Rising trends in climate-focused finance and the significance of whale-related deals
The world of blended finance for climate solutions is experiencing a significant shift, as highlighted in the 2024 State of Blended Finance report by Convergence. This report underscores the increasing use of blended finance structures that combine concessional finance, risk-sharing mechanisms, and technical assistance to unlock private investment, particularly for climate adaptation.
One of the most notable developments in 2024 was the emergence of "whale deals," investments exceeding $1bn, such as the initial close of $2.4bn for Brookfield's blended finance fund, which was backed by CDPQ, GIC, Prudential, Temasek, and others. This trend points towards growing investor confidence in the risk-return opportunity on offer in climate blended finance.
The buoyant momentum of blended finance in 2024 comes amidst gusty regulatory headwinds from Washington. Despite these challenges, the market is showing resilience, with deals of this scale on the rise. In fact, the median deal size in 2024 stood at $65m, a significant increase from the median deal size of $38m between 2020 and 2023.
The report also finds an increase in the number of deals in the $50m - $100m, $100m - $250m, and $250m - $500m range in 2024. This upward trajectory of deal sizes reflects a structural shift toward fewer and larger investment vehicles. Large funds provide benefits to institutional investors, including larger ticket sizes, ease of scaling and replication, and a diverse portfolio, thereby reducing risk.
All whale transactions in 2024 were climate-focused, according to Ayesha Bery, associate director at Convergence and the report's lead author. This focus is bolstered by the synergy between investors' own climate solutions targets and the prospectus of climate blended finance funds.
The appeal of blended finance as a strategy for investors to meet their climate goals is demonstrated by the growing presence of whale deals. However, it's important to note that this shift is driven by private investor interest in climate blended finance.
The UAE's ALTÉRRA funds provided early backing for CTF, the world's largest private market investment vehicle. This backing underscores the growing recognition of the role of blended finance in addressing climate challenges.
Convergence CEO Joan Larrea notes that the report comes at a critical time, as there are unprecedented cuts to ODA and the dismantling of USAID, one of the most frequent investors in blended finance amongst official donor agencies. Despite these challenges, the report offers a critical snapshot of the period before and will be the year against which the future will be benchmarked.
Whether the momentum from 2024 carries through a turbulent 2025, time will tell. But one thing is certain: the blended finance market for climate solutions is maturing, with a focus on structured, outcome-linked financial products and enhanced collaboration between development finance institutions, private investors, insurers, and governments to scale up private finance for climate adaptation and resilience.
[1] Convergence. (2024). State of Blended Finance 2024. Retrieved from https://convergencenetwork.org/state-of-blended-finance-2024/ [2] Brookfield Asset Management. (2024). Brookfield Asset Management Announces Catalytic Transition Fund at COP28. Retrieved from https://www.brookfield.com/news/brookfield-asset-management-announces-catalytic-transition-fund-at-cop28/ [3] World Resources Institute. (2024). Blended Finance for Climate Action: A Review of the State of the Market. Retrieved from https://www.wri.org/publication/blended-finance-climate-action-review-state-market
- The growth of blended finance in the climate-change sector, as evidenced by the emergence of whale deals and the increase in investment vehicles, indicates a strong interest from environmental scientists and financial investors alike in funding solutions for climate adaptation and resilience.
- As the focus of blended finance shifts towards structured, outcome-linked financial products, governments, development finance institutions, private investors, and insurers are collaborating more closely to not only meet the climate goals set by institutions but also to scale up private finance for environmentally-focused projects, such as those addressed in the 2024 State of Blended Finance report by Convergence.
