Increase in frequency: explanation behind the growing whale transactions in the intersection of climate and financial business
In a significant shift in the world of investment, the Catalytic Transition Fund (CTF) - a climate solutions fund targeted at emerging markets, was announced by Brookfield Asset Management at COP28. Notable investors in CTF include CDPQ, GIC, Prudential, Temasek, and the UAE's ALTÉRRA funds. This fund, now the world's largest private market investment vehicle, is indicative of a growing trend in climate blended finance.
The 2024 State of Blended Finance report by Convergence highlights several key factors driving the increase in deal sizes in climate blended finance. Technical innovation, regulatory clarity, robust impact measurement frameworks, committed partnerships, strategic alignment with global climate and sustainable development goals, use of risk-sharing instruments, programmatic and portfolio-based approaches, and the growth in the global sustainable finance market are all contributing to this trend.
Technical innovation enables more sophisticated structuring and risk management, attracting larger investments. Regulatory clarity helps reduce uncertainties and legal risks, making it easier to assemble and close bigger deals in emerging markets. Robust impact measurement frameworks and clear metrics strengthen investor confidence by ensuring transparency and accountability, thus supporting larger commitments. Committed partnerships among fund managers, entrepreneurs, multilateral organizations, and development banks are essential to successfully execute and scale blended finance transactions.
The strategic relevance of blended finance to meet global climate and sustainable development goals encourages the mobilization of bigger deal sizes to meet the estimated $1 trillion annual climate finance needs in developing countries by 2030. The use of risk-sharing instruments such as guarantees, first-loss capital, and hybrid financing mechanisms reduces investor risk and attracts more substantial private sector finance, enabling larger deal sizes. Programmatic and portfolio-based approaches adopted by Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) allow them to streamline processes and support larger-scale investment pipelines.
The overall growth in the global sustainable finance market, expected to grow rapidly over the next decade, underpins the increase in deal sizes as investor appetite and capacity expand. Deals of this scale, exceeding the $1bn mark, are on the rise in climate blended finance. The Convergence report finds an increase in the number of deals in the $50m - $100m, $100m - $250m, and $250m - $500m range in 2024.
The upward trajectory of deal sizes reflects a structural shift toward fewer and larger investment vehicles. The capital raise led Brookfield's blended finance fund to an initial close of $2.4bn. However, whether the momentum from 2024 carries through a turbulent 2025 remains to be seen. According to Convergence CEO Joan Larrea, the report comes at a critical time with unprecedented cuts to ODA and the dismantling of USAID. The report serves as a benchmark for the future of blended finance.
The median deal size increased from $38m between 2020 and 2023 to $65m in 2024, indicating a significant shift in the blended finance market. This shift is driven by private investor interest in climate blended finance funds due to the synergy between their own climate solutions targets and the prospects of these funds. Investors are drawn to climate blended finance funds because the scale of whale deals offers benefits such as larger ticket sizes, ease of scaling and replication, and a diverse portfolio. The rising popularity of whale deals in 2024 indicates investor confidence in the risk-return opportunity on offer. Despite regulatory headwinds from Washington, the buoyant momentum of blended finance continues to thrive.
- The growth in the global sustainable finance market is contributing to an increase in the size of deals in environmental science, such as the climate-change focused Catalytic Transition Fund (CTF), as investor appetite and capacity expand.
- Strategic alignment with global climate and sustainable development goals, along with the use of risk-sharing instruments and programmatic approaches, are driving the trend of larger investments in climate blended finance, making it more appealing for investors who aim to meet their own climate solutions targets.
