Making blended finance work for adaptation

Dear colleagues,

The United Nations Environment Programme estimates that adaptation costs in developing countries are five to ten times greater than current public adaptation finance flows. Working together, the public and private sectors have a critical role to play in closing this gap. This is at the heart of what GCF does as the world’s largest climate fund.

We allocate 50% of our resources to adaptation, prioritising the most vulnerable states. We have adopted a four-pronged approach to create new adaptation markets and catalyze private finance at scale.

First, we create an enabling environment for climate action by promoting integrated strategies, planning and policymaking with support from our grant-based Readiness programme. 

Second, we accelerate climate innovation through investments in new and innovative technologies, business models, financial instruments, and practices. 

Third, we de-risk high impact projects that otherwise would not be seen as bankable investments in order to establish a commercial track record for new adaptation solutions.

And finally, we align finance with sustainable development by empowering domestic financial institutions in developing countries to appraise and finance these commercially proven new climate solutions.

Since our first project was approved in 2015, our portfolio has grown to USD 10.2 billion – USD 37.3 billion in total assets under management with co-financing.  We now have 192 projects approved in 127 developing countries. Many of our projects build on or complement initiatives supported by other multilateral climate funds such as the Adaptation Fund or GEF. Let me give you a couple of concrete examples of our approach in action.

The Global Fund for Coral Reefs is a $ 500 million private equity fund with Pegasus Capital Advisors, to encourage investments in the blue economy, protecting coral reefs and the lives and livelihood of millions. It targets 17 countries in Africa, the Asia-Pacific, Latin America, and the Caribbean, including 6 Small Island Developing States and 2 Least Developed Countries.

Under the Fund’s investment window, GCF is providing $ 125 million of first loss equity to mobilise three times this amount in private equity from private and institutional investors. In turn, the fund will provide critical growth equity to entrepreneurs, mobilising a multiple of its equity investment in entrepreneurial equity and debt finance at the individual investment level, catalysing finance at scale to save coral reefs.

If something goes wrong, we are the first to lose our money.  If the project is successful, we would have created a new asset class to mobilize institutional and citizen savings for coral reef protection.

A second example is the USD 56 million Acumen Resilient Agriculture Fund, including USD 26 million in GCF financing. ARAF will benefit 10 million people across four African countries by supporting pioneering and early-growth innovative agribusinesses that help smallholder farmers adapt to climate change.

At COP 27, we hope to launch our first private equity funds for climate resilient infrastructure in vulnerable states as well as a dedicated green guarantee company to provide credit enhancement and access to lower financing costs for climate resilient investments.