Keith Ippel is the Founder and Co-CEO of Spring, a leading early-stage impact investment ecosystem that has raised over $51 million in early-stage capital.
To truly maximize the potential of impact investing and integrate it into the mainstream, we use a proven investment approach: a diversified portfolio to give more organizations and investors the opportunity to participate. have the opportunity to give.
One portfolio approach that is gaining traction in the impact ecosystem is an innovative financing structure that operates under the umbrella of “blended finance.” These are new approaches that can be integrated into diversified portfolios to balance risk, and are increasingly being created to tackle some of the world’s most pressing and complex challenges.
Understanding blended finance
Blended finance is defined as “the use of catalytic capital from public funds and philanthropy to increase private sector investment in sustainable development.” This structured approach leverages the power of philanthropic capital to enable organizations with different risk and return goals to invest alongside each other while achieving their own goals. These goals can vary, including economic benefits, social impact, or a combination of both.
Blended finance addresses some of the key investment barriers for retail investors regarding perceived and actual risk, as well as risk-divergent returns compared to comparable investments.
Applying this approach to impact investing allows investors to balance high and low levels of risk, return, and impact to form portfolios that accurately reflect both their values and desired returns. This is the approach many investors take today for their portfolios, from low-risk, high-reward fixed income investments to public market investments to high-risk, high-reward venture investments in private companies. is. Blended finance is an approach that allows you to integrate objectives into all types of investment decisions.
Advancement in blended finance
The blended finance movement is gaining real momentum as it allows more capital to be put into financing opportunities outside of traditional investments. This includes major capital projects, impact real estate, and urgent climate issues that require immediate attention. Nine Canadian households recently announced they would spend $405 million on climate action through a blended fiscal structure.
In addition to mobilizing funds for global issues, blended finance addresses imbalances in who receives funds in traditional finance and provides equity to underserved and under-capitalized groups. It also helps generate more access.
Blended finance offers a powerful opportunity for reconciliation with indigenous communities and other deserving equity groups who would benefit from innovative solutions beyond the options typically available. An example of a proactive settlement through blended finance is the Sorenson Impact Institute’s collaboration with Raven Indigenous Capital Partners and the Raven Indigenous Impact Foundation.
A key change agent at the forefront of this movement is Annie Patton Power, an Associate Fellow at Oxford University’s Saïd Business School. Mr. Power draws from his background in investment banking to design innovative approaches to finance that deliver results for people and the planet. Her 2021 book, Adventure Finance: How to Create a Funding Journey That Blends Profit and Purpose, is a solid introduction for anyone interested in alternative financing structures and vehicles.
best practices
Remember, blended finance is a tool in your toolbox, not rocket science. This is a structured approach that should be part of any impact investing strategy. Therefore, as with any approach, before building this model into a meaningful part of a portfolio, investors should first educate themselves and start small, investing alongside a community of more experienced investors. You should get used to this approach.
Consider the following best practices when approaching blended finance.
• First, make sure the deal is aligned with your risk, return, and impact goals. You don’t have to step outside the boundaries to participate.
• Second, we build a community of co-investors who can take on different roles in investing across risks and bring back a level of tolerance and strategic value to our investees.
• Thirdly, when investing, check whether an experienced blended finance fund is involved in the transaction. Because they often have great experience in this field and can verify transactions.
Before investing, consider your impact theme, risk and return profile, and check who else is investing. Investment funds are often the easiest place to start.
Risk assessment
When it comes to assessing risk, remember that blended finance has been used for many years in all parts of the world to solve the biggest challenges, such as energy, agriculture, and healthcare. Therefore, there are plenty of trades where you can extract new trades and avoid risks.
Some points worth considering are: Does it pass the usual tests of risk such as team, space, competition, advancement and traction? What other investors are doing to support this deal? Do you bring expertise? Do you have an impact strategy and measurement model in place? Other funders also provide technical assistance funding to help improve the internal capacity of the projects and organizations they invest in. Or should you play that role?
conclusion
One of the most powerful elements of blended finance is its ability to be driven by communities, for communities. Each organization in the ecosystem has an opportunity to contribute, lead, support, and collaborate with this movement.
By taking this collaborative portfolio approach to financing and using approaches like blended finance, industry leaders are able to move more money into their hands faster, while aligning with investors’ risk, return, and objective goals. , can be mobilized for the greater good.
The information provided here is not investment, tax, or financial advice. You should consult a qualified professional for advice regarding your specific situation.
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