steel and renewable energy.It is estimated that Ukraine would need$200 billion of

286、 investment to achieve this goal.Countries,including the UK,are relying on tools such as guarantees to mobilize funding from MDBs into Ukraine.Increasingtheuseofclimateblendedfinancecouldcontinue to mobilize part of this necessary funding.Across all regions from 2020-2022,apart from transactions tha

287、t are multi-region in nature,climate mitigation is the primary focus of climate blended financetransactions.Multi-regiontransactionsfocus on mitigation transactions(43%)and hybrid transactions(43%).Besides multi-region transactions,the regions where there has been a stronger adaptation focus include

288、 Europe and Central Asia(30%),EastAsiaandthe Pacific(14%)andSouthAsia(14%).The Middle East and North Africa had six recorded deals from 2020-2022,all of which were mitigation transactions.Figure 13:Proportionofclimateblendedfinancetransactionsacrossregionsbyclimatesub-theme,2020-2022AdaptationHybrid

289、MitigationEast Asia&the PacificEurope&Central AsiaGlobalLatin America&the CaribbeanMiddle East&North AfricaSouth AsiaSub-Saharan Africa48%38%14%50%20%30%43%14%43%62%30%8%100%50%36%14%48%39%13%14Kenya13Nigeria12India10Brazil6Cote dIvoire6Vietnam5Indonesia6Rwanda9Colombia7GhanaFigure 12:Numberofclimat

290、eblendedfinancetransactionsby country recipient,2020-2022PART II|RETURN TO CONTENTS|34In each of the past three years,the largest portion ofclimateblendedfinancetransactionshavetargeted middle-income countries.Lower-middle-income countries tend to appear in our data with the greatest frequency,repre

291、senting 59%of transactions in 2022 vs.18%of transactions in upper-middle-income countries.Aggregate financingvolumesin2022arerelativelyoutsizedforboth;theformerrepresentsapproximately73%oftotalfinancingvolume,whilethelatteraccounts for approximately 22%.Transactions in upper-middle-income countries

292、tend to be larger,averaging a total size of$203 million from 2020-2022,compared to$123 million in lower-middle-income countries.The Global Infrastructure Hub(GI Hub),a G20 organization delivering data and intelligence on global infrastructure investing flows,captureinfrastructureinvestmentsacrossall

293、 markets,including high-income countries,and find differenttrendswhenitcomestoinfrastructuredevelopment.Preliminary data from GI Hubs forthcoming Infrastructure Monitor Report 2023 shows that the majority of private investment into infrastructure is allocated to projects in high-income markets.While

294、investmentflowstomiddleincomecountries grew in the past year,investment into these markets has remained volatile over the past decade,withtheaggregateannualfinancinggapbetween middle income and high income countries expanding since 2020.Meanwhile,low-income countries have accounted for a small fract

295、ion of total private infrastructure investment over the past CONVERGENCE STATE OF BLENDED FINANCE 2023decade and experienced an absolute decline in total investment in 2022.Overall,low-income countries have experienced a low level of investor support,accounting for just 3%oftotalclimateblendedfinanc

296、ing($137million)in2022 while representing 21%of the deal count in the same year.CPI found that regions where the majority of low-and middle-income countries are locatedreceivedlessthan25%ofclimatefinanceflows.ThisisdespiteLDCshavingexperiencedtheworst impacts of the climate crisis.Over the last 50 y

297、ears,69%of worldwide deaths caused by climate-related disasters occurred in LDCs.One initiative launched in 2021 that grapples with thefinancinggapinLDCsanddevelopingcountriesis JETPs.TheJETPapproachistocreateafinancingcooperation mechanism to support a selection of heavily coal-dependent economies

298、as they move away from coal production and consumption,while addressing the social consequences involved.Later in this report,we will provide a more detailed analysis ofcountryplatformfinancingforJETPs.The Green Climate Fund(GCF)has created a Global Sub-national Climate Fund(SnCF),which aims to cata

299、lyze long-term public and private investment for mitigation and adaptation projects at a sub-national level in developing countries,of which approximately one-third are LDCs and SIDS.The SnCF consortium consists of private,public,and philanthropic organizations,including Pegasus Capital Advisors,L.P

300、.,International Union for the Conservation ofFigure 14:Proportionofclimateblendedfinancetransactions by country income level,2020-2022High IncomeLow IncomeLower-Middle IncomeUpper-Middle IncomeINCOME LEVELS30%4%30%36%22%0%25%53%20%2%18%59%202220212020Figure 15:Climate blended financevolumebreakdown

301、by recipient country income-level,2020-2022High IncomeLower-Middle IncomeLow IncomeUpper-Middle Income20209876543210$4.0B$1.8B$0.5B$0.2B2021$2.6B$4.1B$2.4B2022$1.1B$3.6B$0.1B$0.1BPART II|RETURN TO CONTENTS|35include high transportation and energy costs and limited capacity to raise domestic resource

302、s.The Climate Funds Update found that overall,the majority of funding for SIDS from multilateral climate funds has been grant-based(87%),with concessional loans and guarantees being a much smaller proportion of total funding(13%).In response to the unique challenges facing SIDS,the majority of clima

303、te blendedfinancehasfocusedonadaptationdeals:atotalof$1.3billion,or57%ofclimatefinance in SIDS relates to adaptation transactions,while 20%relates to mitigation.Figure 16:LDC climate blendedfinancevolume,2020-2022AdaptationMitigationHybrid202020212022$2.5B$0.6B$0.1B$1.1B$0.2B$0.8B$0.1BNature(IUCN),R

304、20:Regions of Climate Action,Gold Standard,and BNP Paribas.The Fund will commit$150 million in concessional equity investments,agreeingtoafirst-lossposition,withtheaimofmobilizing additional equity contributions of$600-$750 million from private investors.LDCsarealsoactiveactorsinclosingthisfinancing

305、gap.For example,48 developing countries have submitted National Adaptation Plans(NAPs)to date.NAPs are country-level strategies intended to reduce vulnerability to the impacts of climate change and facilitate the integration of climate change adaptation.Another way LDCs are active participants is by

306、 creating national and local green banks to further crowd in private capital.One example of this is in Rwanda.The Rwanda Green Fund(FONERWA)is working with the Rwanda Development Bank(BRD)to set up a facility called the Rwanda Green Investment Facility(RGIF).The purpose of the RGIF is to support the

307、 country in meeting its climate goals by using blendedfinancetoleverageprivateinvestment.SIDS are a particularly vulnerable group of countries to climate change impacts.Of the 38 countries classifiedasSIDS,mostaremiddle-income.However their economies are often small and gross national income varies

308、widely.Nine of the SIDS are categorized as LDCs.Challenges related to SIDS RECIPIENTSThebulkofclimateblendedfinancecapitalisdirected toward corporations and project developers.The feasibility and scalability of renewable energy projects in developing countries have historically driven this trend.In

309、recent years,Convergence has found project developer and corporation recipients encompass a large diversity of sectors,including agriculture,conservationfinance,andinfrastructure.Another notable trend has been the increased allocationofblendedfinancetowardsthe“missingmiddle”8,and a corresponding dec

310、line in support for entrepreneurs and small enterprises.This growing preferenceforfinancingthe“missingmiddle”islikely driven by investors preference for established business models and reliable revenue streams.Inaddition,impact-firstinvestorsaredrawninbythesebusinessescapacitytoaffectmeaningfulchang

311、e on a larger scale.There has been an increase in investments directedtowardsmicrofinanceandfinancialinstitutions.These investments typically aim toimproveaninstitutionscapacitytoofferaffordableclimate-focusedcredit,savings,insurance,andotherfinancialservicestoabroader client base.Often bound by rob

312、ust regulations,financialinstitutionsareperceivedas credible,lower-risk borrowers,making them attractive investment partners,especially for new entrantsintotheclimateblendedfinancespace.8“MissingMiddle”orSmallandGrowingBusinesses(SGBs)arecommerciallyviablefirmswithgrowthpotential.Yet,theytypicallyen

313、counterfundraising challengesbecausetheyaretoobigformicrofinance,toosmallorhigh-riskfortraditionalbanks,andcouldbeunsuitableforventurecapitalists.PART II|RETURN TO CONTENTS|36Figure 18:Endrecipientsofclimateblendedfinancetransactions,-20192020-2022General Population65%71%Low-Income/Base

314、 of the Pyramid46%26%Rural&SmallholderFarmers31%29%Women9%19%Entrepreneurs/Small Enterprises8%10%Climateblendedfinancedealsoftenproducewide-reachingbenefitsthatimpactthepopulation.Naturally,thecentraldevelopmentbenefitsofincreasing the installed capacity of renewable energy include both improved acc

315、ess to reliable sources of electricity for connected households and a reduction in GHG emissions compared to conventional thermal power plants.Nevertheless,it is crucial to recognize that the distribution and magnitude of climate impacts vary based on geographic and demographic factors.Climatefinanc

316、eisparticularlysignificantfor rural and smallholder farmers,considering these groups are often at the forefront of climate changesadverseeffectsduetotheirdependenceon agriculture and natural resources for their livelihoods.In this context,it is encouraging to witness rural and smallholder farmers co

317、nsistently beingtheendbeneficiaryofaround30%of climate-focusedblendedfinancetransactions.Moreover,women generally bear a disproportionate burden of the impacts of climate change because of deeply entrenched gender norms,roles,and vulnerabilities.From 2020 to 2022,the proportion ofclimateblendedfinan

318、cedealsexplicitlytargetingwomen doubled to 19%from 2017-2019.These deals are primarily focused on enhancing womens access tofinancialservices,restructuringvaluechainstobemore inclusive,and setting employment targets for women.This trend indicates increasing involvement ofwomennotmerelyasbeneficiarie

319、sbutasactiveparticipantsandleadersinclimatefinanceinitiatives.Figure 17:Directrecipientsofclimatefinanceblendedfinancetransactions,-20192020-2022Corporates/ProjectDevelopers81%73%The“Missing Middle”6%18%Entrepreneurs/SmallEnterprises19%13%MicrofinanceInstitutions3%7%FinancialInstitution

320、s7%13%PART II|RETURN TO CONTENTS|37SDG ALIGNMENT Figure 19:SDG alignment,proportion of climate blended financetransactionsbySDG,2020-2022Figure 20:TotalfinancingmobilizedtowardstheSDGsbyclimateblendedfinancetransactions,2020-2022Climate focused SDG1:No Poverty2:Zero Hunger3:Good Health&Well Being4:Q

321、uality Education5:Gender Equality6:Clean Water&Sanitation7:Affordable&Clean Energy8:Decent Work&Economic Growth9:Industry,Innovation&Infrastructure10:Reduced Inequalities11:Sustainable Cities12:Responsible Consumption13:Climate Action14:Life Below Water15:Life on Land16:Peace,Justice&Strong Institut

322、ions17:Partnerships for the Goals17%26%1%2%21%3%56%54%27%9%17%13%32%4%7%0%$3.1B$3.6B$0.8B$0.0B$3.5B$1.8B$15.0B$12.4B$10.9B$1.4B$4.0B$5.3B$11.2B$1.7B$2.6B$0B$24.2B100%According to the SDG Progress Report,only 12%of the SDG targets are making the desired progress.In comparison more than 30%of the SDGs

323、 have either hit a standstill or experienced regression.In this context,realizing the 2030 Agenda and the Paris Agreement requires integrated approaches between the SDGs.Convergences data shows that between 2020-2022 investment into climate-focused projects not only bolsters environmental initiative

324、s but can also address multiple development challenges concurrently.On average,each transaction has consistently targeted four distinct SDGs during this time period.The majority of transactions(56%)arefocusedonSDG7(Affordable&CleanEnergy),while 32%of deals target SDG 13(Climate Action),which encompa

325、sses initiatives with adaptation components.This is evidence of increased private sector investment in climate adaptation viablendedfinancestructures,In addition to driving climate focused SDGs,climate blendedfinancetransactionscancontributetowards realizing economic and social SDGs.Convergencefinds

326、thatoverhalf(54%)ofblendedclimate deals since 2020 have targeted SDG 8(Decent Work and Economic Growth),and over a quarter(27%)have focused on SDG 9(Industry,Innovation&Infrastructure).Additionally,the data indicatessignificantprogresswithrespecttoSDG5(Gender Equality),with 21%of deals addressing th

327、is goal-up from 16%in the previous years report.Morespecifically,Convergencefoundthat19%ofclimateblendedfinancedealslaunchedsince2020incorporated a gender lens in some form.However,transactions exclusively focused on the gender-climatenexusremainrareonly5%ofclimateblendedfinancedealslaunchedsince202

328、0wereconsidered to have a comprehensive focus on gender and the empowerment of women or girls.The proportion of deals supporting SDG 1(No Poverty),SDG 10(Reduced Inequalities),and SDG 3(Good Health and Well-being)has remained relativelylow.Thisfindingisconcerning,giventhatinclusiveclimatefinanceises

329、sentialforsafeguardingvulnerable populations against the impacts of climate change.The underfunding of these SDGs signalsamisalignmentbetweenfinancialflowsandPART II|RETURN TO CONTENTS|38the principles of a just transition,which emphasizes equitable and inclusive approaches to climate action.However

330、,blendedfinanceoffersapathwaytoaddressthis problem.The participation of donor parties in blendedfinancedealscanbeagatewaytoemphasizethe additional development impacts that these deals can provide beyond climate outcomes.This approach is also crucial in accelerating the entry of institutional investo

331、rs and galvanizing investor action,which can propel progress toward a just transition.The Impact Investing Institute(III)has developed criteria to help ensure that fund managers align their investments with the just transition.Concessional Capital82%75%70%93%71%77%Design-Stage Grant16%10%11%11%5%2%G

332、uarantee/Risk Insurance37%35%25%13%17%21%Technical Assistance Funds37%15%25%37%24%21%Public and/or philanthropic investors providing capital on below-market terms into a transactions capitalstack,therebyenhancingitscreditprofileoraddinglossprotectiontothebenefitofmoresenior investors(typically calle

333、d“concessional debt or equity”,or grant funding).Public and/or philanthropic investors extending partial or full guarantees or insurance instruments on below-market terms to enhance the credit profileofatransactionand/ormitigatespecificrisks(i.e.,currency risk,political risk).Project design,preparation,and structuring activities being grant-funded to ensure and accelerate transaction launch(i.e.,“