Institutional capital hasn’t yet figured out how to invest at scale in climate adaptation strategies, which is why crucially needed adaptation finance is in such short supply. Much more so in emerging markets.
BlueOrchard believes it can get institutional and commercial investors interested in investing in climate adaptation interventions in some of the most remote, low-income and climate-vulnerable communities on the planet.
It has done it before.
The Switzerland-based emerging markets impact investor has a 25-year track record as a specialist investor in microfinance and private debt. Today it has more than $5 billion in assets under management, $4 billion of which is commercial capital.
The firm’s success in attracting—and returning—capital at attractive rates is what’s enabled it to bring large investors to markets and investment themes most deem “too risky,” says Maria Teresa Zappia, BlueOrchard’s chief impact and blended finance officer who has been with the firm for 16 years.
“We have done that with blended-finance structures, where we combine different types of investors in different types of risk capital,” she told ImpactAlpha on the sidelines of the GIIN Investor Forum in Amsterdam in October.
BlueOrchard no longer relies on blended finance for its core strategy. “With a 25-year track record, we have enough performance to show what the asset class can bring in, [that] there is no trade off between impact and financial performance,” Zappia says.
That track record attracted the UK-based asset management firm Schroders, which acquired BlueOrchard in 2019.
“They decided that they want to have a conditional offering for their investors in impact,” says Zappia. “Instead of creating this internally, they decided to acquire a leading impact investor,”
The result: “They took the expertise and amplified all the tools and the processes for impact into a much larger offering across private assets and listed assets.”
Climate adaptation
BlueOrchard is seeking to replicate the success of its microfinance strategy for climate adaptation. As the firm has witnessed the devastating impacts of climate change on the customers of its core portfolio companies, it has built a strategy around climate insurance for farmers and other vulnerable communities.
Insurance penetration is low in most emerging markets. Just 2% of Africans have some type of insurance policy in their name. Fintech companies, microfinance institutions and mainstream insurers are working together on new models to deepen access to livelihood insurance — for example, crop insurance that protects farmers’ from losses from floods or droughts.
BlueOrchard launched its first InsuResilience Investment Fund in 2017 in partnership with German development bank KfW to make both debt and equity investments in companies advancing the adoption of insurance for climate resilience.
“It is a blended finance strategy. It’s a market building strategy,” says Zappia. “We have developed a market for climate insurance in emerging markets where very often insurance doesn’t even exist… Why do we do it in emerging markets? Because we believe that there is not only a climate risk of [a person’s] house, but the entire livelihood of these communities is impacted. So the impact that you can have is incredible.”
In 2022, BlueOrchard launched its second InsuResilience Investment Fund. The fund is still leveraging concessional capital, offering technical assistance to its portfolio of insurers, and even providing “soft subsidies” to help bring down the costs for end customers.
“The third vintage, we’ll see. We think less public capital and more institutional capital,” says Zappia. “We’re very confident that this is an offering that would be interesting to insurers and larger institutional investors.”
