Is Blended Finance a Panacea or Cash Grab?
Also: Vietnam to allow DPPAs, NGOs are gunning for the voluntary carbon market, and ADB launches ADB Frontier
Welcome back to Clickable Insights. Today’s newsletter discusses the growing push for blended finance in addressing development issues and how this relates to high-profile energy transition efforts in Southeast Asia.
In other editions, you will find perspectives on agriculture, cleantech innovation, sustainable tourism, private sector engagement for sustainable development, and green finance across Asia and the Pacific. Visit our Substack to read editions by the topics most important to you.
Blended finance is having a moment
A recent Barrons op-ed by Rabah Arezki, former vice president of the African Development Bank, argues that traditional development finance is a poor fit for developing countries’ immense sustainable development needs, especially as they grapple with climate change.
The increasing weaponization of aid for geopolitical purposes, even among Bretton Woods Institutions created to address that problem, exacerbates development finance’s shortcomings.
Meanwhile, Arezki believes that “AAA fetishism” prevents DFIs from lending more to the governments that need to borrow most.
Arezki and a recent Infrastructure Investor column name the same solution: blended finance.
The current enthusiasm for blended finance is in part because capital markets are eager to participate, as evidenced by Blackrock’s US$673 million Climate Finance Partnership; Brookfield’s US$5 billion Catalytic Transition Fund; and the US$25 billion Indo-Pacific Partnership for Prosperity, Global Infrastructure Partners, and KKR coalition.
UNDP recently published a policy brief arguing that the fraught Just Energy Transition Partnership (JETP) deals in Vietnam, Indonesia, and South Africa should be seen as a blended financing mechanism with the public and private sector financing equal parts of the packages. This would de-risk projects and assets and help to crowd in private-sector funding. It would also reduce the debt burden for governments on the receiving end of these deals.
Meanwhile, at the June G7 Summit, Blackrock chairman Larry Fink lent his voice to the blended finance discussion: “The IMF and the World Bank were created 80 years ago when banks, not markets, financed most things. Today, the financial world is flipped. The capital markets are the biggest source of private-sector financing, and unlocking that money requires a different approach than the bank balance sheet model.”
Enthusiasm from the likes of Larry Fink evokes a counterargument: “Detractors … will have a field day if blended finance use increases, no doubt pointing to it as yet another example of a rent-seeking private sector all-too-eager to privatise profits and socialise losses (or at least risks),” the Infrastructure Investor column notes.
Nevertheless, is there any alternative pathway offering hope of mobilizing the immense resources required to address the Global South’s mounting sustainable development investment needs?
Vietnam to allow direct power purchase agreements, at long last
The energy sector is celebrating the recent Vietnam Ministry of Industry and Trade (MOIT) decree on direct power purchase agreements (DPPA) for renewable energy. The decree is a promising signal that private investment is poised to support the energy transition.
Giles Cooper, a Hanoi-based partner at Allens and an energy specialist, wrote on LinkedIn: “Vietnam’s new DPPA regime represents the biggest structural change in the power market here in over two decades. It simultaneously leapfrogs the systematized rollout of a competitive retail market regulatory framework and supports the introduction of variable renewable energy into the existing wholesale market.”
However, as Cooper notes, significant uncertainty remains over the actual implementation of DPPA: “As always, the devil in the detail and many question marks remain over how the program will function in practice.”
An update on the topic from the law firm Allens explains that several regulatory issues must be considered, including an upcoming MOIT circular on the energy market, the in-progress amendment of the Electricity Law, and internal EVN regulations.
Allens also notes that “while the formula re: DPPA service charges are quite clear, several components may need further guidance from the MOIT such as how to determine the unit price to calculate DPPA service charges.”
We’re excited about this momentous evolution in Vietnam’s energy sector, and we are cheered by the fast pace of energy policy since Vietnam approved its 8th Power Development Plan last year.
NGOs gun for the voluntary carbon market
In a potential setback for private investment in sustainable development, more than 80 international NGOs – including Oxfam, Greenpeace, Global Witness, and the Union of Concerned Scientists – have called for corporates to exclude carbon offsets from their net zero plans. The NGOs claim carbon offsets are misleading and disincentivize ‘insetting’ or genuine attempts by corporates to reduce greenhouse gas emissions.
In a letter published July 2, the NGOs said: “Climate targets must focus primarily on reduction of greenhouse gas emissions within companies’ and countries’ own boundaries, including the phasing out of fossil fuel production, transport, sale and use.”
This is in response to what the organizations characterize as a “growing push” to normalize offsetting as a mainstream path toward reporting lower emissions.
As an example, the group points to a controversial decision made in April by the board of the Science Based Targets (SBTi) initiative to allow companies to use carbon credits to offset their Scope 3 emissions. This has raised concerns regarding the voluntary carbon market and the effectiveness of carbon credits to genuinely reduce emissions.
Furthermore, this highlighted the slow progress in improving market transparency and addressing greenwashing. Even though efforts such as the Integrity Council for the Voluntary Carbon Market’s (ICVCM) Core Carbon Principles and the Voluntary Carbon Markets Integrity Initiative’s (VCMI) Carbon Claim Code aim to combat these issues, adoption has been slow since these measures were introduced last year.
Additionally, the Carbon Claim Code recommends that companies show they have made all possible efforts to reduce their Scope 3 emissions before using carbon credits in the voluntary market.
However, not a single company has announced compliance with the code yet.
That is certainly concerning, but we still strongly believe there is a place for the voluntary carbon market in addressing emissions – the system should be reformed, not abolished.
ADB Frontier Facility launches with Clickable Impact’s support
The Asian Development Bank launched its new ADB Frontier Facility in a joint news conference with USAID in Vientiane, the Lao People’s Democratic Republic (Lao PDR). ADB Frontier will provide catalytic funding and technical support to growing, technology-enabled SMEs, with a strong focus on economic inclusivity and climate action.
Clickable Impact organized the launch event, and we are also developing communications packages showcasing the growth plans and impact of ADB Frontier’s first three portfolio companies: poultry cooperative The Green Co., ride-hailing platform LOCA, and agroforestry coffee producer Slow Forest.
Fast-growing ‘gazelle’ SMEs such as the above three startups have great potential to generate employment, economic dynamism, inclusivity, climate impact, and positive outcomes for women and girls. ADB Frontier can help mobilize private capital to close the financing gap these businesses face while learning their recipes for success and optimizing support from the development community.
Growing the climate tech ecosystem with New Energy Nexus
Clickable Impact Managing Partner Jason Martin Lusk recently attended the Climate and Energy Innovation Networking Event in Hanoi.
Co-hosted by New Energy Nexus Vietnam and the Australian Department of Foreign Affairs and Trade, the event brought together entrepreneurs, funders, and ecosystem builders from the climate and energy sectors to discuss shared challenges and innovative solutions.
Jason facilitated a table session on access to finance for climate tech startups and previewed findings from the upcoming "Vietnam Climate Tech Funding Ecosystem Report 2024" authored by Clickable Impact and New Energy Nexus Vietnam.
Thanks to Clickable Impact consultants Ha Nguyen, Dieu Linh Phan, Jason Lusk, and Mike Tatarski for their contributions to this newsletter.
Back soon with more developments in climate action, transformative innovation, and sustainable tourism.
Clickable Insights is brought to you by Clickable Impact
Clickable Impact is an Asia-based consultancy committed to climate action and sustainable development. We have three practice areas: public affairs and communications, sustainable tourism, and transformative innovation. Across our work, Clickable Impact favors projects that urgently mobilize private sector engagement, policy action, and investment.
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