Sometimes, when solving problems in complex systems, designing simple solutions can work best. One year after we hosted a panel on blended finance and fisheries at SOCAP (the Social Capital Markets conference in San Francisco), we will be returning to this conference with a refined perspective on blended finance, and share what we’ve learned first-hand in Peru, Chile and Belize for keeping blended finance simple.
Overall, we believe that blended finance plays a major role in catalyzing fisheries transformation—the approach aligns efforts across multiple sectors, removes risks that otherwise prevents investors from engaging, and aligns funding to enable the right interventions at the right time. With blended finance we can broaden the scope of fishery programs to cultivate better livelihoods, recover the natural environment, and ensure food security for future generations. But while blended finance represents our overarching approach to investment, it is a broad field, with many roles and strategies. Here, we share details on our role in the blended finance model which we call “capital coordination”, and how it can help unlock financial support to drive environmental, economic, and social benefits in fisheries.
Back to Basics
often conjures complex funding arrangements that remove technical risk from an investment. In our experience, while these types of mature blended finance conversations are happening at the global level, the idea of entering into novel types of contracts and capital arrangements is uncomfortable for funders and financial institutions that are operating at the national or regional level in the Global South. Lacking precedent, capacity, and proven demand, we have found it difficult to orchestrate complex deals that are seeking less than $10MM in funding—the level that small fisheries often need. Yet, the fundamental principles of blended finance are sound: there should be better alignment and utilization of multiple sources of funding to meet the Sustainable Development Goals.
Just like a braid, the final outcome of blended finance is a complex structure with greater strength and resilience than an individual stream of capital. Capital coordination is the baby step along the way — the first twisting of strings that gets funders started down the path to more intricate structures.
Breaking Down Silos
There is still a big opportunity for existing funders to crowd-in private investment without changing their capital mechanisms. However, funders often lack visibility to the greater landscape of what is being funded, what needs to be funded, and how their contribution can be deployed at the right place at the right time. This means projects and funders are missing available opportunities to work with each other. For example, livelihoods and poverty focused funders might miss an opportunity to fund a fishery development program because the project has never characterized the social impact it creates, and has only been pursuing tapped-out environmental funds. Conversely, many initiatives receive pilot funding for physical assets from multiple funders, but do not have access to working capital or growth funding. Were these funders aware of the other’s efforts, they might agree to fund complementary components of a unified program or strategy. For example, one funder can cover the purchase of sustainable fishing gear, while a complementary funder covers training costs, and private investors help the buyer’s company to invest in business improvements that achieve better margins for sustainably caught seafood.
So, how can capital coordination help overcome these silos?
Capital Coordination in Practice
We’ve previously argued the need for a system intermediary
, and capital coordination is a natural role for intermediaries to play. At its heart, the capital coordination method seeks to agree on a set of priority environmental, economic, and social/ethical impacts within a system, to map the broad universe of funders and current initiatives that are active or could become active in the system, evaluate where there is redundancy and whitespace, and then to align funders to complementary roles that are already within their remit. In practice, this is a set of collaborative conversations that gets unusual allies talking, gets strategy down on paper, and establishes a process of regular check-ins and alignment. A capital coordination strategy includes consideration for funder mandates (e.g. impact areas or industry-specialization), funder types (e.g. philanthropic, development, private), and capital mechanisms (e.g. grants, loans, equity, in-kind contributions), and should be rooted in the context of what the system needs, from small business investment, to capacity development, to technology enablement.
Capital coordination is one of the topics that we’ll be covering in a workshop prior to SOCAP, where we’ll bring creative finance experts together from multiple sectors to explore how to fill the funding gap in fishery transformation. We’ll be eager to discuss these topics with fellow SOCAP participants over the course of the week and hope to take away some inspiration to refine the model even further. If you’re interested in hearing more about our blended finance or capital coordination approaches, or partnering with us on a project, please get in touch with Greg FitzGerald at email@example.com
. We’re currently trialing the capital coordination approach in Peru, Chile, and Belize and look forward to sharing specific case studies in the future.
Published October 3, 2019