Lab 2: Realizing the Potential of Blended Corporate Finance

This lab explored how companies can use blended finance to develop and market promising private-sector solutions for the SDGs when investments required to deploy such solutions do not provide adequate risk-adjusted returns established for internal financial management or broader risk-tolerance constraints as part of corporate governance.

For example, companies in most industries could make avaluable contribution to the SDGs by making essential products and services accessible to underserved markets and populations. These include:

  • telecom
  • energy
  • finance
  • food
  • pharmaceuticals

However, given the socioeconomic and political risks associated with lower-income markets and countries, companies may not be able to finance the required investments on a purely commercial basis.

Similarly, companies in many industries are in the early stages of developing technologies and products that could make a substantial contribution to the SDGs. However, because of existing market structures and incentives or the risks associated with new technology, companies may not beable to finance the required investments on a commercial basis.

Blended finance is defined by the Organization for Economic Cooperation and Development (OECD) as “the strategic use of development finance for the mobilization of additional finance toward sustainable development indeveloping countries.”

According to Convergence, the global network for blended finance, the goal of blended finance is to create market-equivalent investments to mobilize private-sector investment into SDG projects in developing countries.

By extension, corporate blended finance refers to mechanisms in which a public entity or a development finance institution (DFI) provides guarantees or other financial benefits to a company or a bank to support business solutions for sustainable development. The goal is to use public finance (e.g., catalytic capital, insurance, guarantees) to support corporations operating in challenging but important markets for the SDGs or to propose solutions where private finance is not available.

The four main ways that companies can benefit from blended finance for their SDG investments are:

  1. Fund-level blended finance. The combination of concessionary funding (public or philanthropic) with full-return private capital for investments in companies’ regular equity or bonds.
  2. Company-level blended transactions. Public orphilanthropic investors provide credit enhancement though guarantees and insurance or make subsidized or concessional loans (below market terms).
  3. Project-level blended finance. Use of concessionary finance to support large infrastructure or energy projects that contribute to the SDGs, where corporate acts as a project sponsor, a partner, or an off-taker.
  4. Outcome-based blended finance. Public orphilanthropic entities invest in corporate bonds or loans with commitments to SDG impact, either in the use of proceeds or in the achievement of material sustainability targets.