SIFI and Columbia Center on Sustainable Investment Partner to Address Barriers to Impact Investing Through Blended Finance Research

The SDG Impact Finance Initiative (SIFI) is excited to announce a strategic collaboration with the Columbia Center on Sustainable Investment (CCSI), housed at Columbia University, to launch a critical research initiative aimed at overcoming key barriers to impact investing. The research will focus on analyzing the risk of investing in emerging markets and developing economies (EMDEs) impact solutions and seek ways to improve the accuracy of its perception by investors, with a specific focus on blended finance structures.

Blended finance—the strategic use of public and philanthropic funds to mobilize private capital—has proven effective in mitigating risk in impact investments. However, despite its ability to de-risk investments, the broader impact investing market in EMDEs continues to face systemic challenges, including misperceptions of risk and illiquidity. While blended finance addresses some of these issues, for impact investing to scale sustainably, the root causes of these challenges must be understood and resolved.

This collaboration between SIFI and CCSI seeks to address these root causes by focusing on:

• Perception of Risk: Investors may (or may not) overestimate the risks of impact investing in EMDEs, deterring capital flows. This research will analyze real-world data and historical performance of blended finance structures and potential gaps between the actual risks and their perception.
  
• Credit Rating Methodologies: An important focus of the research will be an evaluation of current credit rating methodologies. The collaboration will host a roundtable event with key stakeholders—credit rating agencies, development finance institutions (DFIs), and multilateral development banks (MDBs), private asset managers —to explore how these methodologies can evolve to reflect the true value of blended finance in supporting sustainable development.
  
• Illiquidity in Impact Investing: The research will also consider the issue of liquidity where relevant. Limited liquidity is a key challenge in impact investing, particularly in emerging markets and developing economies (EMDEs), as it reduces the appeal of these investments for institutional investors who often require flexible exit strategies and secondary market options. The project will examine how blended finance can help address these liquidity constraints while fostering discussions on potential solutions.

Key Objectives and Outcomes
This project will generate several key deliverables:

• A comprehensive analysis of blended finance structures in EMDEs, highlighting how these vehicles can diversify risk and how their returns compare to traditional investment solutions, such as funds investing in private equity and fixed income.
• A portfolio simulation demonstrating the potential of blended finance to support institutional investment in high-impact projects while mitigating perceived risks.
• A publicly accessible publication that will disseminate the findings, providing the impact investing community with actionable insights on how to scale investments in EMDEs.
• Solution-oriented workshops with key industry stakeholders to discuss how credit rating agencies can update their evaluation methodologies to better reflect the de-risking benefits of blended finance structures.

The Nature of the Collaboration
The partnership between SIFI and CCSI is a key initiative under SIFI’s Framework Window, designed to foster systemic change in the impact investing ecosystem. SIFI, a public-private partnership, is dedicated to mobilizing private capital for sustainable development and aims to unlock CHF 1 billion in private capital by 2030. This collaboration with CCSI, a globally recognized leader in sustainable investment policy, brings together two organizations committed to overcoming the root causes of barriers in impact investing.

The research will provide critical insights into how blended finance can continue to mitigate risk while also offering solutions to some of the larger challenges that persist in impact investing, such as illiquidity and the need for better risk evaluation. These findings will contribute to mainstreaming blended finance as a viable, scalable tool for institutional investors looking to support sustainable development goals in EMDEs.

The study will also be supported through extensive interviews with private sector actors and the consultancy support from Route17.

About CCSI
The Columbia Center on Sustainable Investment (CCSI) is a global thought leader on the interrelated areas of law, policy, and finance in addressing the climate crisis. Its applied research agenda focuses on critically analyzing the ways in which laws, regulations, and institutions shape the alignment of financial flows with climate goals, and on working together with financial institutions, policymakers, regulators, and other stakeholders to implement financial policies and practices that will accelerate those goals. Among other areas of research, CCSI has been working with several financial institutions to critically assess and strengthen their climate-related strategies and activities, including (but not limited to) methodologies to define (and improve) climate-advancing impact.

About SIFI
The SDG Impact Finance Initiative (SIFI), launched in December 2021, is a public-private partnership between the Swiss and Luxembourg governments and the UBS Optimus Foundation. Its aim is to mobilize up to CHF 1 billion in private capital to support the Sustainable Development Goals (SDGs) by 2030 in emerging and developing economies. It does this by providing grants that support the design and development of innovative financial solutions that help achieve the SDGs; through first-loss investment that helps scale and mainstream impact investment solutions, and by working to strengthen the ecosystem and improve framework conditions for impact investing. SIFI’s vision is to mobilize private investments to achieve the SDGs by integrating social good and sustainable resource management into the global economy.