Blended Finance for Coral Reefs Webinar

In this webinar, GFCR and Convergence discussed the challenges and opportunities of blended finance for coral reef conservation.

Yabanex Batista, Deputy Director, GFCR, introduced GFCR and noted why blended finance is so important as part of the urgent action needed to protect resilient reefs:

“We all know that ‘conservation as usual’ is no longer 100% the answer. We need new approaches for conservation to take place, and this includes the resource mobilisation aspect—and blended finance as an essential part of this new toolkit.”

See Target 19 of the Kunming-Montreal Global Biodiversity Framework for more information on blended finance as part of resource mobilisation for biodiversity.

Heiner Skaliks, Senior Advisor, Latin America and Caribbean, Convergence, shared an introduction to blended finance and the blue economy.

Key takeaways included:

• Convergence has identified at least 27 transactions over the past decade related to SDG14, which have collectively mobilised $4.6B. The trend in transactions seems to be increasing.
• Funds make up an outsized share of blue economy transactions
• More than 50% of the transactions for blended finance within the blue economy are in the $50M - 250M range.
• Blue economy deals are often associated with climate adaptation outcomes, including fisheries and aquaculture, water, and waste management.

See the Convergence presentation for more takeaways.

We were joined by a panel including Antoine Rougier, ESG and Impact manager, GFCR Investment Fund, Pegasus Capital Advisors, Ariane Steins-Meier, Scaling and Innovation Director, ORRAA, Karla Gallardo, CEO, VIWALA and Partner, MAR+ Invest, and Shashank Singh, Manager of Blended and Innovative Blue Finance, WWF Oceans.

Takeaways included:

CHALLENGES

• A perceived lack of pipeline is often due to the lack of support ecosystem for community-based and conservation-oriented enterprises.
• Additional challenges include lack of economies of scale and aggregation models, high transaction costs, capacity at the level of the financial institutions, and lack of understanding how investing into natural capital can also impact social and economic fronts.
• Markets in areas such as SIDS are complex, lack scale, and are inherently risky, which is a systemic disincentive. Private capital alone will not have the means or incentives to tackle the “missing middle” at scale.

SOLUTIONS

• Exchange and collaborationare key to building a capital market for the ocean. When building a pipeline, enabling smaller locally-led projects to pilot new innovative solutions and breaking down silos between different areas can foster new advances. See the parametric insurance programme that ORRAA has developed with MAR Fund.
• Blended finance is critical because the tickets in the region are relatively small— $1.5M at the most. Three types of blended finance models including concessional loans for traditional business models, working with early stage-businesses to help them grow, and guarantees, are required.
• Governments have a critical role to play in enabling this finance ecosystem to be better and less risky.
• Additional approaches needed include adequate derisking, data and modelling capacity to understand risk, patient capital, and an approach which is both bottom-up and top-down, e.g. cornerstones to build a capital market for the oceans e.g. a blue bond incubator.
• To attract capital, businesses need support at different stages of company life. It must also be possible to explain to companies and to funding providers that there are different ways to give funding to these companies, with multiple asset classes.
• For countries with weak private sector funding for blended finance, it is necessary to generate examples to show the opportunities, build out impact metrics, and at the company level, look into the value proposition.

Our panellists have additionally responded in text to audience questions that we were not able to address during the session:

Question 1:

Some panellists mentioned collaboration with locally led institutions and community organisations. One thing we have learnt through our work is that many local organisations don't have the capacity to take in large sums of money and one-off funding projects build their capacities temporarily which they find difficult to sustain once the fund dries up. How, as finance experts, do you tackle this issue?

Ariane:

ORRAA’s Ocean Resilience Innovation Challenge is building that capacity through mentorship. In addition, other projects have shown that building a governance structure around financial management, such as saving clubs, have been useful to then link new and innovative finance and insurance products to. See an example here.

Question 2:

It's clear that deal flow and a pipeline is important, but this cannot only be sustained through grants and outside investment on its own. My question is who are the primary customers of these companies, is it national institutions or the private sector? Do you help in scaling the market from a customer acqusition perspective?

Shashank:

Absolutely agree that long-term financial viability of the pipeline companies once the grants are utilized is absolutely critical and this is a lens that we have tried to rigorously apply while thinking of interventions to support these enterprises. I think this is where a robust incubation/acceleration ecosystems which can stay engaged with companies beyond the usual 6mo/1 yr cohort periods and can support them effectively around establishing, managing and scaling their businesses become essential. In terms of who are the customers of the pipeline companies, that could vary but from our work we have seen most enterprises being in more private than public-sector sphere in both domestic and overseas markets.

Question 3:

What criteria are private sector players looking to see when investing in a blue project instrument?

Antoine:

It will of course depend on each investors’ investment strategy and appetite for risks, but I would say for non-specialised institutional investors to invest into a blue finance instrument, it would have first to fit in their broader impact/responsible investment strategy (for example, investing in SFDR article 9 funds may be a priority, and that could include blue economy impact fund).

As likely to be a more unusual investment thesis/ sector, solutions put in place by the fund manager to de-risks investments are likely to reassure the prospective investor: these would be in line with the blended finance approach discussed during the webinar, and could include tools like junior tranches, first -loss guarantees or technical assistance budget.

This is a rapidly developing area with new instruments and mechanisms emerging - although often fragmented and not well understood by governments /policy makers and private sector in general. Clearly not one specific mechanism is appropriate for each stage of project investments. In your opinion what do you see as the areas where we are likely to see greatest impact in next ~5 yrs (thematic areas where finance can be catalysed) and what will be the main challenges?

[Response pending]