This is number six, and the last, in our series of articles applying the analogies of music and orchestras to the world of blended finance. In the previous articles we have analyzed what role the different stakeholders – governments, asset owners, development banks, foundations and ESG professionals – can play in order to generate more blended finance and scale it, such that it makes a real dent in mobilizing capital. Capital needed to address the world’s environmental, social and governance challenges.

Harald Walkate

Robert W. van Zwieten

Simon Gupta

This is number six, and the last, in our series of articles applying the analogies of music and orchestras to the world of blended finance. In the previous articles we have analyzed what role the different stakeholders – 

 – can play in order to generate more blended finance and scale it, such that it makes a real dent in mobilizing capital. Capital needed to address the world’s environmental, social and governance challenges.

We could have gone on to describe the role of sovereign wealth funds, investment banks, private banks, investment consultants, high net-worth individuals and of course entrepreneurs and organizations looking for financing (and perhaps we may still, next year…!). But in wrapping up the series, for now, there’s one important group of actors that we feel deserves coverage: asset managers.

That’s because you, asset managers, are in many ways like the conductor of the orchestra: perhaps you didn’t produce the concert, you’re likely not playing one of the instruments, and maybe you didn’t even decide what music was going to be played today.

But there is one crucial thing that you do decide: how the music will be played. You set the tempo, you decide exactly when the violins come in, you cue the trumpets when they need to play a more powerful role; in other words, it’s your role to turn music notes printed on the page into a fully-fledged performance that, through dynamics, phrasing and articulation, brings the written music to life and is appreciated and enjoyed by the audience.

So what are the three things asset managers could do to play this conducting role more effectively?

One of the main challenges in blended finance is bringing institutional asset owners to the table. They, after all, have the deep pockets that can bring the scale needed, while they also, as fiduciaries, need to carefully watch their investment criteria to make sure they invest in keeping with their clients’ and beneficiaries’ interests and wishes.

Of all actors in the blended finance eco-system, asset managers have the closest relationships with asset owners, with investment consultants a close second. Asset managers already invest the bulk of asset owners’ assets and so they regularly meet with them, periodically report on the performance of the assets under management, and advise on how to allocate or re-allocate assets going forward.

Asset managers should educate their staff on blended finance, and SDG-related investment more generally, so that they in turn can advise asset owners: what is blended finance? What are the types of blended finance vehicles that already exist and that might match investment criteria? Which new vehicles can we co-create and tailor to your precise requirements? Ultimately, it is about being an SDG-finance guide for the asset owners interested in taking responsibility for people and planet.

We had a chat with a head of responsible investment at a large asset management firm recently. He told us, “I think of blended finance in the context of fiduciary duty, it means doing the best for clients. Blended finance is something that is coming to the agenda more and more frequently, so we have an obligation to advise our clients on what this type of investment can mean for them.”

In doing so, it is very important to help asset owners understand the difference between an impact-aligned strategy (investing in impact that is already happening or that would happen regardless of the investment) and impact-generation (where the investments cause or enable the real-world change).

In addition, education of asset owners requires that asset managers should not overstate the contribution they are making to impact goals today through traditional investment methods, including sustainable finance approaches such as ESG integration, active ownership, or public markets impact funds. Doing so risks creating a placebo effect: the collective illusion that asset owners and asset managers are doing something about societal problems when in reality… we aren’t.

Many of the societal challenges that we are collectively aiming to address have a common denominator: they are mostly playing out in emerging markets and require solutions, at scale, to be deployed on the ground. This is certainly also true for investments needed for climate mitigation and adaptation. The text of the 

UN Resolution on the Sustainable Development Goals

 mentions the words “developing countries” no less than 69 times.

At the same time, many asset managers do not proactively follow, or allocate to, emerging markets. This is remarkable because nearly half of global GDP is generated in emerging markets and about 83% of the world population lives in these markets. Not investing there means investors miss out on the highest growth countries and companies, and on a considerable chunk of largely un-correlated returns. Yes, there are many reasons why investing in emerging markets is harder and riskier, but aren’t you, asset managers, compensated to figure out where the best risk-returns are to be had?

This attitude toward emerging markets is also somewhat paradoxical considering how many asset owners and asset managers have made commitments to ‘impact investing’ and ‘SDG investing’. But what’s even more paradoxical is that institutional investors, today, may even be retreating from emerging markets due to ESG considerations: there is some anecdotal evidence suggesting the climate-related decarbonization targets companies set encourage them to avoid those markets.

Emerging markets are like an elephant in the impact investing-room. And asset managers can play an important role in acknowledging its presence.

If in fact asset owners come to the conclusion that they need blended finance to live up to their impact and SDG commitments, 

, they will come to asset managers seeking solutions. While asset managers are not paid to innovate by their own initiative, responsiveness to client needs is another matter. On this our friend, the head of responsible investment, said, “if clients want this, as seems to be the case, it’s simply our responsibility to develop the necessary capabilities.”

Asset managers developing blended finance capabilities means, inevitably, developing relationships – with government agencies, with development banks, with foundations. Because as Peter Drucker, the famous management guru, once said, “conductors do not know how the oboe does its work, but they know what the oboe should contribute.”

In sum, asset managers have a key role to play in blended finance, as conductors of the orchestra.

But then again, as we’ve argued in the other articles in our series, all actors have key roles to play. That’s the beauty, but also the challenge, of blended finance: like with a symphony, every instrumentalist has a unique contribution to make, and each is needed to deliver the end result.

And should you still be doubtful as to whether we can rally around this cause, or think that blended finance will always remain what’s-most-needed but out-of-reach at the same time, keep in mind Bono’s powerful words: “Music can change the world because it can change people.”

Most projects and activities that are needed to achieve the SDGs are not profitable, or not profitable enough, or not yet profitable. Also, most are small scale. And most are in emerging markets. At the same time, we need trillions annually (estimates vary) to flow to these activities, much, much more than governments, NGOs and charities have. So, we need institutional investors like pension funds and insurance companies because that’s where the money is. However, they do not invest in small-scale, emerging markets projects that are not profitable. Also, it’s unlikely we can persuade pension fund boards to make impact-first investments at scale – their primary aim is to invest on behalf of pensioners which comes with strict investment criteria. Also, none of the existing ESG activities (labels, ESG funds, green bonds, ESG integration, SFDR, PRI, TCFD, Taxonomy, Net Zero) are achieving any of this. So, if we want to scale this up fast in order to meet the 2030 deadline, we need to start tailoring the needed projects so that they do meet institutional investors’ requirements, and this is what blended finance does: government (or DFI or philanthropic) interventions such as guarantees, first-loss positions, grants, technical assistance, subordinated debt or junior equity, can change the risk/return profile of impactful projects enabling institutional investors to allocate capital to them.]

Perhaps you haven’t seen the first five articles we wrote comparing blended finance to music. The basic idea of the analogy is that to play a symphony you need lots of different musicians, playing the parts only they can play – it’s no different in blended finance. In each article in this series we’re talking about who those different ‘musicians’ are that are needed on the blended finance stage – and how to get them on stage! You can find them here:

Governments​: Blended Finance is Like Music

Foundations: Blended Finance is Like Music

Asset Owners: Blended Finance is Like Music

Development Banks: Blended Finance is Like Music

ESG Professionals: Blended Finance is Like Music

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

Asset Managers: Blended Finance is Like Music

This is number five in our series of articles applying the analogies of music and orchestras to the world of blended finance. In each article we analyze what role the different stakeholders – governments, asset owners, development banks, foundations – can play in order to generate more blended finance and, in doing so, mobilize capital to address the world’s environmental, social and governance challenges.

And if there’s one group of stakeholders out there that cares about environmental, social and governance challenges, it must be you: ESG Professionals.

This is number five in our series of articles applying the analogies of music and orchestras to the world of blended finance. In each article we analyze what role the different stakeholders – 

 – can play in order to generate more blended finance and, in doing so, mobilize capital to address the world’s environmental, social and governance challenges.

And if there’s one group of stakeholders out there that cares about environmental, social and governance challenges, it must be you: ESG Professionals.

Since the introduction of the term “ESG” in the early 2000s, this new professional discipline has ballooned from a handful of people who devoted much or all of their professional time to what we now call “ESG”, to some 349,000 people who have “ESG” in their title or job description, according to LinkedIn. We expect that the number has not peaked yet, and many more are yet to come.

So, what are the three pieces of blended finance advice we have for you?

1. Do soul searching – Is your motivation to

We don’t want to wade into the debate of what exactly is “ESG”, whether we should start calling it “responsible investment” again, or how it’s different from “impact investment” and “sustainable finance”.

However, we would argue that for most, if not all of you who identify with the “ESG” label, one of the main drivers – if not 

 main driver – that brought you to this space is a desire to, through finance and investments, 

 to the SDGs. In sum: making a difference in the world.

You will detect in these verbs a definitive sense of instrumentality, or agency – you want to be the “means” to a certain “end”; you are aiming for “cause and effect” or “additionality”. You know, the idea that if 

 or the company you work for had not undertaken some action, that positive change would not have happened.

OK, so then think about how much of what you’re currently doing has additionality, or actually 

 positive change. And just to give you a bit of help here, academic research suggests that the following activities, that many ESG professionals spend most of their time on, have very little to no additionality – they don’t make much, or any, difference in the world:

Decarbonizing portfolios, making them Paris-aligned, measuring emissions

Classifying your funds as article 8 or 9 and making SFDR disclosures

To be sure, some of these things may work for values-alignment (i.e., your or your clients’ “warm glow”); a number of them might work for risk management (ESG used to be principally a risk management framework, after all); 

 some of it also works for generating better 

So this would be our first bit of advice: do some soul searching, ask yourself: “Why am I in this role, what brought me here? Is it to have impact?” And then ask yourself, “am I currently making this positive contribution?”

2. Do the impact math – Do “returns and impact go hand-in-hand”?

We suspect that the answers to these questions above, for the vast majority of you – if you’re ruthlessly honest with yourself – are “yes” and “no”.

So then our next recommendation would be to do the math on “impact investing”, and especially to challenge the notion that has become quite popular in impact circles, which is: “impact and return go hand-in-hand”. Because, while this may be true in a small number of cases, projects and companies where impact and return in fact go hand-in-hand should not have much difficulty in raising capital.

But in the vast majority of cases, as we argue in our sidebar Why Blended Finance is Critical, projects that are needed to reach the SDGs are small, are not profitable (yet), are risky and are in developing countries. In other words, projects where impact and return certainly do 

 go hand-in-hand. At the same time that’s where we need to direct those trillions of dollars.

In other words, if you want to make these investments AND leverage the deep pockets of the world’s largest asset owners – pension funds, insurers, etc. – you will need some kind of tool or aid that makes the investment possible, because it allows the risk-return profile to start making sense for those asset owners. This is what blended finance does.

The only alternative to this is to hope that pension fund boards somehow start making investments that don’t meet their investment criteria, which we believe is exceedingly unlikely. They cannot ignore their fiduciary duty to their beneficiaries.

So, recommendation #2 is: do the impact math, read up on blended finance, sign up for a blended finance course.

Once you’ve completed the thinking on our first two recommendations, you’ll realize that you will have to make blended finance part of your toolkit.

But our advice is to go further than that – we recommend you do everything in your power to “change ESG”, for all of us (349,000 strong and counting) in order to redirect our collective focus from all those ESG activities conducted today that are perceived as “normal” but are largely ineffective, to those investments that actually have impact on the ground, that cause positive change.

And to go back to our music analogy, consider the case of Miles Davis, the jazz trumpeter who is generally credited with “changing music”. Not just once, mind you, but as often as 5 or 6 times. How did Miles do this? At several stages in his career, he burned his bridges, and surrounded himself with young, innovative and creative musicians, who brought new ideas and skills to what Miles was trying to achieve with music. What happened? He didn’t only change “Miles Davis music”, he changed the entire scene, influencing how everyone was playing, and listening to, music.

You can do the same. As Miles said: “when you do anything too long, you either wear it out or lose interest”. So, instead of writing that tired old PRI or sustainability report, instead of agonizing over that article 8 vs. article 9 decision, instead of worrying about your NZAMI disclosure, try to understand what solutions are available to achieve the SDGs, and try to understand how 

can help finance them. You will see that in many cases this requires blended finance.

Then, surround yourself with new ‘musicians’ – government officials, development bank representatives, emerging markets specialists, philanthropic foundations and so forth – and start playing a new kind of ESG music.

Yes, it will be difficult, it will be messy, this is what change and innovation are about. Like any jazz musician, you’ll have to improvise. A lot. But we think you’ll enjoy this a lot more than what you’re doing today.

Because you’ll know that you are, finally, making a difference in the world.

Perhaps you haven’t seen the first four articles we wrote comparing blended finance to music. The basic idea of the analogy is that to play a symphony you need lots of different musicians, playing the parts only they can play – it’s no different in blended finance. In each article in this series we’re talking about who those different ‘musicians’ are that are needed on the blended finance stage – and how to get them on stage! You can find them here:

Illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

In this article, the fourth in our series*, we talk about another group that can play a very important role in the blended finance symphony: development banks. There’s a multitude of actors under this header, with different terms applied: multilateral development banks, international financial institutions, development finance institutions. Some of what we say below applies to all, while other points only apply to select members of this group.

In this article, the fourth in our series*, we talk about another group that can play a very important role in the blended finance symphony: development banks. There's a multitude of actors under this header, with different terms applied: multilateral development banks, international financial institutions, development finance institutions. Some of what we say below applies to all, while other points only apply to select members of this group.

To put the role of development banks into further perspective, we want to introduce another analogy besides music – one about the storage vs. the moving business. Because one of many adages in the finance world is that some banks (investment banks) are in the “moving business” – they make money trading assets for clients as an agent, advising clients on transactions, or trading for their own account as a principal – while others (commercial banks) are in the “storage business” – they make money by holding loans and bonds on their balance sheets.

 assistant secretary at the U.S. Treasury, said recently: “Private investors want to move away from fossil fuel investments, but they have to move into something. And that’s where the excitement is — how do we find the real economic opportunities for investments in clean energy.” To enable this 

 for private investors, we argue here that development banks should transition principally from the storage business into the moving business. Their balance sheet and capital base are finite, so their storage capacity will always be limited. “Demonstration effects” can only go so far, and with COP27 and the G20 the expectations placed on development banks are rising fast: they can point the way to that “something” private investors can move into, and they can even supply the vehicles and tools – not moving trucks and lifts but concessional financing and funds – to do the actual relocation.

For development banks to play this moving role effectively, we have four main ideas.

1. Use your rating and balance sheet to do more

Boosting MDBs’ investing capacity - An Independent Review of Multilateral Development Banks’

”, just published last July and presented by the taskforce’s chairwoman 

 to the G20, offers a number of excellent recommendations. There has already been some debate on the key recommendation: redefining risk tolerance. While we agree with this recommendation and think it is deserving of further consideration, we also want to highlight some of the less eye-catching recommendations, that can do at least as much to generate more blended finance.

Give more recognition to “callable capital” – effectively the capital that signifies the commitment of the development banks’ shareholders (governments) to stand behind them. It should be fully taken into account in assessing development bank’s capital adequacy, as it already is in some credit rating agency methodologies. This should create opportunities for more lending, including the concessional kind.

Pick up the rate of financial innovations – so that the development banks can do more with their current capital base and, again, free up room for additional lending. In doing so, development banks should take some pages out of the playbook of Wall Street and haute finance.

Increase access to data & analysis – private sector investors have capital and are increasingly keen to move it into sustainable purposes in emerging markets. However, they desperately need access to relevant data to assess the risk & reward. You, development banks, have much of it – you should find ways to get it out into the open.

2. Implement a credible private capital mobilization strategy

The famous pop singer Sting, after his success with the Police, wanted to make a solo record with “a jazz feel”. So what does he do? He goes out and hires 

 musicians – most notably Branford Marsalis, world-famous in jazz circles, virtually unknown outside it. This approach was practically unheard of – until Sting came along, the worlds of pop and jazz were strictly separated.

Development banks should do the same. If you want to raise private capital for transactions, you won’t succeed if you don’t have a strong grasp of, and connections with, the world of private sector institutional capital. This requires an intentional capital mobilization strategy – developing relationships, convening, organizing events, hiring investment bankers or consultants who can help you design structures that meet private sector requirements. Better yet, up your game in attracting talent: doing deals with the private sector works best with staff who 

 the private sector. And keep in mind, strategy is 10% planning and 90% implementation. Making promises is a nice prelude but will not deliver the whole symphony.

Meanwhile, be sure to not displace private sector capital, which would defeat the whole point.

We know it is a tall order to suggest development banks become more light-footed, but to successfully deal with the private sector and mobilize capital into the deals that you want to see happen, you will have to at least keep pace with the private sector. Right now, many development banks are too slow and bureaucratic, which does not bode well for implementation of your private capital mobilization strategy. Yes, you work with somebody’s tax dollars, which comes with extra oversight and scrutiny. But to meet increased expectations and live up to your missions, you’ll need to strike a better balance between rigorous processes and real-world timelines. You may consider delegated credit authorities, certain projects with higher risk-tolerance, or fast-tracked dealmaking in sectors with urgency such as food security and energy transition. The liquidity operations during COVID showed us you can pull it off.

To extend the analogy introduced above, the most radical idea is to structure your private sector transactions for placement with institutional investors while keeping a portion on your own balance sheet, offload risk exposure from your balance sheet to investors, or securitize certain eligible assets. Investors always complain that there is enough capital but not enough bankable deals in emerging markets – you can change that. A development bank’s balance sheet and capital base are finite resources and should be used selectively. This would be a very different approach to development banking that would require massive upskilling, reskilling and different talent recruitment and management. It also requires very different underwriting and structuring approaches, and deep knowledge of what sells in the marketplace. The rewards include freeing up lots of your capital and a successful private capital mobilization strategy, and, most importantly, more and faster sustainable development outcomes in your markets.

To bring this all back to our music analogy: blended finance is like a symphony – you need many different musicians, all playing their unique part. Development banks should transition from the storage business to the moving business: you can bring the musicians and their instruments to the concert hall; you can hoist the grand piano onto the stage and you can put the sheet music on the stands that allows the orchestra to move to new and unexpected musical horizons.

This requires using your rating and balance sheet to greater effect – the G20 CAF report can be 

 sheet music – it requires implementation of a credible private capital mobilization strategy, and a transformation into more nimble organizations to at least keep pace with the private sector that you want to involve in the deals you orchestrate.

* Perhaps you haven’t seen the first three articles we wrote comparing blended finance to music. The basic idea of the analogy is that to play a symphony you need lots of different musicians, playing the parts only they can play – it’s no different in blended finance. In each article in this series we’re talking about who those different ‘musicians’ are that are needed on the blended finance stage – and how to get them on stage! You can find them 

In this third article of our series, we talk about another group that can play a valuable role in the blended finance symphony: philanthropic foundations. Many foundations have been active in the impact investing scene for years. One might say “surely they have figured out how to play their blended finance part?” Well, yes and no.

In this third article of our series*, we talk about another group that can play a valuable role in the blended finance symphony: philanthropic foundations. Many foundations have been active in the impact investing scene for years. One might say “surely they have figured out how to play their blended finance part?” Well, yes and no.

"No one can whistle a symphony. It takes a whole orchestra to play it," said H.E. Luccock. Many foundations are involved in impact investing but have developed a habit of going solo. That’s good as far as it goes – there’s a lot of great work being done. And the impact of these projects can be attributed to you – and to you only. But you can do more if you would use the magic of leverage. For all of your wealth and scale, your initiatives could reach even greater scale if pension funds, insurance companies, banks and sovereign wealth funds would join you. You can have much more impact if you invest in ways that allow them to come in. Yes, you’ll have to share some of the credit with others but you’ll get credit for a little part of a much bigger thing 

2. The biggest risk is not taking any risk

Next in our series we’ll talk about development banks, many of whom have pledged to mobilize private capital by taking risk off the table for others. However, in practice sometimes development banks aren’t actually doing that, or doing enough of that – instead they’re often doing ‘safe’ deals. You, foundations, have leeway in the degree and type of risk you can accept and you can use it to crowd in others – your accepting of risk can be the sparkplug needed to build a larger engine.

You can provide the financing and technical support to get projects to the stage where development banks and commercial private investors will be able to deploy much larger amounts of capital. But you can also take risk off the table by working with developing country governments to address regulatory and institutional weaknesses that have scared off investors.

In doing so, keep an open mind. Many governments, investors and development banks would love to work with you. But they don’t know you well. Advertise your wares. We get it, you’re wealthy people and organizations, you probably get bombarded with requests for money. So, a little privacy and discretion is desirable. But this is too much of a good thing. In other articles we’re telling governments, asset owners and others to proactively reach out to other musicians needed in the blended finance orchestra. You should do the same.

One of your magic powers is speed. No one else in the blended finance orchestra has this magic power – other actors are often burdened by significant formality in decision-making procedures. You can make investment decisions much faster than those others; this means you can do the upfront legwork for projects, giving the big guns the time to go through all their required decision-making.

Also, many of you have the Rolodex – let’s face it, if you call the prime minister of the UK or the president of the World Bank, they’ll probably take your call. You can pull strings, grease the tracks.

In sum, we love what you’re doing today. But we’d like to see you go from playing solo in the subway halls to joining the orchestra in the concert halls. Use the magic of leverage, take risk of the table for other actors, and be the speedboat of blended finance and we have full confidence that you will get there.

*Perhaps you haven’t seen the first two articles we wrote comparing blended finance to music. You can find them 

, and the basic idea is that to play a symphony you need lots of different musicians, playing the parts only they can play – and it’s no different in blended finance. In each article in this series we’re talking about who those different ‘musicians’ are that are needed on the blended finance stage – and how to get them on stage! The first two articles talked about the role of governments and asset owners:

Cover Photo: Stijn Kuiper 2022 / with permission.

Asset owners can do a lot to advance blended finance. Here are the three most important things – they should deliver on this proactively.

 about blended finance we used the analogy of a symphony: a drumbeat does not suffice, we also need horns, woodwinds, violins – every instrument making a unique contribution. Blended finance also requires an ‘orchestra’ with different people making contributions only they can make and there we also need more ‘musicians’ to get up on the bandstand and join in the playing.

In that first article we discussed governments’ role in blended finance. Another key group of ‘musicians’ that needs to get up is the asset owners – pension funds, insurers and sovereign wealth funds. Mobilizing finance to address societal challenges requires involvement of asset owners, because it’s the only way to reach the necessary scale.

While many asset owners want to invest in a way that contributes to solving societal problems, they also have specific investment requirements that need to be met. This is where blended finance comes in – it can derisk investments, or enhance their return, or both at the same time. It ensures asset owners invest in sustainable outcomes 

 meet investment criteria at the same time. It makes the uninvestable investable.

In our first article we said governments should take the lead in blended finance. Does that mean asset owners can sit back and relax? No. Here are three things asset owners can do to play a proactive role in enlarging the blended finance universe.

1. Open up the circle of stakeholders / revisit your investment beliefs & mandates

Don’t listen only to NGOs who talk about “urgency” but don’t have “agency” – they may be right to create awareness about societal problems but usually they don’t have the means to solve them, and certainly divestment isn’t going to do the trick. And don’t listen only to ESG people who might tell you ESG integration and Net Zero commitments have an impact on the world; we are learning that most of these initiatives in fact have extremely little real world impact.

Instead, talk to the regulators; it is often because of scrupulous adherence to their requirement to be “in control” that blended finance deals – that 

 have lots of impact – don’t get done. They’re considered too risky, too alien, too difficult to explain to the regulator. Work on this.

Also, revisit your investment beliefs and mandates: often blended finance investments are automatically considered to be in the EM or Alternatives categories, and your mandate may not allow allocation to those buckets. However, much of blended finance is backed by European governments’ guarantees, first losses, or co-investments and can perhaps be considered to be AAA sovereign debt investments. Often simple rules and labels are inadvertently preventing blended finance from happening.

Finally, be more proactive in speaking with government representatives. Governments often talk about wanting to mobilize private sector capital and are willing to put real money behind this, but don’t know how, or don’t know who to talk to. You can help them. Don’t wait for them to call - take the initiative.

2. Ask your people to develop expertise, build relationships, and experiment

You often say you want to contribute to the SDGs, and that you want to work with governments and DFIs, but these things don’t happen by magic. Communicate to your staff that building relationships is encouraged or – better yet – set up fellowship or secondment programs that allow more networking and collaboration with other organizations, such as development banks.

If you get invited to the blended finance party – events, conferences or courses where blended finance investing is a topic – make sure you’re represented, if for no other reason than for learning. Send your people to blended finance courses. Getting your people out there and having them collaborate with governments, development banks and others will also contribute to more professionalism and higher standards in blended finance.

Many of your investments are outsourced to asset managers. Don’t tell them you want “article 9” or “impact” – many things they will offer in fact don’t generate impact, even with these labels on them. Tell them you want blended finance. If you don’t, they won’t offer it to you. It’s much easier for them to call an existing product Article 9, even if it has no ‘additionality’ whatsoever, than to create a new product that does.

Work through partnerships like the Net Zero Asset Owner Alliance allowing standardization and scaling. Or, set up partnerships with the asset managers that are most advanced and allow blended finance structures to be set up and tailored specifically for you.

“The true beauty of music is that it connects people. It carries a message and we, the musicians, are the messengers,” said Roy Ayers, the jazz vibraphonist.

Well, you – asset owners – can become messengers too, connecting people and carrying the message of blended finance.

This article is part of a series on blended finance. It is based on the metaphor of an orchestra and the many different players and instruments required to play in harmony to produce a beautiful symphony. Stay tuned and 

 for the rest of the series and read the articles addressing the other "musicians" here

Cover Photo: Beethoven for The Rohingya at Carnegie Hall on January 28, 2019. Credit: Photo; Chris Lee 2019/ with permission.

You can start with a drumbeat, but if you want to have real music, you also need horns, woodwinds, violins, and so on, to create a symphony. It’s no different in blended finance. We see that there’s a steady drumbeat – people saying “we need more of it, we need more of it” – but not enough musicians are stepping up and joining in.

Sometimes this is because they’re happy playing by themselves. Sometimes because they feel they haven’t mastered their instrument, or because they don’t yet realize that the world needs more symphonies. Sometimes because there’s no producer to make sure all the musicians are booked and show up, and have the same sheet music in front of them.

Well, we’d like to call more musicians on stage. Starting with you, Governments, because you have a lot of power to further develop the blended finance marketplace. Here are three ways you can use it.

Development finance institutions (DFIs) and multilateral development banks (MDBs) were set up to finance international development and SDG solutions, and their mandates usually say they should also mobilize private capital for this. To achieve these things, they need your blessing to fail. At scale. Achieving the SDGs is challenging. It requires innovation, trial & error, experimentation, portfolios of projects and investments – the kind of stuff that Silicon Valley was built on. It might not look good at first, some of your projects will crash, but the end result is likely to be much more beneficial than what you have today: “international investment banks” doing “safe” projects.

Allow DFIs to break some eggs and to use their balance sheets more effectively in taking risk off the table for the other actors in blended finance to be lured in. We all know that we have to get more private parties (pension funds, insurance companies) involved to have a chance to reach the SDGs. DFIs can make this happen, with tools like first-loss positions. They need your consent to go all out.

You should be the host of the blended finance party: create hubs and platforms for relationship-building, collaboration, and co-investing. Invite the different actors. Ensure that projects and companies seeking capital show up, as well as DFIs, and the pension funds, insurance companies, asset managers and bankers. Everyone who is needed in the blended finance symphony needs to be there.

They will not come up with the idea of throwing the party themselves. You have to do it. But make nice invitations and get good catering, and they will come.

3. Rethink regulation of sustainable finance

You’ve been churning out laws, guidelines, regulations, taxonomies and Green Deals and you say the objective is to ‘reorient private capital flows’ but the mechanisms you use are unlikely to achieve this.

SFDR (Sustainable Finance Disclosure Regulation) is case in point: it is meant to stimulate ‘impact investment’, but having actual ‘impact’ is not even a requirement for a fund to be classified as article 9. It’s not going to reorient capital flows.

“ESG” and “impact investment” have a nice ring to it and suggest there’s a new way of financing the things you care about, but you’ve got to realize most of the old rules still apply: institutional investors assess deals primarily based on economics: risk and return. Don’t count on altruism and intentionality, or labeling and disclosures; instead use the financial tools at your disposal (taxes, subsidies, guarantees, first-loss) to ensure projects meet private investors’ risk & return requirements. People respond to incentives – laws & money – and you have the power to create them. Do it judiciously.

Are these three things going to solve the blended finance problem? No. Other actors will have to step up too. We’ll talk about this as well. But Governments are the first among equals in the blended finance symphony.

When you deliver on these three points, the other musicians will show up and you can strike up the band.

 for the rest of the series and read the articles addressing the other "musicians" here:

Illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & 

 writers, their opinions do not necessarily represent those of illuminem.

Governments: Blended Finance is Like Music

, based in Manila, Philippines, focused on sustainability and climate change. Amongst other engagements, he is also affiliated as an Adjunct Professor in Finance & Accounting with the 

. He formerly worked in senior positions at EMPEA, 

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Robert W. van Zwieten

Robert W. van Zwieten

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