Rising trend in Climate-focused Financing: The Increase in 'Whale' Deals Explained
In September 2024, CDPQ, GIC, Prudential, Temasek, and other investors invested in the Catalytic Transition Fund (CTF), a climate solutions fund for emerging markets, marking a significant milestone in the world of blended finance.
According to the 2024 "State of Blended Finance" report by Convergence, the trend in climate blended finance deal sizes shows a continued emphasis on catalytic, patient capital. However, philanthropic investors only contributed about 3% of the total investor capital in the 123 deals reviewed. This reflects a market that is cautious yet continues to seek impact-focused capital to scale climate and other SDG-related projects.
The report also highlights initiatives like SCALED, which aim to simplify and standardize deals, suggesting a drive toward larger, more institutionalized blended finance vehicles to attract significant private investment. This trend toward increasing deal sizes and complexity is evident, although precise average or median deal size figures for climate blended finance in 2024 are not explicitly provided in the report.
Brookfield Asset Management announced the CTF at COP28, and the capital raise led the blended finance fund to an initial close of $2.4bn. The UAE's ALTÉRRA funds, the world's largest private market investment vehicle, provided early backing for CTF, indicating a growing interest in climate blended finance funds.
The Convergence report found an increase in the number of deals in the $50m - $100m, $100m - $250m, and $250m - $500m range in 2024. Whale deals, those exceeding $100m, accounted for 27% of the blended finance market's total financing between 2020 and 2023. The rising popularity of whale deals in 2024 indicates investor confidence in the risk-return opportunity on offer in blended finance.
The median deal size in blended finance increased from $38m between 2020 and 2023 to $65m in 2024, demonstrating the appeal of blended finance as a strategy for investors to meet their climate goals. According to Bery, 64% of funds focused on climate mitigation or adaptation, further highlighting the appeal of blended finance.
However, the report also suggests that the momentum from 2024 may not necessarily carry through a turbulent 2025, as the future numbers could differ. Convergence CEO Joan Larrea stated that the report offers a critical snapshot of the period before, and will be the year against which the future will be benchmarked.
The scale of whale deals is a vital component of their appeal to an institutional investor's risk appetite, as they provide larger ticket sizes, ease of scaling and replication, and a diverse portfolio, thereby reducing risk. The rising popularity of whale deals in 2024 comes amidst gusty regulatory headwinds from Washington, suggesting a resilient market despite regulatory challenges.
In conclusion, the trend in 2024 shows a shift toward fewer and larger investment vehicles in climate blended finance, driven by private investor interest and standardization initiatives. This trend is expected to continue, but the future numbers could differ, making it a critical time to monitor the market's evolution.
- The Catalytic Transition Fund (CTF), a climate solutions fund for emerging markets, garnered significant investment from CDPQ, GIC, Prudential, Temasek, and others in 2024, demonstrating how environmental-science-focused investing can play a substantial role in business.
- TheConvergence report found an increase in the number of deals in the $50m - $100m, $100m - $250m, and $250m - $500m range in 2024. This trend in climate blended finance deal sizes suggests that finance is being redirected towards more impactful, large-scale climate projects.
- The rising popularity of whale deals in 2024, those exceeding $100m, indicates that investors are becoming increasingly confident in the risk-return opportunity of blended finance, suggesting a growing interest in this sector from the financial industry.
