"Increasing Trend: The Boost in Financing Arrangements Associated with 'Whale' Projects Amidst Climate-Focused Financial Blending"
In the dynamic world of finance, 2024 saw a significant shift in the climate blended finance market, with unprecedented deal sizes and a surge in investor interest. This buoyant momentum, however, came amidst gusty regulatory headwinds from Washington and the looming spectre of cuts to ODA and the dismantling of USAID.
The Convergence report, a critical snapshot of the period before the impacts of these new challenges, highlighted the increasing popularity of whale deals, accounting for 27% of the blended finance market's total financing over the past three years. These whale deals, exceeding the $1bn mark, were on the rise, reflecting a structural shift toward fewer and larger investment vehicles.
The median deal size was $38m between 2020 and 2023, but stood at $65m in 2024, according to the latest State of Blended Finance report from Convergence. This shift is driven by private investor interest in climate blended finance, bolstered by the synergy between their own climate solutions targets and the prospectus of these funds.
One such fund that attracted significant investment was Brookfield's blended finance fund, which raised a capital of $2.4bn following a successful capital raise. The UAE's ALTÉRRA funds, the world's largest private market investment vehicle, provided early backing for this fund.
The rising popularity of whale deals points toward investor confidence in the risk-return opportunity on offer. Large funds provide benefits to institutional investors, including larger ticket sizes, ease of scaling and replication, and a diverse portfolio, reducing risk.
Interestingly, while blended finance continues to mobilize investments, the participation of catalytic philanthropic capital remains relatively limited within these deals. Philanthropic investors committed only a small share—3%—of the total investor capital in the 123 blended finance deals analyzed for 2024.
The number of deals in the $50m - $100m, $100m - $250m, and $250m - $500m range all increased in 2024, indicating a broader acceptance and understanding of blended finance structures among investors.
Brookfield Asset Management announced the Catalytic Transition Fund (CTF) at COP28, targeted at climate solutions in emerging markets. The fund, which attracted investments from CDPQ, GIC, Prudential, and Temasek in September 2024, demonstrates the appeal of blended finance as a strategy for investors to meet their climate goals.
Whether the momentum from 2024 carries through a turbulent 2025 remains to be seen. The challenges in mobilizing concessional and philanthropic funding persist, but the growing conviction within institutional investor circles over the role of blended finance funds in meeting climate solutions targets offers a glimmer of hope for the future of this vital financial tool.
- The surge in investor interest in the climate blended finance market, as seen in 2024, coincides with a growing investment in environmental science, particularly when considering the increasing popularity of whale deals and the rise of funds focused on climate solutions.
- Amidst the challenges of regulatory headwinds and potential cuts to ODA and USAID, the financial sector has taken notice of the benefits offered by blended finance, such as the diversification of portfolio, risk reduction, and opportunities for investing in climate change mitigation, as demonstrated by the successful launches of funds like Brookfield's blended finance fund and the Catalytic Transition Fund (CTF).
