Swiss blended finance initiative aims to tap local investors

The Swiss government has announced a blended finance initiative intended to leverage up to 1bn Swiss francs ($1.09bn) in private sector impact investments in the developing world to meet the Sustainable Development Goals.

The 17 UN Sustainable Development Goals were projected on the Secretariat building and west facade of the General Assembly building at the United Nations headquarters in New York to mark the UN's 70th birthday in 2015. Li Muzi / Xinhua News Agency

The State Secretariat for Economic Affairs (SECO), the UBS Optimus Foundation, the Credit Suisse Foundation and the Swiss Agency for Development and Cooperation (SDC) launched the Sustainable Development Goals Impact Finance Initiative on 1 December.

The initiative aims to raise 100mn Swiss francs in funding from public and philanthropic sources by 2030. These funds will then be deployed to support up to 1bn Swiss francs in additional private capital investments.

SECO is providing 19.5mn Swiss francs of initial support, with UBS Optimus providing another 5mn Swiss franc.

SECO hopes the initiative will benefit from Switzerland’s position as a financial centre, the presence of multinational development and non-governmental organisations based there, and the fact that it is home to high-net-worth individuals with philanthropic interests.

“The SDG Impact Finance initiative will make use of this ecosystem and incentivise collaboration between the impact finance sector, the development community and international partners,” SECO said in a statement.

Grow impact investing in Switzerland

The stated objectives of the initiative are: supporting innovative financial solutions for new impact investing tools through grant and seed funding, as well as scaling impact investing solutions by mobilising more private capital and strengthening underlying portfolio companies.

It also hopes to improve framework conditions for impact investing in Switzerland and promote impact management practices, through cooperation with sector association Swiss Sustainable Finance and the State Secretariat for International Finance.

The best ideas are to be selected through competitive, international calls for proposals. The first call will be launched in early 2022 in collaboration with blended finance network Convergence.

Boosting investment

The initiative is the latest in a growing number of moves by state and private sector actors to mobilise the vast amounts of money needed to fund efforts to stem global warming, fight the impact of climate change and meet other Sustainable Development Goals.

Investment company Blackrock said in the run-up to last month’s COP26 climate change meeting that its research indicated public and private investments in low-carbon projects in poor countries would need to exceed $1tn a year to achieve global net-zero targets, compared to the current UN target of $100bn a year, which has yet to be reached.

Leveraging this level of investment would require around $100bn in grants or subsidies from rich countries, in part to mitigate the risk of developing world investment for private investors, Blackrock said.

COP26 produced much positive talk of boosting blended finance as part of this drive, albeit with few concrete commitments to raise investment. But there are signs that the sector is recovering from a slump during the Covid pandemic.

Convergence reports aggregate financing from blended finance deals across the SDGs came to $9.84 billion in the nine months to September 2021, an improvement on the $4.48bn total for 2020, and approaching the $11bn in 2019.

The potential for future growth also looked more promising. Convergence says it was tracking 71 blended finance deals still in the process of fundraising during 2021, representing $8bn in aggregate blended capital.

That is in addition to the 18 deals already closed in the first nine months of 2021 and compares with 54 closed deals in 2020 and 53 closed deals in 2019.