ESG Principles and Blended Finance — do they work?
Structuring transactions based on Environmental, Social and Governance (“ESG”) principles often means aligning commercial and non-commercial interests among heterogenous groups of sponsors, investors, and lenders.
Blended Finance can be helpful in this respect as it compounds private sector funding with development funding. Development funding is based on concessional terms provided by multilateral development banks (such as the World Bank, the Asian Development Bank, etc.), public entities or philanthropic sources. As concessional financing offers de-risking and credit enhancement, these structures are potentially attractive to private sector investors.
Data provider Morningstar reports a 53% increase for assets in ESG funds in 20211. ESG frameworks range from positive/negative screening (e.g., sectors) to strategies bringing about social or environmental changes.
Monitoring and reporting on ESG KPIs catch a lot of attention. Misleading reports can become a serious problem — green-washing accusations or public investigations of ESG reporting have recently generated a lot of scrutiny.
How can you get an ESG or Blended Finance transaction to close?
A comprehensive description of the transaction, its background, objectives, benefits, and risks will benefit parties to be involved and create trust and goodwill. When all parties develop a common understanding of a project´s merits, even heterogeneous groups will come to a similar conclusion of risks and rewards, hence to credit approvals or positive investment decisions.
Intensive communication and well-prepared and structured meetings help parties to compromise. Transparent roadmaps to closing inspire parties to work together. Real-time information and easy access of documentation help alleviate arduous negotiations and generate trust in complex situations.
A digital workflow has proven very helpful
Capcade provides digital infrastructure for managing the above-described process end-to-end. The platform provides for secure, reliable, seamless communication and collaboration between transaction parties.
Capcade empowers you to mange the process
· Showcase and distribute your project or transaction
· Develop comprehensive offering documents and link it to relevant data
· Gather interest from counter-parties
· Share information, communicate, and collaborate on documents and manage project tasks based on dedicated permissions
· Negotiate and agree to T&C’s — keeping track of changes
· Integrate analytics and reporting functions and ensure post-closing administration