Blended Finance – APAC Legal Perspectives

GAIL APAC Regional Event: Online and in Hong Kong

This event discussed the launch of the pathbreaking report by the GAIL Blended Finance Working Group “Unlocking Legal Pathways for Blended Finance: Case Studies and Global Insights” in the APAC region.

• Ritesh Thakkar, Head of Asia Pacific, Convergence
• Tristan Ace, Chief Engagement Officer, Policy Head & Northeast Asia Coordinator,
  AVPN
• Vivien Teu, Partner, Head of Asset Management & ESG, Dentons Hong Kong
• Sotaro Hotta, Associate, Nishimura & Asahi
• Michael Ryland, Director, Centre for Social Finance Law

This event will be held online and in person at UBS AG, 52/F, Two International Finance Centre, Hong Kong (see Concierge on Ground Floor).

GAIL members can access the recording, digest and slides from the session below. Please log in to your member account to see them. If you experience any issues, please contact us.

Digest – Blended Finance – APAC Legal Perspectives

Overview:
The webinar explored Blended Finance, focusing on its challenges, regulatory hurdles, and the importance of collaboration for scaling its impact. Experts from various fields shared insights on the legal, financial, and practical aspects of utilising Blended Finance in emerging markets to advance sustainable development goals (SDGs).

Key Themes and Insights:

Legal and Regulatory Challenges:

• Many countries have outdated or insufficient laws that limit the potential of Blended Finance structures, especially those involving risk pooling or multi-layered capital stacks.
• In some regions, laws prevent philanthropic or CSR capital from being deployed into for-profit structures, which hampers innovation.
• The complexity of structuring Blended Finance deals results in high legal costs, often acting as a barrier to replication and scale.

Need for Policy Reform:

• Central banks and policymakers need to modernise financial regulations to support innovative financing mechanisms.
• A notable example of progress is Singapore’s regulatory changes, allowing family offices to deploy grants into Blended Finance structures with tax benefits, which could serve as a model for other countries.

Cost and Transaction Complexities:

• Blended Finance deals are typically complex and expensive to structure due to the bespoke nature of each transaction.
• There is a need for concessional capital to cover transaction costs, but such costs don’t always generate strong “impact stories” that attract investors.

Data, Transparency, and Leverage Ratios:

• A significant issue is the lack of transparency and data on the effectiveness of Blended Finance transactions. For example, the average leverage ratio is 1:4, meaning $1 of concessional capital mobilises $4 of commercial capital.
• However, much of the “commercial” capital still comes from development banks and international financial institutions (DFIs), with less involvement from mainstream private investors like UBS clients.

Sector-Specific Variations:

• Leverage ratios vary by sector. Clean energy projects often require less concessional capital, while areas like nature-based solutions need more support due to limited commercial viability.

Challenges in Pipeline and Capacity Development:

• Many investors remain cautious due to uncertainties around exits, data reporting, and proof of concept, especially in newer or less commercially viable sectors.
• Building capacity for project development and structuring deals is critical to attracting more mainstream investment.

Call for Collaboration and Awareness:

• Raising awareness about Blended Finance’s potential and the legal and regulatory barriers it faces is crucial to scaling its impact.
• Collaboration between governments, investors, and financial institutions is essential for creating a conducive environment for Blended Finance, especially in emerging markets.

Conclusion:
The webinar underscored the need for legal, regulatory, and policy reform to unlock the full potential of Blended Finance. It also highlighted the critical role of collaboration among stakeholders and the importance of developing data transparency, reducing transaction costs, and creating replicable structures to scale impact.

Participants were encouraged to access further resources, including the Blended Finance report available on the GAIL website, and to continue discussions on expanding awareness and overcoming challenges in this field.