Innovative, blended finance model unlocks profitable climate investments

Transition Accelerator is an Australian organisation developing new funding approaches that partner philanthropy and private capital to back climate solutions. Giving News spoke with Izzy Jensen, Managing Partner, about its use of “blended finance” models to address some of Australia’s most significant environmental challenges. 

The real-world impacts of climate change are being experienced in Australia every day. Fire seasons grow more dangerous, average monthly extreme temperatures soar, communities battle shortages and drought. These significant effects impact our people, natural ecosystems, infrastructure and economy.  

Recent figures from Climate Council show that Australia needs to invest approximately $100 billion each year into addressing our climate crisis. Current spending levels do not reach anywhere near this significant figure, leaving an annual funding shortfall of more than $70 billion. 

When looking to fund this shortfall, traditional commercial funding for projects that address climate impacts rarely delivers attractive returns for investors.  

Transition Accelerator, an initiative of the Trawalla Group, is overcoming this hurdle by developing blended finance model.  It helps meet the needs of commercial investors who want to diversify into environmental projects by using catalytic funds to either help improve returns or reduce investment risk. The model can achieve this through the following. 

• providing an interest free loan to lower the cost of capital  

• protecting investors from capital loss through an underwrite or guarantee 

• taking a first loss position  

• granting access to concessional debt. 

“A number of new models exist to facilitate impact investing in Australia; our approach is to explore and share new models with stakeholders to highlight new opportunities for philanthropic capital to drive lasting change,” said Izzy.  

“By connecting those in the philanthropic sector, and other concessional forms of capital, we can create a capital stack that enables more projects to go ahead, while delivering more than traditional economic returns,” Izzy explained. 

Izzy explained that one of the early projects to benefit from this blended finance model is a carbon pollution reduction and biodiversity enhancement at Wilyum Pools in south-west Western Australia. A total of $6 million dollars in private investment from Wollemi Capital was made possible through a $3 million dollar interest free loan, syndicated across leading philanthropic foundations.  

Without the concessional finance, the project’s financial returns sat below the commercial threshold required by the investor, according to Onimpact it said: “Transition Accelerator was able to bridge this gap by underwriting the loan which boosted commercial returns to investible levels, allowing the private equity component to proceed.” 

“As models like this continue to prove their potential, blended finance is emerging as one of the most powerful tools we have to close Australia’s climate-investment gap,” Izzy said. 

“Early results show what becomes possible when philanthropy, investors and communities work together to share risk, accelerate innovation and build a more resilient and sustainable future.” 

You can learn more about blended finance approaches on the Transition Accelerator website. 

Main image: Seedlings in the nursery waiting to be planted at at Wilyum Pools