Best Practices - Blended Finance

The GFCR utilizes a blended finance approach that seeks to optimize the positive impact of coordinated public, philanthropic, and private finance by reducing risk and enhancing enabling conditions with the aim to build concrete examples of reef-positive investments and market-based finance solutions. 

Blended finance is defined by Convergence as “the use of catalytic capital from public or philanthropic sources to increase private sector investment in sustainable development.”⁷ There are multiple ways in which blended finance can be used in the GFCR context. These include the main forms of blended finance as described by Convergence: technical assistance, grants, risk mitigation, and concessional finance. Convergence provides training programs on different aspects of blended finance (see blended finance primer).

According to Convergence, there are three elements to successful blended finance mechanisms:

1. Return: intended to yield (1) an overall financial return and (2) risk adjusted return for private investors in line with market expectations
2. Impact: underlying activities contribute towards the SDGs in a developing country (some participants may not have an impact objective)
3. Leverage: public/philanthropic parties leverage catalytic capital to make a deal happen that would otherwise attract little or no private capital.

To achieve the desired outcomes and, ultimately, the overall goal of the Fund with this blended finance concept, it will be essential to have a clear investment philosophy, strategy, and principles. It will also be necessary for the strategy to adapt over time as the science of coral reef conservation and resilience, as well as our knowledge of how different business models can be most effective improves over time.

The overall strategy of the Fund is to leverage public and philanthropic finance, including climate adaptation funding, that can “crowd-in” private capital and increase the scale of impact of the Fund. This approach requires very effective coordination between the grant and concessional finance arm of the Fund – the Grant Fund – and the private investing arm of the Fund – the Investment Fund. There are four ways in which the two parts of the Fund will assure a unified approach to achieving stated objectives:

1. Governance and Decision-Making Structures - Governance structures for decision-making are designed to assure strong coordination among the two main windows.
   
   
2. Investment Principles and Policies – investment principles and policies are being elaborated by the Fund partners and will include sector specific guidance to assure the strongest impacts towards the Fund’s outcomes.
   
   
3. Safeguards – a unified set of investment safeguards will be agreed among the partners based on the existing safeguards in place for most partners (UN, Green Climate Fund, BNP Paribas).
   
   
4. Adaptive Management – the Fund will adapt its strategies and practices to improve outcomes and impacts during the course of implementation.

You can access more GFCR Investment Principles' best practices here.

The full document covering all the best practice series can be downloaded from here: GFCR Best Practice General Principles 2022.pdf.