Climate Fund Managers (CFM), a climate-focused blended finance investment manager, has announced the final close of its second blended finance facility, Climate Investor Two (CI2), at nearly $1.07-billion.

With new commitments of $190-million plus a €205-million European Fund for Sustainable Development Plus (EFSD+) guarantee from the EU, CFM says CI2 surpasses its initial $1-billion target, becoming the largest climate adaptation infrastructure fund focused on emerging markets globally.

The fund blends public and private capital to invest in and co-develop water, waste and oceans infrastructure in emerging markets, including low-income countries, across Africa, Asia and Latin America.

CFM notes that the UN Environment Programme estimates the adaptation finance gap in developing countries at between $194-billion and $366-billion a year, with current funding levels far below what is needed.

Formed in 2019 in partnership with the European Commission and the Dutch Fund for Climate and Development (DFCD), CFM says CI2 directly contributes to closing this gap, demonstrating how blended finance can accelerate capital mobilisation into one of the most underfunded areas of climate action.

The company says CI2 delivers social and environmental impact at scale, directing funding to hard-to-reach markets in sectors such as water services, sanitation and waste management.

By the end of its life, the fund aims to provide safe drinking water and improved sanitation to 16.5-million beneficiaries and to protect or restore 2.2-million hectares of ecosystems.

CFM says CI2’s success reflects strong investor confidence in adaptation and CFM’s blended finance model, which combines private and public capital to balance risk and mobilise private sector investment at scale.

CI2 is supported by a diverse investor base including development finance institutions (DFIs), multilateral finance institutions, public sector banks and institutional investors, including asset managers, pension funds and insurers.

CFM says the close also marks the introduction of a pioneering Bridge-to-Bond mechanism, facilitated by its strategic partner, Sanlam Investments, based in South Africa.

The facility’s structure includes a bridge loan from Sanlam Alternative Investments, supported by a guarantee from the European Commission.

CFM says the bridge loan is envisaged to be taken out by a climate bond within a few years.

It notes that this innovative mechanism creates a pathway for fixed income markets to access CI2’s underlying asset base, representing a breakthrough for CFM in mobilising institutional bond investors for its funds. 

The guarantee agreement was made possible by CFM’s achievement of ‘Pillar Assessed Entity’ status with the European Commission.

CFM says this recognition, which until now has been almost exclusively held by European DFIs and European multilateral development banks, reflects the strength of CFM’s governance, controls and operational systems and enables it to directly manage guarantees on behalf of the EU.

The status, as well as the guarantee, will enable CFM-managed vehicles to further contribute to the EU’s Global Gateway and Team Europe Initiatives.

“While climate mitigation remains critical in the race to end the climate crisis, adaptation must be an equal priority. Closing Climate Investor Two at more than $1-billion in a challenging environment is a major milestone that highlights investor appetite for adaptation and our ability to structure compelling opportunities in this space.

“With the support of Sanlam Investments and the EU, we have been able to pioneer the new Bridge-to-Bond mechanism, opening access to climate finance for a much broader group of investors,” says CFM CEO Andrew Johnstone.

“As a sustainability-driven asset manager, our purpose is to create long-term sustainability for investors – but also for future generations and our planet.

“We leverage strategic partnerships to create bespoke opportunities for clients, ensuring that our global reach translates into meaningful, customised investment experiences. Our partnership with CFM since 2017, enables us to respond to the world’s urgent climate crisis, particularly in developing economies.

“We are proud to have facilitated this innovative and landmark financing model for the close of CI2 and look forward to the impact these funds will have for those who need it most,” adds Sanlam Alternative Investments executive head infrastructure finance Mark Moorhouse.

CFM says CI2’s blended finance structure enables investment across the project lifecycle from development to construction.

The facility comprises a development fund, providing concessional capital and expertise for early-stage project development to reduce risk, and a construction equity fund – a tiered facility accommodating both public and private investors’ risk-return profiles during asset build-out.

Since its first close in 2021, CI2 has committed $339-million to 25 climate adaptation and mitigation projects across Africa, Asia and Latin America.

These include water supply and distribution projects in Vietnam and the Philippines, water desalination projects in Thailand and Kenya, waste-to-energy platforms in Sierra Leone, South Africa and Thailand; and the world’s largest debt-for-nature swap in Ecuador to secure long-term funding for the Hermandad Marine Reserve and the Galápagos Islands.

The fund builds on the success of Climate Investor One (CIO), CFM’s first blended finance fund focused on renewable-energy infrastructure.

CIO is an about $1-billion facility that has financed a portfolio of solar, wind and hydroelectric projects across Africa, Asia and Latin America.

In February, CFM launched its third blended finance fund, Climate Investor Three (CI3), a $750-million to $1-billion target facility focused on the energy transition and green hydrogen.