Issue 149: Funds take lion's share of global blended finance volumes; Singapore upgrades sustainability reporting training syllabus
This week in ESG: Blended finance at critical crossroads, says Convergence; accounting regulator publishes guide for sustainability reporting trainers
Sustainable finance
Funds spark hope for scaling blended finance
Fund structures have steadily become one of the most promising vehicles for scaling up blended finance, with Asia a key market for capital raising, according to the latest data by blended finance development group Convergence.
Blended finance refers to funding structures that use concessional capital to improve the risk or return of a deal so that commercial capital is willing to take part. It's an approach that's especially impactful in mobilising capital for hard-to-finance needs in developing and emerging geographies.
Like Schrodinger's cat, which is simultaneously alive and dead, the blended finance industry currently exists both in a state of strength and weakness.
The total volume of blended finance deals worldwide stood at US$18.3 billion in 2024, Convergence data shows. Although this is down 21 per cent from a record US$23.1 billion financed in 2023, year-on-year numbers can be volatile due to the timing of large deals known as 'whales'. The broad five-year trend remains positive.
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However, the multi-year momentum is threatened with dimmer prospects for official development assistance (ODA) funding around the world, including cuts in France, Germany, the Netherlands and the US.
ODA is the largest source of concessional capital in blended deals – in 2024 ODA accounted for US$3 billion of financing in blended deals – and the US Agency for International Development is one of the largest providers of development capital. Because concessional capital is critical to mobilising commercial funding, every dollar decline in ODA could be magnified in private money that cannot be mobilised.
In a note, Convergence chief executive Joan M Larrea said: 'What we've seen is that despite the market growing in size, and more people than ever talking about the promise of blended finance, it remains plagued by its most intractable issues. In light of the ODA drop, it's more important than ever for those of us invested in and investing in blended finance to ensure change happens.'
One of the promising changes happening in blended finance is the growth of blended funds. In 2024, blended funds accounted for US$5.1 billion of financing. This was more than any other vehicle type: bonds or notes, companies, facilities, financial institutions and projects.
Blended funds are typically anchored by concessional investors who can help to limit losses or enhance returns for other investors in the fund. The TPG Global South Initiative, which aims to raise US$2.5 billion, taps the United Arab Emirates' US$30 billion Alterra climate investment fund to enhance returns for other shareholders.
The TPG Global South Initiative is giving a boost to the East Asia and Pacific region, where blended finance volumes almost quadrupled to US$4 billion in 2024 from US$1.1 billion the year before.
The other major blended fund in 2024 – Brookfield's Catalytic Transition Fund, with a fundraising target of US$5 billion – also had Asia connections; Singapore's GIC and Temasek are among the fund's investment partners.
Convergence describes blended funds as 'the most scalable and replicable blended finance vehicle'.
One of the reasons that blended funds have been successful in raising private capital is that the funds are managed by reputable firms with strong track records. This helps to unlock interest from institutional investors, which have to ensure that their investments meet their risk and compliance requirements.
Convergence finds that institutional investors account for half of private-sector commitments in blended funds. Median deal size for funds has also increased to US$135 million in 2024 from US$48 million in 2022. Almost two-thirds of the blended funds focus on either, or both, climate mitigation and adaptation.
Since investors' monies are pooled and allocated through the fund managers, blended funds also allow smaller projects to access institutional money even if they don't meet the institutional investors' minimum ticket sizes.
Finally, funds can also be avenues through which local capital can get involved. Convergence has identified local capital as an important source of financing that needs to be developed.
Could we see more blended funds in the years ahead in Asia? The signs are promising. For instance, Vietnam's Mekong Capital is using blended finance on its US$200 million Mekong Earth Regeneration Fund to invest in growth-stage private equity targets in regeneration agriculture and sustainable land use in Vietnam.
Green economy
A national syllabus for sustainability reporting training
Singapore's looming deadlines for compliance with international sustainability reporting accounting standards have fuelled a demand surge for relevant skills training.
Before everyone starts heading out into the wild to get that training, the Singapore Accounting and Corporate Regulatory Authority (Acra) is hoping to set some standards for the standards teachers.
A new guide on sustainability reporting sets out essential knowledge areas on sustainability reporting that are aligned with the IFRS S1 and S2 standards, which apply to sustainability and climate reporting. Structured like a school syllabus, the guide is aimed at training providers to help them design specialised courses.
To validate the guide, Acra ran it by more than 50 key stakeholders, including company preparers, assurance providers, professional bodies and training providers.
The move comes as sustainability reporting-related skills are a growing need. SkillsFuture Singapore, the nation's lifelong learning agency, tracks historical jobs postings to assess priority skills based on how much demand they face and how transferable they are.
On such a two-axis matrix, a recent SkillsFuture report observed that sustainability assurance, while still a low-demand skill, has steadily moved from moderate transferability to high transferability. That shift reflects Singapore's requirement for IFRS-aligned climate reporting from listed companies beginning this year and from 2027 onwards for large non-listed companies, SkillsFuture says.
Beyond the data, SkillsFuture has also identified greenhouse gas accounting and carbon footprint management as skills that it expects to capture greater demand and transferability in the future.
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