Climate Policy Officer at the Dutch Ministry of Foreign Affairs
As Climate Policy Officer at the Dutch Ministry of Foreign Affairs, Laurien Berkvens is responsible for various blended finance instruments, including the Dutch Fund for Climate and Development and Climate Investor One with FMO. Her background in economics & international relations and previous work experience at the Dutch Central Bank came in handy. Berkvens currently works for the Renewable Energy team at the same Ministry
Blended finance is becoming a regular part of our toolbox
Our world’s climate goals require a huge amount of funding. Public funding alone will not do the trick. That was the main reason the Dutch government started thinking about how to best use public resources to mobilize private financing. In this context, Berkvens developed several blended finance programs. Berkvens: “We were one of the first donors to start experimenting with these innovative financing instruments. That involved quite a lot of pioneering, which is starting to pay-off now. The Dutch Fund for Climate and Development and Climate Investor One are good examples.”
“The beauty of blended finance is that you can meaningfully support economies and markets to grow themselves.”
Why we blend
“We don't see blending as a goal in itself; it is one of the means to achieve the Paris climate goals and to contribute to the SDGs. With public funding alone, we are simply not going to make it as a world, and neither as the Netherlands.
There’s an increasing interest in creating blended finance instruments amongst many government organisations and donors. Berkvens: “We’re all searching for the best way to shape them. The outcome is strongly connected to internal considerations within a country, what rules and laws they need to adhere to, and the track record that has been built up in the past.
The Dutch Fund for Climate and Development originated from the Dutch coalition agreement (2017). Berkvens: “Since the coalition agreement referred to a climate fund that would maximise the return of climate finance, it was clear that we needed to develop an blended finance instrument.” The struggle with designing the DFCD was that we wanted it to mobilize private capital and scale-up existing climate projects, be revolvable* to a certain extent, and also have a huge impact in low-income countries, vulnerable communities and increasing finance in adaptation projects. All in all, it was quite hard to balance these different objectives. First, because there are fewer commercial projects in climate adaptation than, say, renewable energy. That market has already further matured. Secondly because the requirement to make the fund ‘revolvable’ and have it mobilize private capital would create an incentive to move into easier, more commercial projects. That, thirdly, could hinder our goal to make as much of the money available for low-income countries and fragile states. Even though these objectives are not contrasting per se, they do require a careful balancing act.”
Bertrand’s advice to other donors looking to set-up a blended finance facility
Paint a clear picture of what you want to achieve with your instrument and start working on sub-goals from there. Define a theory of change. And make sure that your instrument is both financially and developmentally additional.
Make sure you have the correct partners. Not everybody can handle a blended finance instrument; it requires more than just financial expertise.
Consider adding a supporting Technical Assistance pillar. If you do not want your instrument to only focus on larger-scale projects, you need to invest in training and support to help develop business models as well.
It is great to see that blended finance is past its infancy and becoming a regular part of the development finance toolbox. Donors have quite the history with grants that do not have to be paid back - the classic way of development cooperation but are moving more and more toward blended finance instruments. The beauty of blended finance is that you can meaningfully support economies and markets to grow themselves. The benefits that can be achieved with blended finance are that it enables investors to move into low-income countries and difficult markets, work on smaller projects and with more local partners.