Innovations in Sustainable Finance #1 Harald Walkate | "Blended Finance is like Music"
Mar 20, 2023
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Harald Walkate, with 25 years of finance experience, explains blended finance and how it transforms sustainable finance. Topics include wind turbines in Mali, accessing deep pockets, and scoring impact points. The podcast also discusses making renewable energy projects appealing to pension funds, challenges in dividing credit, and the future of blended finance.
Blended finance combines different sources of capital to fund uninvestable projects and attract deep-pocketed investors, enabling the mobilization of capital for sustainability and impact investing.
Sustainable finance challenges traditional financial assumptions and requires careful consideration of tools to fulfill financial objectives and create impact.
Deep dives
Blended Finance: A Tool to Solve Societal Problems
Blended finance, which involves combining different sources of capital, is seen as a way to fund projects that would otherwise be considered uninvestable. By blending concessional capital from governments or philanthropy with private sector investments, projects with higher risk or lower returns can become attractive to deep-pocketed investors such as pension funds and insurance companies. This is important because these investors have strict investment criteria and could bring significant funding to address societal challenges. Blended finance serves as a tool to leverage the capital and expertise of different actors, including governments, asset owners, asset managers, development banks, entrepreneurs, and foundations. It enables the mobilization of capital for projects that promote sustainability and impact investing.
Challenging Assumptions in Sustainable Finance
While sustainable finance has gained traction in recent years, it often challenges the traditional financial assumptions taught in business schools. ESG (environmental, social, and governance) factors and responsible investment principles may clash with the profit-maximization focus taught by renowned finance academics like Milton Friedman. However, this clash has led to critical thinking and a desire to use finance to solve societal problems. Skepticism and rigor in assessing the efficacy of sustainable finance tools have become essential. While some tools, such as divestment, ESG integration, and engagement, align with values and enable positive impact, not all sustainable finance tools generate higher returns or achieve real-world outcomes. Careful consideration of tools and their ability to fulfill financial objectives and create impact is necessary.
Blended Finance: Overcoming Barriers and Collaboration
Bringing together stakeholders from different sectors and backgrounds in blended finance can present challenges due to language, interests, and objectives. Actors in blended finance, such as government representatives, private equity professionals, lawyers, and project initiators, often have diverse perspectives and priorities. Overcoming these barriers requires creating the right platforms for collaboration and convening. Cross-sector knowledge-sharing and clear communication of expectations and decision-making processes are crucial. By fostering a collaborative environment, blended finance initiatives can overcome hurdles and ensure that different actors complement each other's expertise and contribute to driving impactful investment projects.
The Future of Blended Finance: Financing Sustainability
The future of sustainable finance lies in recognizing that the ultimate goal is financing sustainability, rather than solely focusing on sustainable finance tools. Institutional investors, including pension funds, are realizing the importance of impact and are questioning the efficacy of current sustainable finance practices. Financing sustainability requires considering projects and solutions that currently lack investability. Blended finance is emerging as a key approach to leverage various financial resources and encourage collaboration across different sectors. The increased focus on impact and the use of blended finance tools offer opportunities to mobilize capital for addressing pressing societal challenges and promoting sustainable development.
I ask Harald Walkate why he thinks blended finance is like music. Harald knows about finance, he has 25 years of experience, having worked at Natixis Investment Managers and Aegon Asset Management. He also knows about music, he plays the piano really well. Harald explains how blended finance works, and how it transforms the idea of "sustainable finance" into "financing sustainability". Along the way, we talk about wind turbines in Mali, Milton Friedman, how to access deep pockets, and scoring impact points. As a bonus, you can listen to one of Harald’s recent recordings.
For those looking for more information, some links to the things we talk about:
You can find the 6 articles in the “Music is Like Blended Finance” series that we discuss in the podcast on the website of Route17, the blended finance advisory firm that Harald is a founding partner of: https://route17.world/thought-leadership/
