Only about ten years ago, “blended finance” was a relatively unknown concept. While it is still in its infancy, especially in terms of execution, it has achieved recognition and attention as an emerging solution to the private capital funding gap for meeting the necessary investment to achieve the United Nations Sustainable Development Goals. And as recognition of food waste reduction as a critical SDG funding area continues to increase – along with an understanding of the important role that capital providers of all types play in providing the $14 billion needed each year to fund a range of food waste solutions – the growth of blended finance is a positive trend for those looking to make an impact.
To dig into how blended finance can be used to develop and scale food waste solutions, ReFED’s Director of Capital, Innovation & Engagement Caroline Vance spoke with Andrew Apampa, Manager at Convergence; Caroline Bressan, Managing Director at Open Road Alliance; and Jennifer Louie, Executive Director of Closed Loop Partners in a special webinar hosted by the Food Waste Funder Circle, a network designed for private, public, and philanthropic funders interested in using their capital to solve food waste challenges, co-founded by ReFED and The Upcycled Food Association.
Apampa explained that blended finance combines catalytic capital that comes from public or philanthropic sources with private capital in a single structure that accommodates the different risk, return, and impact goals of each actor. Its main objective is to encourage more private capital to invest in solutions to major social and environmental problems by moving the needle on the private funder risk/return calculation. Louie described the catalytic capital portion of the structure as “patient capital.”
Right now, blended finance structures are often being executed on a trial and error basis, with investors creating hypotheses and testing them in the market. Several different structures can be deployed as part of blended finance, and blended finance deals can also take place at different levels, including the project level, the fund level, the fund of fund level and more.
(Graphic from Convergence)
According to the panelists, for blended finance to really take off, there are a few obstacles to scale that need to be addressed. There needs to be more transparency within blended finance, with investors sharing honest lessons learned from deal structures that have worked – and not worked. In addition, striking a balance between creating innovative, tailored structures, and creating replicable models that can be scaled up has been a particular challenge in the space, and it is critical to growing blended finance as a funding solution for the Sustainable Development Goals.
The most important message from the panel to the audience of potential blended finance funders was that flexibility and creativity are paramount. Bressan shared that Open Road has developed many creative solutions, motivated by the pursuit of positive impact, and they have found that this approach has paid off for them: through their blended finance fund they have been able to leverage an impact of 10 dollars of additional financing for every one dollar they’ve invested. Her advice to those wanting to explore blended finance is to keep impact at the center of focus to build the buy-in and create the partnerships required for its success. Referring to the perceived challenges of creating these new deal structures, Bressan said, “As long as the top level principle is ‘how are we maximizing for impact,’ actually changing what we do is not that difficult.”