(Bloomberg) -- Several banks are currently exploring ways into blended finance after the market for combining private and public funding deals hit a five-year high of $15 billion.
That’s according to Mitsubishi UFJ Financial Group Inc., which has established a $1.5 billion blended finance facility.
There’s “a number of other banks developing, co-creating, seeding these types of initiatives,” Nicholas Gandolfo, MUFG’s director of blended finance and transition finance, said at the Bloomberg Sustainable Business Summit on Wednesday.
Blended finance was developed to help pay for the measures needed to address climate change across the globe, particularly in poorer countries. Deals are generally structured so that public investors such as multilateral development banks provide de-risking measures like guarantees, in an effort to entice private money.
Such structures are proving increasingly effective and blended finance has started to attract more interest of late, according to a report earlier this year by Convergence, a network of more than 160 financial institutions that includes Citigroup Inc., MUFG and Standard Chartered Plc.
Depending on the structure, banks can provide capital to a fund “that’s blended at a certain level” and that “can allow you to take more risk,” Gandolfo said. “That will help move money.”
As blended finance grows, it could help bridge the financing gap for green technologies that would otherwise struggle to find capital, according to Patrick Lee, chief executive officer of Singapore and ASEAN at Standard Chartered.
“Very often the risk-adjusted returns for many of these new technologies and projects are challenging,” Lee said at the same session. “You do need some help, and that’s where blended finance has a role to play.”
With interest in blended finance rising, there’s concern investors might lose sight of the green impact of deals.
“What we need to be very, very careful about is how blended finance is used,” said Jackie Surtani, a regional director at the Asian Development Bank. “There’s a lot of discussion on things like greenwashing.”
That said, there’s also a risk that private investors will walk away if blended finance structures become too cumbersome, according to Katherine Stodulka, director of the UK-based Blended Finance Taskforce, who spoke at the same session.
“If we continue to talk about blended finance solutions as niche, high-transaction costs and constantly bespoke, then we will have the bankers running,” she said.
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