Bridging divides:

A guide on using catalytic capitalfor a global just transition

With the support of2 | Bridging divides: A guide on using catalytic capital for a global just transition

www.impactinvest.org.uk | 3

Executive Summary
This guide aims to support the achievement of a fair andinclusive transition to a net zero economy (a “just transition”)
in emerging and frontier markets. It assists catalytic capitalproviders, including development finance institutions,
governments, philanthropic organisations, private investors,
and corporations, in unlocking private capital investments
for a just transition that combines climate action with social
justice and local development needs.

Relevance for catalytic capital providers: Become familiar
with the key motivations for different types of catalytic
capital providers to support a just transition, including missionalignment, reflecting the priorities of stakeholders, and theopportunity to mobilise additional private capital.

The guide pays particular attention to how catalytic capitalproviders can partner with actors, such as fund managers,
investees, and communities, based in emerging and frontiermarkets. It also looks at the use of catalytic instruments infunds and financing vehicles that can mobilise private capitalat scale for a just transition.

What catalytic capital does: Learn about the characteristics,
roles, and uses of catalytic capital and associated catalytic
instruments and how these might be used to support a justtransition globally.

Readers will find information, practical steps, and resourceson the following topics:

What is the just transition?
The fundamentals of the just transition: Understand theconcept of the just transition and its three elements - climate
and environmental action, socio-economic distribution andequity, and community voice.
Global and local perspectives on the just transition: Learn
about global imperatives and local pathways for the justtransition. Find out how to ensure that activities supportingthe “transitioning out” of carbon-focused economies andactivities that support the “transitioning in” to a net zero world
are fair and inclusive.

How can catalytic capital providers
support a global just transition?

Problem-solving capital: Understand the barriers faced byactors across the investment chain, how catalytic capital canhelp address these to mobilise private investment, and how
to partner with local fund managers, support local investees,
and empower local communities.
Illustrative examples: Draw insights from real-life examplesof emerging practice, showcasing different methods of
deploying catalytic capital for a just transition.

How can catalytic capital providers
support just transition funds?
Why funds matter: Explore why funds are a key tool in theprivate capital mobilisation toolkit.
Catalytic capital for just transition funds: From design
to implementation, understand how catalytic capitalproviders can increase the contribution of funds to justtransition outcomes.

4 | Bridging divides: A guide on using catalytic capital for a global just transition

About
About the projectThis guide was produced with support
from the Catalytic Capital Consortium(C3). C3 is an investment, learning,and market development initiative
created and led by the John D. andCatherine T. MacArthur Foundation, The
Rockefeller Foundation, and Omidyar
Network to increase the flow and impact
of catalytic capital, a type of impact
investment that is more patient, risktolerant, concessionary, and flexible
than conventional financing in order toachieve social and environmental impactthat would not otherwise be possible.

About the partners
The Impact Investing Institute is anindependent non-profit, set up to connect
capital to impact. The Institute acts as abridge between new economic ideas andmainstream capital markets to accelerate
the impact investing field. It supports
investors to put impact at the heart oftheir commercial investment strategies.
It also works with policymakers and civilsociety to advocate for impact investing

The Impact Investing
Institute is an independent
non-profit, set up toconnect capital to impact.
as a powerful tool to unlock solutions to
the world’s most urgent challenges, likeclimate change and rising inequality.
Krutham is a financial services andcapital markets research and consulting
house, specialising in emerging markets.
Krutham works at the nexus of financeand society to unlock opportunities forinvestors, businesses, and communities.
Krutham helps financial services clientsstay ahead of trends and understandtheir evolving marketplaces through thestrategy research practice area, while
using its social economy and capital
markets capabilities to support impact
investors by developing innovative
financial solutions to pressing social
challenges with its social economy
capabilities. Krutham has done extensive
research on scaling financing for the justtransition in South Africa and beyond.

www.impactinvest.org.uk | 5

Foreword
Achieving the transition to net zero and doing so in a fair and inclusive way is the great challenge of our era. Thisis particularly the case in emerging and frontier markets, where public and private finance flows remain limited.
Impact investing is an effective tool totackle these challenges. Within impact
investing, catalytic capital has emerged
as one of the main ways to unlock theresources needed to drive a fair andinclusive transition. By being patient,risk-tolerant, concessionary and flexible
in ways that differ from conventional
investment, catalytic capital can betransformative in supporting private
investors to deploy capital at scale.
Development finance institutions,multilateral development banks,
governments, philanthropies, and others
have started to deploy catalytic capitalwith the aim of mobilising private capital
investment for a just transition. This isencouraging, but we need to see more.
Global finance flows are still less than
20% of the $3.8 trillion we need eachyear to transition to net zero globally.1
In addition to mobilising more private
capital, catalytic capital also plays a keyrole in ensuring that whatever capital ismobilised is deployed as effectively as
possible. There is growing consensus that
global capital flows should be adapted
to local market needs, and that local
actors need to be equal participants in thetransition. Here too capital providers canplay an instrumental role, by modelling
effective partnerships with local investors,
including fund, asset managers and asset
owners. Those actors are ultimately bestplaced to lead on the development offinancing solutions that actually meet
local priorities.

The third is to support local investors
by strengthening the structures andnetworks they rely on.

The research and consultations wehave undertaken as part of this guidehighlight three clear goals for catalytic
capital providers who want to support
a just transition. The first is to mobilise
capital for climate action that secures
opportunities for communities to thrive.
The second is to support investmentsthat need catalytic capital as a steppingstone to becoming commercially viable.

Going forward, our work will continue tochampion the role of catalytic capital andlocal expertise in a transformed global
economy. We will be working to createstronger networks between investors,
and to co-create just transition productsthat are both impactful and informed by
local voices. And we will do so with thehelp of our partners and the wide investor
network who helped to create this guide.

This guide will help catalytic capitalproviders achieve these goals andcontribute to a fair and inclusive transition
to net zero. It highlights both current
and emerging practice, and outlines
powerful examples of how catalytic
capital providers have partnered withlocal investors to drive a just transition.
We hope these practical case studies will
galvanise further action.

Kieron Boyle
Chief Executive

Contents
Executive Summary3

About4
Foreword5
Introduction8What is the purpose of this guide?

8

Who is this guide for?

8

What does the guide cover?

10

What are the key concepts used in this guide?

10

How was this guide developed?

11

1.

What is the just transition?

12

1.1

What is the just transition?

13

1.2	What are the entry points for catalytical capitalproviders seeking to support a just transition?

14

2.	How can catalytic capital providers support a
global just transition?

20

2.1

What is catalytic capital?20

2.2 How can catalytic capital providers
support a just transition?26
3.	How can catalytic capital support justtransition funds?
3.1

34

Ambition 36

3.2 Investment strategy38
3.3 Outcomes framework40
3.4 Structure 41
3.5 Governance43
3.6 Operations44
3.7 Asset class catalytic considerations46

Appendix
Just transition fund checklist

48

Endnotes50

www.impactinvest.org.uk | 7

Case studies
Governments as catalytic capital providers16
Establishing common ground on just transition pathways17
Locally led investments driving deeper impact18
A suite of catalytic instruments to respondto different needs24
Supporting SMMEs in participating in the transition29
Helping to build local investee capacity on the just transition31
Supporting community engagement throughtechnical assistance33
Grounding the ambition in the needs of people and places37
Deepening impact while responding to local needs39
Measuring just transition outcomes40
Innovative structures for mobilisation41
Combining different catalytic instruments
to attract private capital and achieve outcomes42
Incorporating community voice in governance43

8 | Bridging divides: A guide on using catalytic capital for a global just transition

Introduction
What is the purpose of this guide?

Who is this guide for?

Achieving a fair and inclusive transition to
net zero will require a significant increasein private capital investment flows to
emerging and frontier markets. The
purpose of this guide is to help catalytic
capital providers unlock these flows andmake them more efficient in combining
climate action with opportunities forpeople and communities to thrive in atransformed net zero economy.

The primary audience for this guide isproviders of catalytic capital, including
development finance institutions (DFIs),
multilateral development banks (MDBs),
governments, philanthropic organisations,high net worth (HNW) investors andfamily offices, and private investors
and corporates.

The purpose of this guideis to help catalytic capitalproviders unlock private
capital flows and makethem more efficient in
combining climate
action with opportunities
for people and communities
to thrive in a transformed
net zero economy.

The guide pays particular attention to
the deployment of catalytic instruments
in funds and other financing vehicles,
owing to their potential to mobilise
private capital at scale. This reflects therecommendations of global initiatives
such as the G7 Impact Taskforce andthe Sharm El Sheikh Guidebook for Just
Financing, launched at COP27, both ofwhich called for the development ofpooled structures that can help crowd inprivate investment.2
The guide also provides insights into
broader uses of catalytic capital, with
an emphasis on the integration of local
considerations in investment decisions.
The just transition is a global imperative,
but solutions must reflect local needs.
A cross-cutting theme is how catalytic
capital providers can ensure that theneeds of the places where capital isdeployed are thoroughly considered andwork with local actors to build and sustain
investment ecosystems and networks.

The content will also be relevant
to fund managers, and particularly
local fund managers based in emerging
and frontier markets, as the guideincludes examples of how local fundmanagers have succeeded in raising
private capital at scale to meet
local just transition needs.

The guide also provides insights andexamples for other key actors involved infinancing a global just transition. Private
investors (including asset managers andasset owners) can gain familiarity with thegrowing spectrum of options available tothem. Local investees and communities– and the groups and networks thatcoordinate them – can refer to the guidefor an understanding of what “good”
looks like in just transition financing andengagement with relevant actors acrossthe investment chain.

www.impactinvest.org.uk | 9

Figure 1: Key actors

Key actors
Catalytic capital providers• development finance institutions (DFI)• multilateral banks (MDBs)• governments• philanthropic organisations• high-net worth investors and family officers• corporates

Private investors• asset owners• asset managers

Local stakeholders• fund managers• communities, community groups
and networks• investees (including companies & projects)

10 | Bridging divides: A guide on using catalytic capital for a global just transition

What does this guide cover?
This guide focuses on the use of catalytic
capital to deliver a just transition in
emerging and frontier markets. It is
structured as follows:
Section 1 provides an introduction to
the concept of the just transition and its
relevance for catalytic capital providers.
It details entry points for catalytic capitalproviders to support a just transition,
including examples of peers who haveadopted a just transition approach.
Section 2 explores the use of capitalfor a global just transition. It details how
catalytic capital can be used to overcome
barriers faced by different actors seeking
to deliver just transition outcomes.
Section 3 provides insights on the role
catalytic capital can play in embedding

just transition considerations withinfunds and other financing vehicles.
It uses the framework of a fund blueprint,
from its ambition and investment
strategy to its operations.
The Appendix summarises insightsfrom section 3 in the form of a checklist
that can be used in the design of justtransition-aligned vehicles.
Case studies demonstrating goodpractice in deploying catalytic capitalfor a just transition are interspersed
throughout the report. The Impact
Investing Institute also maintains an
online repository of case studies on its
website, including a range of examples
of structures and financial andimpact characteristics.3

 hat are the key concepts usedWin this guide?
This guide uses the following key
concepts throughout:• The just transition refers to the notionof greening the economy in a way thatis as fair and inclusive as possible foreveryone concerned, creating decent
work opportunities and leaving no
one behind, following the International
Labour Organisation’s definition.4
Further reference is made to the three“just transition elements”, a framework
developed by the G7-backed
Impact Taskforce, which articulated
the just transition as climate andenvironmental action, socio-economic
distribution and equity, and community
voice (see section 1.1).

• Emerging and frontier markets arecountries that are in the upper-middle
income, lower-middle income, andlow-income countries on the WorldBank country classification system.5
All other countries are referred to as‘developed’ in this guide. Associatedterms include emerging markets anddeveloping economies (EMDEs) and
the Global South.6• Catalytic capital is capital that
accepts disproportionate risk and/or
concessionary returns, relative to aconventional investment, to generate
positive impact and mobilise thirdparty investment that would not
be possible in the absence of
catalytic funding.7• Catalytic capital providers areorganisations that provide catalytic
capital, including philanthropic
organisations, development financeinstitutions (DFIs), multilateraldevelopment banks (MDBs),
governments, private high net worth(HNW) investors and family offices and,in some instances, private investors.8• Private capital refers to capital thatis deployed by private investors,
usually on non-concessionary,commercial terms.

• Private investors comprise asset
owners, such as pension funds andinsurance companies, as well as
endowments, foundations, charities,
sovereign wealth funds (SWFs), banks
and credit unions, family offices andwww.impactinvest.org.uk | 11

private funds (such as mutual funds,
hedge funds, private equity/debt
funds and venture capital funds),
and asset managers, who typicallymanage assets on their behalf.
Private investors also include impact
investors, who seek to combine
positive, measurable social andenvironmental impact with a financial
return in their investments.

• Fund managers are financial actors
who design, develop, and manage
investment vehicles. For the purposeof this report, the category also
include advisors, who support thedevelopment of investment vehicles,
often under mandate from thefund managers.

• Investees are recipients of private
and/or catalytic capital, including
businesses and projects (for example,
infrastructure).

• Communities are groups of people
with a tangible or symbolic connecting
structure, for example: location, job role,
identity, or shared values.9 From theperspective of this report, shared ties
to a location that will be affected byan investment is an obvious defining
feature, although this should not beseen to diminish the importance ofother key community identities andsub-identities within communities,
for example, those of marginalised or
disadvantaged groups based on gender,
race, disability or other characteristics.

• Local is used to refer to actors
based in emerging and frontiermarkets. Like “communities”, local is
not a static term, but rather one thatshould be redefined in the context ofeach investment.

• Funds are pooled investment
structures. For the purpose of thisguide, funds also comprise other typesof investment vehicles, such as fundsof funds and investment solutions.

How was this guide developed?
The guide was developed througha combination of desk researchand engagement with practitioners.
Engagement comprised several
workshops and one-on-one interviews
with representatives of the target
audiences. We have particularly sought

to gather input from stakeholders basedin emerging and frontier markets. The
guide also benefited from feedback froma range of key stakeholders. Thanks
are due to the contributors listed in theacknowledgements section at the end of
this report.

12 | Bridging divides: A guide on using catalytic capital for a global just transition

1. What is thejust transition?
In this section you will be introduced to key concepts such as:
What is the just transition?

The three just transition elements, local pathways
and ‘transitioning in’ vs ‘transitioning out’
activities.

What are the entry points forcatalytical capital providers seeking
to support a just transition?

Key motivations for different types of catalytic
capital providers to support a just transition,
including mission alignment, the priorities of
stakeholders and the opportunity to mobilise
additional private capital.

www.impactinvest.org.uk | 13

including greenhouse gas
emission mitigation, reduction,and removal

2I mprove socio-economic
distribution and equity
through, for example, inclusive
opportunities for decent jobs

3

I ncrease community voicethrough, for example,
engagement and dialogue withaffected communities that areoften excluded and marginaliseduComm

Figure 2: The just transition and its
three elements

oicenity VJUST TRANSITION

Socio-economic Distribution and Equity

With its origins in trade unions andenvironmental justice action, the conceptof a just transition has gained widespreadrecognition among different groups of

The need for a just transition is also
recognised at country-level in an
increasing number of jurisdictions. Justtransition principles are now mentioned
in 38 percent of Nationally Determined
Contributions – countries’ self-defined
national climate pledges detailing what
they will do to help meet the global
goal to pursue 1.5°C, adapt to climate
impacts, and ensure sufficient finance tosupport these efforts – and 56 percent
of long-term strategies.11 Businesses
are also increasingly recognising theconcept, with an ever-growing number ofindustry initiatives and the adoption ofjust transition considerations in company
transition plans.12

The Impact Taskforce, backed
by the UK presidency of the G7
in 2021, brought together 170
global stakeholders to mobilise
capital towards a just transition.
The Taskforce identified three justtransition elements (“the elements”)
to provide a common frame ofreference for financial market actors
seeking to advance a just transition.
The elements are applicable acrossgeographies and can be used todetermine local just transition
priorities. They are interlinked andequally important: all three must bepresent to ensure alignment with ajust transition.

Advance climate andenvironmental action

ActionAs captured in the International Labour
Organization’s definition, a just transition
pays attention to ensuring that thecosts and benefits of the transition
to a net zero carbon world are fairly
distributed. It also seeks to ensure that
inequalities, such as income inequality or
unequal access to education, healthcare,economic opportunities, and basic goods
and services, are neither reinforced
nor perpetuated in the transition. This
is not only a moral imperative, but also
an approach to ensure there is societal
buy-in for the transition and reduce therisk of social backlash. As reflected in
the framework put forward by the G7
Impact Taskforce (see box), the successof the just transition is dependent on the
inclusion of affected communities. This is
crucial because the “just” element of thejust transition can vary depending on thelocal context.

stakeholders. It was incorporated into
the Paris Agreement, the legally binding
international treaty on climate change
signed by 196 nations at the UN Climate
Change Conference in 2015 (COP21).
Most recently, the Sharm el-Sheikh
Implementation Plan, agreed at COP27 in
November 2022, made the just transition
an imperative of the global climate agenda
by recognising that “effective climate
action should be implemented in a mannerthat is just and inclusive while minimizing
negative social or economic impacts that
may arise from climate action”.10

1

Environmental

A just transition means greening the
economy in a way that is as fair andinclusive as possible to everyone
concerned, creating decent work
opportunities and leaving no one behind.

Three integrated anduniversal elements
adaptable to local needs

Clima
te and

1.1 W
 hat is the just transition?

14 | Bridging divides: A guide on using catalytic capital for a global just transition

1.2 W
 hat are the entry points forcatalytical capital providers seeking
to support a just transition?
All providers of catalytic capital can
support a global just transition, andmany have started doing so. This has
been facilitated by several entry points,

The concept of transitioning “out” and “in”13
Just transition pathways will bedifferent for each project andcompany, for each region and for eachcountry, and require a different mixof activities.14 At the country-level,some pathways focus on largescale decarbonisation of economic
infrastructure (for example in South
Africa and Indonesia), while others
focus on the opportunity to develop
new green technology and build moresustainable economies from theground up. Transition activities can bedivided into two broad categories withdifferent just transition implications:“Transitioning out” activities enable
existing industries and affected
workers to exit carbon-intensive
activities, such as coal mining, whilst
achieving justice for those affected(for example, alternative job andFigure 3: Just transition entry points for catalytic capital providers.

re-skilling opportunities for workers).
Transitioning out activities are often
perceived as more difficult andrequiring significant funding support
from public and development funders,
as well as catalytic capital providers.
“Transitioning in” activities enable
the development of new net zeroindustries and carbon mitigation andadaptation measures, such as mining
for minerals that are essential for clean
energy, in ways that are equitable
and inclusive. “Just” approaches totransitioning in focus on building
new markets in ways that avoid
perpetuating historical injustices,
including racial and gender inequity,
through the distribution of green
jobs or opportunities to gain accessto cheaper goods and services andsupply chains.

including mission alignment, thepriorities of their stakeholders, andopportunities to unlock additional
private capital towards impact.

missionalignment

Entry points
for catalytic
capitalproviders
priorities
of localstakeholders

unlockingadditional
privatecapitalwww.impactinvest.org.uk | 15

Mission alignment
There is a strong alignment between
the mission of different types ofcatalytic capital providers and justtransition objectives.
Development finance institutions (DFIs)
and multilateral development banks(MDBs) traditionally have socioeconomic
development mandates from theirshareholders (typically governments) but
are increasingly helping stakeholders inemerging and frontier markets respond toclimate change. These twin imperatives
have led many DFIs and MDBs to adopt ajust transition approach in their activities.
Examples include: the MDB Just
Transition Principles, developed by ninemultilateral institutions with inputs fromthe World Bank; the European Bankfor Reconstruction and Development(EBRD)’s Just Transition Initiative; British
International Investment, which embeds
just transition principles across its climate
investments; and Private Infrastructure
Development Group (PIDG), whose 20232030 strategy focuses on socioeconomic
development and climate action.15
Governments, in addition to their
allocation of catalytic capital throughthe DFIs, MDBs, and other structures ofwhich they are shareholders, also provide
catalytic capital directly – for example,
through their development departments
or agencies. Governments provide
catalytic capital for projects in their own
countries or transnationally, where thefocus is on global development.

objectives. Whilst many have, for a longtime, held both environmental and social
objectives, in recent years, several haveadopted a just transition approach,recognising that they are well equipped tosupport social considerations in broader
environmental investments and projects.

Recent years have seen multiple
examples of governments adopting
a just transition approach in catalytic
capital deployments, including: the Just
Energy Transition Partnerships, which areinnovative financing mechanisms designed
to channel money from developed
economies to some of the bigger
developing-world emitters for the purposeof a net zero transition, supported by theEuropean Union and the governmentsof Canada, France, Germany, and theUnited Kingdom; and the Climate Financefor Development Accelerator, recently
launched by the United States Agency
for International Development (USAID),
which explicitly links climate funding
to the achievement of socioeconomic
development objectives.

Examples include: the Ikea Foundation,
The Rockefeller Foundation, and theBezos Family Foundation, which havebacked the Global Energy Alliance for
People and Planet (GEAPP); the Ford
Foundation and the Bill and Melinda Gates
Foundation, which are backing the African
Climate Foundation; and the Children’s
Investment Fund Foundation.

Philanthropic organisations, such as
endowed foundations, are key providersof catalytic capital across sectors andregions, typically in pursuit of deeper
impact aligned with their philanthropic

Pioneering private high net worth (HNW)
investors and family offices have started
to deploy catalytic capital to support
the just transition as part of increasingly
mission-driven capital allocations.
For example, Ceniarth is a private family
office that has pioneered the deploymentof catalytic capital, often alongside
more conventional providers such as
DFIs, to support climate action andsocioeconomic development with a focus
on disadvantaged groups in developed,
emerging and frontier markets.16

Private investors and corporates areanother emerging category of catalytic
capital providers, providing catalytic
capital alongside their deployment ofcommercial, non-concessionary capitaland investment.
Private investor commitments to ajust transition include: the Glasgow
Financial Alliance for Net Zero (GFANZ)’s
contribution to the Just Energy Transition
Partnerships (see below), the United
Nations Principles for Responsible
Investment (UNPRI) Statement of
Investor Commitment to Support a Just
Transition on Climate Change; and theJust Transition Finance Challenge. On
the corporate side, a recent example isAmazon’s support for the Climate Gender
Equity Fund, which is part of the Climate
Finance for Development Accelerator run
by USAID.

There is a strong alignment
between the mission ofdifferent types of catalytic
capital providers and justtransition objectives.

16 | Bridging divides: A guide on using catalytic capital for a global just transition

Case study: Governments as catalytic
capital providers
Just Energy Transition Partnerships(JETPs) are climate financemechanisms first launched at
COP26 to support emerging market
countries’ transition to clean energy
while addressing the socio-economic
impacts of decarbonisation efforts.
The JETP model focuses on
expanding access to both public andprivate finance to support critical andcatalytic investment needs. JETP
funding comes from the International
Partners Group (IPG, comprising
Canada, the European Union, France,
Germany, and the United Kingdom)
and GFANZ’s dedicated working group.
JETPs are designed to be flexible andtailored to the specific needs of eachcountry, and they can include a rangeof financial instruments, such as
grants, concessional loans, and risksharing mechanisms.

Catalytic capital can play a vital rolein strengthening the impact of JETP
mechanisms. It can be deployed toprojects that lack bankability but
are vital to the just transition, suchas environmental resources andcommunity resilience building. Thiscan attract other investors to fund themore secure parts of a just transition
project. Catalytic capital can also
fund ‘proof of concept’ initiatives thatlack a technical or commercial trackrecord. By absorbing higher risks andlower returns, catalytic capital can
attract more conservative investors
for other project components. As
such, catalytic capital can de-risk
and validate the feasibility of highimpact but risky projects that will befinanced through JETPs, facilitating
broader capital participation in the justtransition agenda.

Reflecting the priorities of
local stakeholders
While the just transition can beunderstood at the level of a specificproject, company, region, or country,
on a global scale it takes an additional
dimension linked to the notion of climate
justice. This is grounded in the recognition
that emerging and frontier markets
have been responsible for a much
lower share of historical CO2 emissions
compared to developed markets but
are disproportionately impacted by
the effects of climate change, which
negatively affect broader socio-economic
development prospects and increase
adaptation costs.17
Against this backdrop, global climate
action efforts, including decarbonisationcommitments, have been criticisedfor inadequately reflecting the needs
and realities of emerging and frontiermarkets. Stakeholders from thesemarkets have expressed concerns thata narrow prioritisation of climate action
might hinder the achievement of theircountries’ socio-economic development
goals.18 There have been calls to makethe transition just on a global scale byensuring it helps to address, rather thanperpetuate or reinforce, inequalities
between countries. Frameworks forfairer global climate action include
the Bridgetown Initiative, which seeks
to create a fairer global financial
architecture, and the 2023 Paris Pact for
People and the Planet, which states that“no country should ever have to choose
between development aspirations andclimate action”.

www.impactinvest.org.uk | 17

Case study: Establishing common
ground on just transition pathways
An initial barrier to pursuing a justtransition can be a lack of common
understanding of what it means torespective stakeholders, what isneeded in the local context, andwhat the financing gaps andopportunities are.
This provides an entry point for
catalytic capital providers, who canhelp establish common ground on justtransition concepts and needs andidentify the actions parties can taketo address differences.
For example, the African Climate
Foundation (ACF)’s Energy Accessand Just Transitions Programme,
which is backed by several catalytic
capital providers, supports local

stakeholders to deliver just energy
transition pathways.19 At a country
level, the ACF helps identify local
transition needs and opportunities
and support the development of local
climate and just transition institutional
capacity (including in multilateralnegotiations and diplomacy). At aregional and global level, it helps
connect and mobilise philanthropic
and private finance for locally led justtransitions. In South Africa, the ACF
has supported local actors to identify
the financing needs in ensuring social
justice considerations are integrated
in the country’s transition away fromcarbon-intensive energy sources
and industries.20“No country should ever
have to choose between
development aspirations
and climate action”
The Paris Pact for People
and Planet
This drive for climate justice calls for theempowerment of voices from emerging
and frontier markets in global climate
discussions. It follows the move towards“localisation” in global development, which
recognises that development outcomesare more sustainable when local actors
and communities are engaged andempowered, and action is in response toneed.21 The “Nairobi Declaration”, agreed
after the inaugural Africa Climate Summit
in September 2023, was unequivocal incalling for more equal partnerships andconsideration of local needs in global
climate change action.

As further explored in section 2, local
actors – including fund managers,
investees, and communities – are integral
to the success of the just transition andcan deliver deeper, locally led impact,
but often lack the resources to play thisrole (including finance and technicalcapacity). Supporting such actors acrossthe investment chain can therefore be a
powerful entry point for catalytic capitalproviders and is well aligned with the tools
at their disposal.

18 | Bridging divides: A guide on using catalytic capital for a global just transition

Case study: Locally led investments
driving deeper impact
Evolution II is a 10-year closed-ended
private equity fund, launched in 2017by Inspired Evolution. The fund invests
in clean energy infrastructure projects
and technology-based growthcompanies that are enablingenergy access and developing
resource efficient, reliable, affordable,
disruptive solutions. It is backed byseveral catalytic capital providers
and private investors.
As a South Africa-based manager withfurther offices in Mauritius, Nairobi
and Abidjan, Inspired Evolution has
been able to invest in opportunities
with deep impact that would typicallynot be on other investors’ maps. For
example, it has invested in the firstgrid-connected solar photovoltaic(PV) project development by anindependent power producer (IPP) in
Burundi. This is the first successfulproject by an IPP in Burundi andrepresents the largest international
private investment in Burundi’s
electricity sector in nearly 30
years. Access to basic services
and infrastructure such as healthcentres, schools, roads, and electricity
remains a major barrier to economic
opportunities for most Burundians.
The Burundi solar PV projectempowers local communities througheconomic development and energy
access. In addition to its impact, thisinvestment in a severely underserved
market helps build the track record for
unlocking future investments.

www.impactinvest.org.uk | 19

Unlocking additional private capital
Against a backdrop of limited publicbudgets and traditional sources ofdevelopment funding, such as overseas
development assistance (ODA) or
philanthropy, more private capital isneeded to support the achievement ofa global just transition. The global justtransition funding gap has yet to be
calculated but its scale can be inferredfrom the Sustainable Development Goals(SDGs) funding gap and the climate
finance gap. The annual funding gap toachieve the SDGs in emerging and frontiermarkets is estimated to stand at $3.9
trillion following the COVID-19 pandemic.22
The climate finance gap is on a similar
scale: the Intergovernmental Panel on
Climate Change (IPCC) estimates thatbetween $1.6 trillion and $3.8 trillion
is required annually to achieve climate
adaptation and mitigation globally, with

While most sustainableprivate finance flows target
climate, investors arepaying increasing attention
to the social risks andopportunities associatedwith the transition and theconcept of a just transition.

the most acute finance need in emerging
and frontier markets.23
Efforts to mobilise private finance havewielded mixed results despite the growthof responsible and impact investment
practices.24 Various estimates place thecontribution of private capital to global
transition finance in the range of billions
rather than needed trillions, reflecting
low average mobilisation ratios.25 With
global assets under management (AUM)
totalling ca. $98 trillion in 2022, there
remains significant scope to increase
the contribution of private investors to a
global transition.26
While most sustainable private financeflows focus on climate, investors arepaying increasing attention to the social
risks and opportunities associated withthe transition and the concept of a justtransition.27 This rising interest frominvestors in just transition finance isreflected in various commitments andinitiatives. The UNPRI Statement of
Investor Commitment to Support a
Just Transition on Climate Change isendorsed by 161 investors representing
US $10.2 trillion in assets, and the Just
Transition Finance Challenge brings
together 23 global investors controllingover £4 trillion in assets to collaborate
on just transition finance.28 Some justtransition initiatives seek to enable a
global just transition, such the Emerging

Markets Just Transition Investment
Initiative, comprising 12 UK-based
institutional investors, worth £400 billion,
committed to financing a just transitionin emerging markets.29
Catalytic capital providers can harness
this interest of private investors tochannel more capital to the markets
where needs are most acute. As section
2 explores, given their unique positioning,catalytic capital providers can help
bridge the environmental priorities ofprivate investors and the social needs ofemerging and frontier markets. They canalso support local actors in attracting
investment from private investors based
in developed markets.
In line with the localisation agenda of thejust transition, the growth of local asset
owners – those based in emerging andfrontier markets – is also an encouraging
trend from a mobilisation perspective.
Some local pension funds are large
and growing quickly: pension pools incountries such as India, Nigeria andGhana are experiencing double-digit
annual growth and are now equivalent
to a substantial percentage of national
GDP.30 Sovereign wealth funds basedin these geographies are also sizable.31
These actors remain largely invested in
traditional financial instruments, suchas national treasury bonds, but rigid
barriers including asset allocation limits
are being loosened in some countries.32
Helping local actors to develop financial
propositions that enable the mobilisationof these pools of capital can be anotherpowerful area of intervention for catalytic
capital providers.

20 | Bridging divides: A guide on using catalytic capital for a global just transition

2. H ow can catalytic capital providers
support a global just transition?
In this section, you will become familiar with opportunities foraction by understanding:What is catalytic capital?

A high-level definition and examples
of instruments.

How can catalytic capital providers
support a just transition?

Common barriers and how catalytic capitalcan help address them – by facilitating
private investment, partnering with local
managers, supporting local investees, andempowering local communities.

2.1 W
 hat is catalytic capital?
This guide defines catalytic capital as
capital that accepts disproportionate risk
and/or concessionary returns, relative toa conventional investment, to generate
positive impact and mobilise third-party
investment that would not be possible in
the absence of catalytic funding.

Catalytic capital iscapital that accepts
disproportionate risk and/or concessionary returns,
relative to a conventional
investment, to generate
positive impact andmobilise third-party
investment that would not
be possible in the absenceof catalytic funding.

Catalytic capital is usually more patient,flexible and risk tolerant than private
capital, which generally seeks market-rate
returns, and can therefore be deployed in amanner that absorbs risks.
Catalytic capital can be invested directly
into a project or enterprise, or indirectly
through a fund or another type of
vehicle, facility, or platform that will itself
invest into the project or enterprise. The
framework developed by Tideline is helpful
for understanding the roles and uses ofcatalytic capital:33• The role of the catalytic capital provider
depends on the needs of the project,enterprise, or financial vehicle, but it
tends to be to seed, scale or sustain.

• Catalytic capital has five broad usesby the investee: facilitating innovation,
helping to build a track record,
leveraging additional investment,
signalling impact potential and tosafeguard its mission.

www.impactinvest.org.uk | 21

Figure 4: Five ways catalytic capital can help investees, communities, and fund managers

1.

2.
Facilitate
innovation

Catalytic capital providers also make useof other types of catalytic instruments,
including grants, alongside theirdeployments of catalytic capital.34 These
instruments, summarised in the tablebelow, can further the intended objectivesof the catalytic capital deployed anddeepen its impact.
Given the complex nature of the global justtransition and the different barriers faced
by stakeholders involved, the combinationof catalytic capital with broader catalytic
instruments is an approach privileged
by catalytic capital providers seeking tosupport the just transition:3.
Helpbuilding a
track record

4.
Leverage
additional
investment

5.
Signalimpactpotential

Safeguard
mission22 | Bridging divides: A guide on using catalytic capital for a global just transition

Figure 5: The use of catalytic capital across the investment chain
proximity to impact

private investors
including local investors

investees (companies& projects)
fund managers including
local fund managers

communities
Investment

mobilisepartner
to seed,scale,
sustaincatalytic capital providers
access to capital

supportto seed,scale,
sustain

Impactempower

www.impactinvest.org.uk | 23

Catalytic instruments typically used by catalytic capital providers to achieve just transition objectives include:
Instrument

ExamplesPurposeJust transition example

Unfunded instruments /contingent liabilities• Guarantees

Reduce various kinds of investment risks• Private Infrastructure Development
Group (PIDG) / GuarantCo• Insurance• Climate Action Investment Fund

• First-loss facilities• BlueOrchard InsuResilience Investment
Fund• Ci-Gaba Fund
Co-investment• The catalytic capital provider invests
alongside private investors, taking on
first-mover risk

Concessionary instruments• Subordinated debt
• Subordinated equity

Encourage other investors to join throughcreating scale and distributing risks acrossa portfolio• Evolution II

Priced at a rate designed to attract othercommercial investors• ResponsAbility Access to Clean
Power Fund

• GAWA Capital Kuali Fund

• Convertible bonds• Securitisation
Results-based incentives• Outcomes contracts• Funds

Tie a portion of payments to theachievement of specific impact objectives• Green Outcomes Fund

Help make projects morecommercially attractive• KawiSafi Ventures Technical• Bonds
Grants• Project design• Technical assistance• BlueOrchard InsuResilience Investment• Early-stage research and development

Policy instruments• Tax credits• Subsidies• Risk reduction mechanisms

Assistance Facility
Fund (technical assistance and premium
support facility)

Incentivise commercial investment incertain areas or mitigate risks• Just Energy Transition Partnerships

24 | Bridging divides: A guide on using catalytic capital for a global just transition

Case study: A suite of catalytic instruments to
respond to different needs
The Private Infrastructure Development
Group (PIDG) is an innovative
infrastructure developer and investor
which mobilises private investment insustainable and inclusive infrastructure
in sub-Saharan Africa and south andsouth-east Asia. PIDG’s mission isto get infrastructure finance moving
and multiplying – accelerating climate
action and sustainable development
where it is most urgently needed. PIDG
blends multiple donors’ and private
capital and deploys it across the entire
lifecycle of the infrastructure assets
alongside private sector entrepreneurs
and investors. Since 2002, c. 70% of its
over 200 infrastructure projects havebeen in Least Development Countries
or Fragile and Conflict Affected States,
enabling private finance where it wouldn’t
otherwise flow and making a difference
to the communities that need it the most.
For example, PIDG’s project
development and equity investment
arm, InfraCo, specialises in providing

funding and expertise for transformative
infrastructure projects, enabling them toseed and scale from an initial concept
to a bankable investment opportunity,
to a viable operating business. PIDG
maintains a strong focus on integrating
environmental and social considerationsin its investments.
In 2022, InfraCo committed $3.8
million to support the expansion of
Globology Ltd.’s Waterbus passenger
transport operation on Lake Victoria.
Links between Lake Victoria’s mainlandand island communities is limited, withpassengers largely reliant upon open
wooden canoes with polluting twostroke petrol outboard motors to reach
key services and to transport theirproduce to markets. These unscheduledcanoes are unsafe, slow and lack shelter,so passengers are exposed to theelements and goods and fresh produce
are vulnerable to spoilage. Violent,
fast-moving storms can capsize open
canoes which have few, if any, safetymeasures in place for their passengers.
Several thousand people die every year
on Lake Victoria alone.
Waterbus is the first passengerfocused service to deliver scheduled
ferry routes on the Lake, currently
operating two 132-seater and one 80
seater safe, modern catamaran vessels
for passengers and light cargo on two
Kenyan routes. InfraCo’s investment will
support the construction of five new
fifth- generation ferries and will enable
the company to finance upgrades to
its existing boatyard located in Kisumu,
Kenya. The new vessels will operate
additional routes in Kenya and newroutes in Tanzania and Uganda.
Shell Foundation joined forces with
InfraCo to support the pilot retrofittingof a solar boost system to two of
Waterbus’s vessels with a grant of$800,000, with a target of improving
fuel consumption by up to 15%.

www.impactinvest.org.uk | 25

The full suite of PIDG products
includes:• Technical assistance, viability
gap funding and concessional
capital to enhance projectviability and impact• Project development and equity
through InfraCo• Long term debt through theEmerging Africa Investment Fund

• Credit enhancement solutions
in local currency through
GuarantCo and local credit
enhancement facilities
In 2002-2022, PIDG leveraged$1.9bn of ODA to make $5.2bnof commitments in infrastructure
worth $40bn, including $25bn
from the private sector, improving
access to infrastructure forover 220 million people.
PIDG’s 2023-2030 strategy puts
climate, nature and sustainable
development at the core of its work.
The strategy focuses on infrastructurethat supports climate resilient
development, building on PIDG’s

track record as a market builder
through some of the first renewable
independent power producers
investments in several countries
and first privately issued certified
green bonds, for example in Kenya
and Vietnam.
PIDG’s new strategy aligns all its
instruments towards:• Increasing the pipeline of projects
built to international investable
standards, scaling up its project
development arm• Unlocking domestic institutional
capital for infrastructure
investment through GuarantCoand through scaling up local credit
enhancement facilities on themodel of InfraCredit Nigeria andInfraZamin Pakistan• Deploying commercial
and institutional capitalin developing and emerging
markets through its blended
finance structures, including its
blended debt fund EAIF and its
credit enhancement solutions

26 | Bridging divides: A guide on using catalytic capital for a global just transition

2.2 H
 ow can catalytic capital providers support
a just transition?
Catalytic capital is problem solving
capital. In the context of financing a justtransition, each set of actors across theinvestment chain faces different barriers.
This section explores how catalytic
capital providers can help address thesebarriers to:• facilitate investment by private
investors• partner with local fund managers• support local investees• empower local communities.

1. Facilitate investment byprivate investors
As noted in section 1, there is still asignificant funding gap for the global justtransition, with an opportunity to mobilise
private capital to bridge the gap. Private
investors can:

• Provide much needed capital for justtransition projects and enterprises• Act with speed and flexibility inresponse to urgent challenges andopportunities and be more open to
backing innovative and experimental
strategies that are essential
for addressing the multifaceted
challenges of a just transition.

• Bring specialised knowledge andskills that can complement public andnon-profit initiatives and accelerate
the scaling of effective solutions.
This expertise includes technology,
finance, marketing, and operations,which are critical for taking an initiativefrom concept to implementation.
Through a variety of interventions,catalytic capital providers can facilitate
investment by private investors byremoving barriers to their involvement,
as listed below.

www.impactinvest.org.uk | 27

Private investor barriers

Catalytic capital providers can…

Information asymmetry and lack of quality data. Just transition investments areoften private investments, which tend to provide non-standardised, limited, and lessreliable information due to the poor availability of company level data. This canmake it difficult for private investors to identify and conduct due diligence on
potential investments.

• Pioneer investment into just transition projects to generate the initial data andLack of scale. Besides infrastructure projects, businesses linked with delivering a justtransition in emerging and frontier markets tend to be too small for the requirements
of private investors, particularly considering the enhanced due diligence that is often
required for these markets.

• Help projects and enterprises scale.

Lack of technical and commercial track record. Many just transition projects inemerging and frontier markets are rooted in new or novel technologies that are still in
their pilot phases, which makes it difficult to price for risk. Some funds are led by firsttime fund managers without a track record.

• Fund pilot projects that help build a track record for new technologies.

Lack of viable project pipeline. Investors often seek "shovel-ready" investments andprojects that are well-defined, with clear objectives, timelines, and expected returns.
The scarcity of such projects in the just transition context can deter potential
investors. The lack of pipeline tends to restrict funding to grants or other noncommercial avenues, constraining the scale and impact of projects.

• Provide risk-tolerant and patient capital to help identify and prepare projects tometrics required by investors.

• Help develop common frameworks to identify suitable just transition investments
in local contexts, paving the way for conventional capital to enter the space.

• Support the development of innovative and/or aggregated offerings, such as
bonds, funds, and other financing vehicles, which can provide higher ticket sizes
for private investors.

• Back first time fund managers.
• Absorb higher transaction costs for due diligence and risk assessments, making
smaller projects more financially viable.

become shovel-ready and attract more traditional investors.

Catalytic capital roles: seeding, scaling

Catalytic capital uses:

Facilitate
innovationHelpbuilding a
track record

Leverage
additional
investment

Signalimpactpotential28 | Bridging divides: A guide on using catalytic capital for a global just transition

2. Partnering with local
fund managers
Local fund managers can play a leadingrole in mobilising private finance towards
a just transition and ensure financemobilised is responsive to local realities
and needs. Specifically, local fundmanagers can:• Tap into local pools of capital.
• Provide knowledge and expertise on
the financial, business, political, andcultural context to global investors andcatalytic capital providers seeking toinvest in their markets.

• Draw on local networks to facilitate
partnerships with local governments,
NGOs, and communities, expediting
project implementation and adoption.

• Support a more precise identificationof the finance needs and support
gaps that should be addressed aspart of financing a just transition in
specific markets.
Catalytic capital providers can help
local fund managers build a trackrecord to enable them to raise funding
from mainstream investors, act as a risk
mitigant, and play a leading or anchoringrole in the capital raising process.
Specific interventions include:

Local fund manager barriers

Catalytic capital providers can…

Navigating funding landscape. The pool of funds traditionally
dedicated to environmental sustainability in emerging andfrontier markets is limited, and to social impact even more
so. Limited knowledge about existing financial instruments
and opportunities suitable for the just transition adds to thedifficulty of securing appropriate funding.

• Work with and through local networks to act as a bridge-

Inflexibility of potential investors. Private investors often
operate standardised, relatively inflexible mandates andreporting requirements. This can be due to allocation policies orregulatory guidelines that limit their participation in perceived
riskier, illiquid investments or emerging markets, which tend
to define just transition investments. This can work to exclude
local fund managers, whose business models, funds, strategies,
and financing vehicles do not align with the requirements andwho do not have the capacity to adjust accordingly.

• Be flexible in terms of risk and return profiles, enabling itbuilder between global sources of capital and local needs(including mapping, deal sourcing and intermediation).
For example, the Collaborative for Frontier Finance, theAfrican Venture Philanthropy Association, and the National
Advisory Boards for impact investment that now exist in
36 countries.

to support projects that other funders might consider too
risky or illiquid, including through vehicle structures (seesection 3)

Primary catalytic capital roles: seeding, scaling, sustaining

Primary catalytic capital uses:

Facilitate
innovationHelpbuilding a
track record

Leverage
additional
investment

Safeguard
missionwww.impactinvest.org.uk | 29

Case study: Supporting small, micro, andmedium-sized enterprises (SMMEs) inparticipating in the transition
The Green Outcomes Fund (GOF) in
South Africa illustrates the powerof deploying catalytic capital tosupport small scale enterprises andenable them to participate in thetransition to a green economy. The
aim of GOF is to incentivise local fundmanagers to use new approaches
and financing models to target highpotential and fast-growing SMMEs
operating in South Africa’s green
economy. GOF blends concessionary
funding with private capital, thus
enabling participating Catalytic
Finance Partners (CFPs) to develop
and adapt their SMME investment
criteria and support services in waysthat were not previously possible –realising greater impact in terms of thetypes of SMMEs funded and green
outcomes created.

This approach responds to the factthat local investors need help to adapt
to investing in “green” and build theirsector related knowledge to invest
in the target SMMEs. The National
Treasury of the Republic of South
Africa’s Job Fund and the RMB Fund(part of the FirstRand Foundation)
jointly provided cornerstone grantfunding. This unlocked match-fundingof over four times the investment
capital from local fund managers(including IDF Capital, Conservation
International Ventures, Edge Growthand Mergence Investment Managers).
The outcomes payment is dispersedto the local fund managers to support
SMMEs. Its deployment is dependent
upon the fund manager being able todemonstrate that their investments
will create green jobs, as verified by
the GOF investment committee.

30 | Bridging divides: A guide on using catalytic capital for a global just transition

3. Supporting
local investees
Local investees can provide substantial
benefits to investors that back them,
despite often being small-scale. Local
investees tend to be:• Embedded within the communities
they serve and closer to the needs of
local consumers.

• Possess deep local knowledge andexpertise, as well as networks that can
support the development of projects.
Catalytic capital providers can help
address the following barriers:

Local investee barriers

Catalytic capital providers can…

Financial and risk constraints. Many just transition projects involve high upfront
costs that can deter potential investors. These projects often use new or innovativetechnologies and approaches that lack a proven technical or commercial trackrecord, which creates additional layers of risk. This is complicated by mismatchedfunding mechanisms, where traditional financial instruments are not always wellsuited to meet the unique goals of just transition linked projects.

• Bear higher risks to provide theTechnical and operational challenges. These challenges relate to the specialised
technical expertise required to plan and execute just transition projects, which are
typically complex and multifaceted. This challenge is not confined to investees but
extends to national and subnational authorities as well as investment companies.
This hinders investees’ ability to engage in just transition planning and financing andprepare projects ready for accessing appropriate finance.

• Fund technical assistance

Information and transparency barriers. Investees can struggle to provide quality data,
which is needed by investors to adequately assess the impact and risk associated withjust transition projects. Limited knowledge about existing financial instruments andopportunities adds to the difficulty of securing appropriate funding.

• Support investees in enhancing

Coordination challenges. Just transition finance requires complex coordination
between different types of stakeholders. Projects often require a mix of domestic
and international funding, as well as both public and private investment. Aligningthese diverse funding streams is time-consuming, often requiring nuanced
negotiations and trust-building among stakeholders.

• Play a coordinating role, aligningnecessary initial funding for projects
that might be deemed too risky or
innovative by traditional investors.

• Support innovative financial
instruments, facilities, andintermediaries.

programs to improve the capacity ofnational and subnational authorities
and investment companies in justtransition projects and businesses.

their reporting and transparency
measures to build trust with otherpotential investors.

different funding sources,
underwriting where necessary, andensuring smooth project execution.

Primary catalytic capital roles: seeding, scaling, sustaining

Primary catalytic capital uses:

Facilitate
innovationHelpbuilding a
track record

Leverage
additional
investment

www.impactinvest.org.uk | 31

Case study: Helping to build local investee
capacity on the just transition
The Climate Action Investment Fund(CAIF) is a blended fund with a mandate
to invest in early-stage ventures andspecial purpose vehicles in developing
countries. CAIF is being incubated by
the Investment Fund for Developing
Countries (IFU), and Partnering forGreen Growth and the Global Goals
2030 (P4G). CAIF has secured a firstloss guarantee of up to €33 million
from the European Commission to
mitigate early-stage investment
risk. The target fund size for CAIF is€200 million including investment andcatalytic capital. CAIF takes a blended
approach to its investments and will
cover 15% to 40% investment losses
by first loss guarantee and losses will
be shared with catalytic capital. CAIF
is looking to address climate action
combined with social impact, including
local employment and gender equality
in alignment with the 2X Criteria
framework.
The fund’s investment thesis is thatearly-stage ventures not only require

funding support but also pre- andpost-investment handholding. Given
the focus on early-stage ventures,
CAIF has an explicit agenda tocreate partnerships with in-country
counterparts and become part of local
entrepreneur support ecosystems.
That involves working in partnershipwith incubators, accelerators, venturebuilders and co-investors to identify
pipelines of potential investable
opportunities.
FSD Africa Investments (FSDAi), theinvesting arm of FSD Africa, invested in
Nithio Fl, a renewable energy financing
intermediary focused on the Pay as
You Go (PAYG) off-grid solar sector,
to provide reliable and sustainable
renewable energy solutions forhouseholds and small businesses in
Kenya, Nigeria, and Uganda. Nithio’s
mission is to standardise credit risk
assessments and therefore drive
more capital into the renewableenergy sector, including by investing
directly and efficiently into off-grid

solar companies. FSDAi’s investment
in Nithio is designed to enhance
the ability of local market actors in
renewable energy to attract finance atscale and improve their data analytics
and reporting capabilities.
FSDAi, which is funded by UK
International Development, hasinvested £3.25 million into Nithio in
the form of preferred equity aimed at
catalysing more private capital fromsenior lenders to support Nithio’s
expansion beyond their initial coremarkets of Kenya, Uganda, and Nigeria.
The investment allows Nithio to provide
affordable finance to smaller players in
the PAYG off-grid solar sector. FSDAi
also provided Nithio with a grant of£310,000 alongside the investment
which was used to provide capacity
support for underlying off-grid energy
companies, preparing them to qualify
for finance and build their datacapabilities, ultimately contributing
to the long-term growth and healthof the market.

32 | Bridging divides: A guide on using catalytic capital for a global just transition

4. Empowering
local communities
Local communities will be the mostaffected by just transition investments
and can provide critical insights
throughout the investment process.
At its best, community engagement is
a process that allows local people andorganisations to play a role in shaping
projects and decisions and creates a
two-way dialogue. For investors, thebenefits include:• Increased impact, as deeper insight
into the local context and participationfrom affected stakeholders canhelp investors better respond to end
beneficiary needs..

• Enhanced risk management andincreased long-term financial return of
relevant investments, through helping
to identify positive impacts, risks, andchallenges for both communities andinvestors, and prevent negative longterm ramifications.35• Helping the identification of partners
and synergies with other initiatives
and creating and sustaining a local
ecosystem of positive impacts.

• A means of checking whether theintended impact of investments
has been achieved, which can be
integrated into existing impact
management processes.

Community voice isa key element of thejust transition. In an
investment context, it
entails social dialogue andstakeholder engagement,
through a participatory
voice and inclusion indecision making, forthose affected and thosefrequently excluded and/or marginalised, including
communities
and people.
Just Transition Criteria
Catalytic capital providers canhelp address the following local
community barriers:

Local community barriers

Catalytic capital providers can…

Lack of agency in investment
decisions. Excluding the views ofcommunities from the decision-making
process can generate investment
risk and diminish impact. However,community engagement can beresource-and labour-intensive andprivate investors, fund managers, andinvestees lack commercial incentive tofund it.

• Support investors and investees toundertake community engagement
by providing grant funding fortechnical assistance, or by offering
to fund or subsidise its cost.

Catalytic capital roles: seeding, scaling, sustaining

Catalytic capital uses:

Safeguard
missionwww.impactinvest.org.uk | 33

Case study: Supporting community engagement through technical assistance
The European Bank for Reconstruction
and Development (EBRD) supports
North Macedonia’s public electricity
utility JSC Elektrani na Severna
Makedonija (ESM) as part of a broad
partnership with the North Macedonian
authorities to promote a just and green
transition. The project encompasses
investment, with a senior loan of€25 million in new green capacity
for ESM, adding clean renewableenergy generation to a region andcountry highly reliant on lignite power
generation. The project supports
climate mitigation objectives byenabling the construction of 30MW ofsolar PV generation capacity expected
to result in CO2 savings of 44,000
tonnes annually. In addition, the project
has a clear inclusion objective as it
identifies the social implications ofgreen transition and redeployment andreskilling opportunities at ESM.

The EBRD offered loan financing thatwas not available in the market fromcommercial sources on reasonable
terms and conditions, and with a tenor
that is above the market average andnecessary to structure the project.
Furthermore, the EBRD provided
expertise, innovation, knowledge
and capabilities that were material
to the timely realisation of the
project’s objectives, including support
to strengthen the capacity of theclient. The project deployed strategic
technical assistance support for project
preparation, environmental social due
diligence, and for the development anddesign of the project that opened theway for EBRD financing.
As part of its cooperation with theGovernment of North Macedonia, the
EBRD’s engagement aims to identify
the social implications of the justtransition and challenges for regional
development and, in cooperation
with local educational institutions,define redeployment and reskilling
opportunities to retrain the coal region’s
local workforce.
Technical assistance has been
provided for: policy dialogue on regional
economic development planning;a strategy for the development of
nationally accredited market-relevant
curricula; the development of aprogramme to develop redeployment
and retraining opportunities for asignificant share of the affected local
workforce; and the improvement of HR
policies and practices to foster genderinclusion. The programme also includes
the coordination and facilitation of
stakeholder meetings between ESM
trade unions, local civil society groups,
and other relevant stakeholders.

34 | Bridging divides: A guide on using catalytic capital for a global just transition

3. H ow can catalytic capital
support just transition funds?
This section provides practical advice for catalytic capitalproviders seeking to deploy catalytic capital through funds(and other investment vehicles) to help them mobilise
private finance and deliver just transition outcomes. It canalso be used by fund managers and advisors who design,develop and manage funds that include catalytic capital.
As outlined in section 2.2, direct
investment by private investors into justtransition aligned projects and businesses
in emerging markets remains challenging.
Investment through pooled investment
vehicles, such as funds, can therefore bean easier entry point for private investors.
Accordingly, initiatives including theG7 Impact Taskforce and the Sharm El
Sheikh Guidebook for Just Financing
launched at COP27 have called for thelaunch of funds dedicated to mobilising
private capital for a global just transition.
Funds offer a variety of advantages,
including the ability to aggregate
small and dispersed investments into

a common structure that allows forscale, and professional managementwith market access, expertise, anddiversification. Partnerships with local
fund managers also offer the opportunity
to contribute to the localisation
imperative of the just transition.
When providing catalytic capital throughfunds, there is a formal distinction to bemade between catalytic capital’s role in
the fund versus its role with regards tounderlying investments. For example, acatalytic capital provider might seek toseed a fund led by a first-time manager
based in an emerging market, while
the fund manager will make use of thecatalytic capital to help scale innovativesmall and medium-sized enterprisesthat contribute to a just transition. The
deployment of catalytic capital can set a
positive feedback loop in motion, where
the success of early vehicles and projects
funded by catalytic capital attracts moreinvestment to the space. This section
focuses on catalytic capital’s impact at
the fund level – the more general useof catalytic capital for just transition iscovered in section 2.
In addition to the Tideline framework
highlighted in section 2, the section builds
on the following frameworks:• the Blueprint for just transition
financing vehicles put forward by the
G7 Impact Taskforce, which provides
a common frame of reference forvarious contributors. The section is
structured as an annotated version of
the Blueprint with specific insights forcatalytic capital providers.36• the Just Transition Criteria, a fundmanager-focused tool developedby the Impact Investing Institute,which provides guidance on
how to integrate just transition
considerations in financing
vehicles across different classes.37

The Just Transition Finance
Challenge brings together global
financial institutions with over £4trillion of assets, or assets undermanagement who are committed
to financing a just transition to net
zero.
As part of the Challenge,
participants developed the Just
Transition Criteria, which provide
practical guidance on how to createor align financing vehicles that
advance all three elements of thejust transition.

www.impactinvest.org.uk | 35

This section is presented specifically from the perspective of catalytic capital providers
and those advising them in the deployment of catalytic capital (thereafter referred to as
catalytic capital providers). Other actors are invited to consult the above resources formore general advice on structuring just transition aligned funds.
Figure 6: Roles and responsibilities in a just transition vehicle

How to use this section

Catalytic capital providers

This section is framed as a seriesof considerations for catalytic
capital providers at each stage ofthe design and implementationof a fund, to help identify
opportunities for embedding
and furthering just transition
considerations.

Provide flexible, patient, risktolerant, and concessionary capitalto mobilise additional investment.

3.1 Ambition
3.2 Investment strategy
3.3 Outcomes framework
3.4 Structure
3.5 Governance
3.6 Operations
Opportunities to apply a justtransition lens apply in the majorityof asset classes, and they are
therefore presented as universal
considerations. There are also
specific considerations in applying
a just transition perspective in
different asset classes, which aresummarised in section 3.7.

Communities

Private investors

Emerging approaches
seek to give greater
control over fund designand operations.

Provide financing at the scaleneeded to achievea just transition.

Investees

Fund managers

Receive investment andgenerate the impact on target
stakeholders.

Design, develop, and manage funds
that have a clear impact thesis, meetboth environmental and social needsof affected communities, and have thepotential to scale.

36 | Bridging divides: A guide on using catalytic capital for a global just transition

3.1 A
 mbition
Context

A just transition-aligned ambition describes:

A vehicle’s ambition, or impact thesis,
is a high-level description of what thevehicle sets out to achieve through its
investments. Ambition can be expressed
as a statement or through a theoryof change.38• how the three elements of a justtransition are being addressed, basedon clear and concise parameters;• who will be affected, including thegeographic scope, environmental
scope, and socio-economic scope; and• what the fund will contribute to, while
understanding that each vehicle
will focus on distinct opportunities
and challenges and be part of a setof solutions. The ‘magnitude’ of theambition will depend on fund sizeand depth of impact sought. A clear
ambition or purpose makes it easier
to define target just transition
outcomes ‘ex ante’ (before investment)
at both an individual investment andportfolio level.

Example of just transition ambition statement
Just transition ambition
The fund aims to achieve profit withpurpose by combining market ratefinancial returns with intentional
positive environmental, social andcommunity impact. It does this byoffering appropriate, affordable, highquality clean energy to households,
businesses, and the grid in low-income
regions. The fund places a specificfocus on identifying companies that
seek to engage and benefit local
communities in their activities.
Statement
The fund aims to achieve the above
ambition through the following
activities in relation to the three justtransition elements:
1. Climate and environmental action:
financing the expansion andadoption of clean energy sources
through providing affordable andaccessible clean energy products toa range of consumers.

2. S
 ocio-economic distribution andequity: improving accessibility
to essential energy servicesof underserved and vulnerable
consumers who would otherwise
struggle to access reliableequivalent services due to identified
market failures, while prioritising a
local supply chain and living wage
employment or local equivalent.
3. Community voice: supporting
customer-centric companies thatdesign products and services
around the essential needs of thetargeted underserved and vulnerable
customer segments, incorporating
customer feedback and engaging
with local communities to identify
needs and opportunities related totheir activities.

www.impactinvest.org.uk | 37

Catalytic capital provider
opportunity
The fund’s ambition is a powerful entry
point for catalytic capital providers. They
can play the following key roles:• Support the integration of the threeelements of a just transition. Where
private investors take a climatefirst approach, catalytic capitalproviders can act to incorporate social
considerations and community voice.
Conversely, in geographies where
funding needs are most acute forsocio-economic development, catalytic
capital providers can help position afund to benefit from more climatefocused international investment.

• Ground the ambition of the vehicle
in the needs of the specified
geographies. Catalytic capitalproviders can support local needs
analysis or community surveys,
particularly through seeking to workwith local fund managers, who canbring in local knowledge, expertise, andnetworks to help ensure the ambitionof the fund meets local requirements.

Case study: Grounding the ambition in
the needs of people and places
The Climate Gender Equity Fund
(CGEF) is a public-private partnershipdesigned to leverage funding to scale
climate finance that advances gender
equitable climate action. Launchedwith an initial commitment of $6
million between the U.S. Agency forInternational Development (USAID)
and Amazon, CGEF seeks to leverage
at least $60 million in capital from
corporations, foundations, bilateraland multilateral development financeinstitutions, and other funders. In
September 2023, Reckitt and Visa
Foundation joined USAID and Amazon
as founding members of CGEF,
committing an additional $6 million to
the fund.
CGEF aims to increase access tofinance for the investment vehicles,

businesses, and community-basedorganisations developing and scaling
women-led and women-benefiting
climate solutions in emerging
markets where USAID operates.
Its initial funding round focuses on
grants to climate- and gender-smart
fund managers and incubators,
accelerators, and other supporting
entities aiming to unlock capital for
long-term and systemic change at
the nexus of gender and climate.
Multiple grants will be made to entities
strengthening these ecosystems,
such as emerging impact investment
funds and vehicles, networkorganisations, accelerators, and otherintermediaries supporting women
entrepreneurs working in climate
action.

38 | Bridging divides: A guide on using catalytic capital for a global just transition

3.2 Investment strategy
Context
An investment strategy refers to theprinciples guiding the fund manager’s
investments based on risk, return, andcontribution to the stated ambition. The
investment strategy and the investment
process describe how the stated justtransition ambition and target outcomesare achieved.

Just transition investment strategies
While recognising that some sectors,
such as renewable energy generation,energy efficiency, and sustainableinfrastructure, are traditionallyassociated with just transition
investments, the just transition is awhole of the economy imperativewith applications across all sectors.
Therefore, many strategies can havejust transition alignment – for example,
financial inclusion strategies targeting
microfinance investments, fintech,and climate adaptation insurance;
healthcare strategies that include
energy efficiency improvements;
green built environment strategies
that target educational and othersocial infrastructure; and strategies
that target the growing pool of naturebased solutions.
To help investors navigate the range
of investment strategies, the G7 Impact
Taskforce provided an indicative listof investment strategies that cancontribute to the delivery to thejust transition and are likely to be
most investable and familiar to
private investors.

1. Climate and environmental action• Greenhouse gas emission mitigation,
reduction, and removal• Adaptation and resilience• Biodiversity and natural capital –climate and environmental effects• Reduction of pollution or degradationof natural environments
2. Socio-economic distribution
and equity• Fair distribution of climate change
costs and benefits between
developed and developing
countries and between regions andcommunities within countries, basedon a place-based lens

• Inclusive opportunities for decent
jobs (including re-skilling wherejobs are lost), delivering fair income,security in the workplace, and social
protection for families• Accessibility and affordability of
products and services• Livelihood enhancement andsocial justice for all, across regions,communities, and individuals,
including marginalised andunderserved groups• Biodiversity and natural capital –socioeconomic effects
3. Community voice• Social dialogue and stakeholder
engagement through a participatory
voice and inclusion in decision
making for those affected andthose frequently excluded and/or
marginalised, including communities
and people

www.impactinvest.org.uk | 39

Catalytic capital provider
opportunity
Catalytic capital providers can play a
powerful role in ensuring the investment
strategy fully delivers on potential justtransition outcomes by:• Identifying and responding to the key
barriers to entry for private investors,
based on analysis of the risk/return
profile of underlying investments,
factors relating to the target
market(s), diversification, andportfolio composition.39• Assisting fund managers with thedesign of the investment strategy

and investment processes, includingalignment with explicit just transition
strategies and best practice in termsof investment selection, monitoring,and divestment; for example, byusing the Just Transition Criteria
as a framework.

• Assisting fund managers withexpertise and capacity in conducting
engagement with investees on justtransition matters.

• Supporting an ongoing feedback
loop that ensures community voicecontinues to inform the fund’s
operations throughout its lifecycle.

Case study: Deepening impact while
responding to local needs
KawiSafi Ventures (backed by
the Green Climate Fund and AXA
Investment Managers) manages a$67 million fund that tackles energy
poverty while helping to avert thelong-term climate crisis, by investing
in off-grid clean energy enterprises
to accelerate access for underserved,
off grid populations. It aims to deliverclean, affordable energy to more than
10 million people in East Africa, atleast half of whom are low-income,and displace more than a million
tons of carbon. KawiSafi has also
worked with 60 Decibels, an impact
measurement organisation withexpertise in bringing the voice ofthe end-beneficiary. Findings from60 Decibels’ surveys has informed
KawiSafi’s approach to impact
measurement, management,
and reporting.
In addition to its investments,
in 2020, the KawiSafi Ventures
Technical Assistance Facility (TAF)

was launched to further their socialand environmental impact byaddressing targeted market failures
or potential negative externalities
in the off-grid energy ecosystem.
The five-year programme was seededwith a $5 million grant from the Green
Climate Fund.
The TAF has two specific focus areas:(1) consumer protection to reduce
negative impacts on consumers ofoff-grid renewable energy productsin the case of financial distress,
significant disruption in supply,
obsolescence, or defunct products,and (2) specific projects that positively
impact women and girls. The useof the TAF has included supporting
consumers with low-repayment rates
on renewable energy products directly
attributable to the COVID-19 crisis andproviding specific training in solar PV
to low-income women in Kenya.

40 | Bridging divides: A guide on using catalytic capital for a global just transition

3.3 O utcomes framework
Context
A fund’s outcomes framework reflects
its just transition ambition and strategy.
A just transition outcomes frameworkcomprises clear targets and metrics
across all three elements of the justtransition. It will be applied at both theindividual investment and portfolio
level. At the individual investment level,a more detailed strategy or sectorspecific metrics may also apply. It
will be appropriate for the nature of
the fund’s asset class and may use,or be based upon, a framework andreporting methodology already usedby the fund manager – which may be
proprietary or widely recognised, suchas the International Finance Corporation(IFC) Operating Principles, the Impact
Management Project (IMP), the Global
Impact Investing Network’s (GIIN) IRIS+,
and the SDG Impact Standards.
Fund managers can refer to theappendices of the Just Transition
Criteria for an extensive list of common
disclosures and key performanceindicators that can be used for a justtransition outcomes framework.

It is important that just transition funds
investing in emerging markets are awareof, and sensitive to, the limited capacityof fund managers and investees toprovide data on desired metrics andcomply with reporting expectations,particularly the standards increasingly
applied by global investors.

Example of outcomesframework for a realestate fund
• Environmental considerations:e.g. energy efficiency up to
recent standards• Specific focus on a targeted
demographic group: e.g. tenants,
workers, and consumers,
including underserved or
marginalised clients or consumers• Community engagement withrespect to needs assessment,
procurement, and supply-chain
considerations: e.g.
local procurement

Catalytic capital provider
opportunity
Catalytic capital providers can help a justtransition fund’s outcomes reporting,particularly through the use of technicalassistance, by:• Supporting the capacity of fundmanagers and investees with

reporting requirements. This includes
helping fund managers navigate
reporting frameworks and standards
and enhancing their practices
where needed.

• Supporting integrity, accountability,
and transparency, by covering thecosts of third-party verification andamplifying published reports.

Case study: Measuring just transition outcomes
ResponsAbility’s Access to Clean
Power Fund seeks to achieve
and deepen the measurement,
management, and reporting on several
just transition-related outcomes
across its portfolio and in different
geographies. These include thenumber of people with access to clean
energy, number of products sold,
number of jobs created by gender,
number of management jobs andboard seats by gender, increased
economic activity, cost reduction
for small businesses, and increased
opportunities for women. It also has
a commitment to include and act on
feedback from affected communities.

The achievement of these outcomesis supported by the fund’s strong
local market presence, enabling aclose assessment of needs andopportunities. This includes on-site
due diligence visits and interviewsand engaging internal and external
experts to identify needs. The fundalso leverages data from initiatives
such as the Global Off-Grid Lighting
Association (GOGLA) to understandand monitor the impact of the fund in
relation to the full range of potential
benefits of improved energy accessand reliable electricity supply.

www.impactinvest.org.uk | 41

3.4 S
 tructure
Context
A just transition vehicle’s structure,
choice of asset class, and terms aredesigned to enable the strategy andtarget outcomes and allow for theparticipation of investors by addressing
their needs and any barriers.40
One of the benefits of a fund structureis that it enables the use of a range of
instruments to attract private capital.
Different types of structures playdifferent roles from a mobilisation
perspective. For example, a fund offunds can serve to reduce risk acrossa portfolio, while a multilayer capital
structure can bring in investors withdifferent risk profiles, including catalytic
capital providers and private investors.

Case study: Innovative structures for mobilisation
The Ci-Gaba Fund is a West Africafocused blended finance fund of funds
that is sponsored by Impact Investing
Ghana and managed by Savannah
Impact Advisory, a local fund manager.
The GHS845 million (~$75 million)
local currency vehicle is designed
to address the lack of investment inearly-stage funds that are providing
equity investments in SMEs. The
fund aims to address the massive
SME financing gap in Africa (~$331bn

according to the International FinanceCorporation). To do so, it aims to crowd
in local pension fund investment
through a catalytic de-risking portionof 30%-40% in philanthropic funding.
It will also prioritise investment throughexperienced and emerging fundmanagers across the West African
Sub-region with a gender-lens.
ResponsAbility’s Access to Clean
Power Fund, backed by several
catalytic capital providers, offers seniorand mezzanine debt to companies thatprovide access to energy solutions
for households and SMEs, and it also
actively looks to the solar potential forthe commercial and industrial sector.
The fund adopts a four-layer blended
capital structure, enabling different
investors to invest depending on
their willingness to take on risk.
The fund also features a technicalassistance facility for companies
needing targeted support.

Figure 7: Structure of responsAbility’s Access to Clean Power Fund
Public sector

Public and Private sector
Senior

Sub-Senior

Public and Private sector

Public and Private sector

Mezzanine

Junior

ACPF

responsAbility
Portfolio
Management

Businesses

IPPs

42 | Bridging divides: A guide on using catalytic capital for a global just transition

Catalytic capital provider
opportunity
Structures that can attract private capitalat scale can be complex to develop,
particularly when they seek to involve
catalytic, private, and local investors.
A common challenge is the mismatch
between the investments needed for ajust transition in emerging and frontiermarkets, which tend to be riskier andsmaller-scale, and the requirements ofprivate investors.
Catalytic capital providers can:• Act as a bridge between private
investors and investments, using
the instruments listed in section 2.1.
Catalytic capital providers can have astrong signalling effect by supportingand investing in unfamiliar structuresand facilitating engagement between
different parties.

• Facilitate innovation. By focusing on
the target outcomes in sectors andgeographies that mainstream capitalwould not otherwise reach, catalytic
capital providers create scope for thecreation of innovative fund structures.

• Connect with specialised support.
Catalytic capital providers can connect
managers with specialist services,such as insurance providers, that candevelop solutions to facilitate thetargeted private investment41.

Case study: Combining different catalytic instruments to
attract private capital and achieve outcomes
The BlueOrchard InsuResilience
Investment Fund (IIF) is structured in
an attractive way for private investors
while reaching underserved andvulnerable populations in emerging
and frontier markets. The IIF is anumbrella fund combining a private
debt sub-fund and a private equity
sub-fund with a first loss tranche from
KfW (on behalf of the German Federal
Ministry for Economic Cooperation andDevelopment).
The fund has a strong just transition
focus as it seeks to build out
an insurance ecosystem that
protects vulnerable people andmicroentrepreneurs in emerging andfrontier markets from the effects
of climate change. The strategy isimplemented through the provisionof growth capital (equity) and debt
investments focused on seeding andscaling local insurance providers
The fund reflects the needs of end
beneficiaries. A BMZ-funded grant
facility, which provides funding fortechnical assistance and premium
support projects, is made available

to investees. The fund organises
education workshops for prospect
investees to improve understandingof climate insurance and enablecommunication between stakeholders.
This helps to accelerate investment
and scale up climate insurance. The
grant-funded facility supported
surveys of users of insurance products
to ensure these are meeting needs.
GAWA Capital’s Kuali Fund is a €300
million private debt and private equity
fund supporting climate change
resilience in Latin America and Asia.
Kuali invests in financial institutions
and climate solution providers toincrease climate solutions suitable
for smallholder farmers and small
businesses. The fund aims to mitigate 7
million tons of CO2 (through mitigationand carbon sequestration derived
from nature-based solutions) and build
resilience for 600,000 smallholders
and small businesses. The fund targets
an IRR of 10% per annum (in euros).
The fund employs catalytic capitalprovided by Cofides (Spain’s DFI) and
AECID (the Spanish Development

Agency). An additional contribution
from the Green Climate Fund isundergoing due diligence. Private
investors include family offices,
pension funds and insurers. First-loss
tranches safeguard private investors’
contribution, requiring losses to exceed€50 million before they incur a loss.
Subsidised junior debt recoups on an
equal footing with private investors,
although at a lower rate 1-3% of return
per annum. Any excess returns go to
the private investors.
The fund includes a technicalassistance facility to amplify
environmental and social impact invulnerable communities. The fundengages with communities to identify
challenges in accessing climate
solutions, tailor technical assistanceprojects to needs and monitor impact.
The fund features a gender-sensitive
approach, with gender analysis,
women’s representation targets, andtraining programs to promote diversity
and inclusion. Kuali works locally with
EU and AECID delegations and localorganisations to implement technicalassistance projects.

www.impactinvest.org.uk | 43

3.5 G
 overnanceContext
A just transition fund embeds justtransition considerations throughout
its governance structure – the board,investment committee, advisorycommittee, or other applicable formalised
bodies – grounded in the policies foreach body. Accountability is soughtinternally and publicly: information about
the composition of a fund’s governancebodies is publicly available.
Importantly, the governance structureof a just transition fund incorporates
and represents different voices,
particularly the voices of communities.
Across the governance bodies, there is,ideally, representation from at least one
community member from among thecommunities the fund is targeting or aperson representing the communities.

For global or multi-regional funds, it may
be that a relevant NGO or community
expert provides this representation.
The governance structure of a justtransition fund vehicle invites intentional
dialogue across stakeholders, including
investors as well as local stakeholders
and communities. This interaction sparks
feedback and dialogue throughout the lifeof the fund.

Catalytic capitalprovider opportunity
As before, catalytic capital providers
can play a particularly powerful rolein supporting the incorporation ofcommunity voice and an ongoing
feedback loop.

Case study: Incorporating community
voice in governance
The participation of community
members in the governance offinancing vehicles targeting emerging
markets is still a nascent practice,
however, there are examples ofgood practice in other contexts.
One is the Oakland Fund, a placebased investment fund managed
by Pacific Community Ventures.
The fund provides accessible loans

to communities of colour in the
Californian city, with support
from various catalytic capitalproviders including the Universityof San Francisco. Members of thecommunity were actively involved in
the design and operation of the fund,through community workshops andfeedback sessions.42

44 | Bridging divides: A guide on using catalytic capital for a global just transition

3.6 O perations
Context
A just transition fund integrates justtransition considerations across its wholeinvestment lifecycle, from sourcing, toinvestment, to monitoring – seeking
to take a long-term view that extends
beyond the fund’s investment life.
It is good practice that all relevant staff
have sufficient training and capacity to
implement just transition considerations.
This includes investment professionals
and others, including ESG, impact, andrisk management specialists so that,together, staff can deliver a just transition
from pipeline building through to due
diligence and monitoring. It follows that
staff performance reviews and bonus or
incentive schemes include both financial
performance metrics and performance
metrics that can be tied to the deliveryof just transition targets.

Catalytic capital provider
opportunity
Catalytic capital providers can:• Advocate for the benefits ofgreater diversity in a fund, fromthe range of expertise in a diverse
team to the inclusion of people
with local market knowledge.

• Support training and technicalupskilling on just transition aspects.

• Encourage incentive structureslinked to the achievement of justtransition outcomes.

www.impactinvest.org.uk | 45

46 | Bridging divides: A guide on using catalytic capital for a global just transition

3.7 Asset
class catalytic
considerations
In addition to the catalytic
considerations listed above, which
apply across asset classes, eachfund will have specific opportunities
to enhance just transition alignment.
For catalytic capital providers whowish to go deeper in supporting theachievement of a just transition,
the asset-class specific catalytic
considerations below provide astarting point.43

Asset class

Example catalytic considerations

Fixed income• Clarity on green and social objectives, providing allocation expectations for both
• Prioritisation of bonds that align with all three just transition elements• Social and environmental assessment of the issuer, including its engagement with local communities

Infrastructure• Identification of who will be affected by infrastructure projects in the short term (in particular theconstruction phase) and in the long term (operational phase); those who benefit from infrastructure canchange over the long time horizons of infrastructure projects• Consideration of positive and negative externalities of each investment project across different
stakeholders and affected communities and population segments. Positive and negative externalities
are considered and addressed from the outset and tracked over time

• Clear positioning on the inclusion of local community considerations, including local quality employment
opportunities and health and safety considerations, as well as community engagement throughout
lifecycle of projects• Social considerations to supply chains• Specificity of green outcomes, including, for example, materials used, water usage or energy efficiency,
including also the supply chain, where possible• Debt service terms, including interest rate, amortisation and maturity, or return expectations, asapplicable, are fair and not overly burdensome, leading to availability, access, and affordability of funding
for local investees• Opportunity to sustain just transition alignment post investment exit
Private equity• Accessibility and affordability of equity terms, including fair investment valuations• Opportunity to sustain just transition alignment post investment exit

Private debt

• Debt service, including interest rate and repayment structure (e.g., bullet, amortising, flexible, seasonal),
is fair and not overly burdensome, leading to availability, access and affordability of credit for
local investees• Debt terms offered are appropriate with a view to local market building, aiming to attract other investors,
in particular local ones

www.impactinvest.org.uk | 47

Asset class

Example catalytic considerations

Real estate• Identification of the local market gaps and needs (for example, housing) and how the targeted realestate investments support the closing of a gap, including engagement with local communities• Clarity on who will be affected by the real estate projects in the short term (in particular, theconstruction phase) and in the long term (operational phase). The targeted clientele is specified basedon price and affordability, location / catchment area, size and finish, among others• Consideration of positive and negative externalities of each investment project across different
stakeholders, affected communities, and population segments. Positive and negative externalities are
considered and addressed from the outset and tracked over time

• Clear positioning on the inclusion of local community considerations, including (short- and longterm) local quality employment opportunities and health and safety aspects, as well as community
engagement throughout lifecycle of projects• Specificity of green outcomes, including, for example, materials used, water usage or energy efficiency,
including also the supply chain, where possible• Social considerations to supply chains• Debt service terms at the investee level, including interest rates, amortisation and maturity, or return
expectations, as applicable, are fair and not overly burdensome, leading to availability, access, andaffordability of funding for local investees• Opportunity to sustain just transition alignment post investment exit

48 | Bridging divides: A guide on using catalytic capital for a global just transition

Appendix

www.impactinvest.org.uk | 49

Just transition fund checklist
The below checklist summarises practical considerations for catalytic capital providers
who seek to support a global just transition through funds.
1. Ambition
Clarify or increase the ambition of the fundacross each of the three elements of the justtransition – climate and environmental action;socio-economic distribution and equity; andcommunity voice.
Help ground the ambition of the fund in the local
context of the specified geographies, including
environmental and socioeconomic needs.

4. Structure
Act as a bridge between private investors
and investments.
Facilitate innovation.
Connect with specialised support.

2. Strategy

3. Outcomes framework

Identify and respond to the key barriers to entry
for private investors.

Support the capacity of fund managers
and investees with reporting requirements.

Assist fund managers with the design of theinvestment strategy and investment processes,
including help building expertise and capacity forinvestee engagement.

Support integrity, accountability, andtransparency, by covering the costs ofthird-party verification and amplifying
published reports.

Support an ongoing feedback loop that ensurescommunity voice continues to inform the fund’s
operations throughout its lifecycle.
5. GovernanceSupport the incorporation of community voice
and an ongoing feedback loop.

6. Operations
Advocate for the benefits of greater diversity
in the fund.
Support training and technical upskilling on justtransition aspects.
Encourage incentive structures linked to theachievement of just transition outcomes.

50 | Bridging divides: A guide on using catalytic capital for a global just transition

Endnotes1

 he Rockefeller Foundation and Boston Consulting Group
T(2022): What Gets Measured Gets Financed: Climate FinanceFunding Flows and Opportunities18 inistry of International Cooperation, Arab Republic of Egypt
M(2022): Sharm El Sheikh Guidebook for Just Financing; G7
Impact Taskforce (2021): Mobilising Institutional capital
towards the SDGs and a Just Transition

2

3

Impact Investing Institute: Case studies4

 he International Labour Organisation: Frequently Asked
T
Questions on Just Transition5

World Bank (2021): World Bank Country and Lending Groups
Reflecting the state of funding need, current market practice andthe expertise of stakeholders engaged, this guide paid particularattention to investments in Sub-Saharan Africa and South andSoutheast Asia. Learnings are nevertheless applicable, with due
consideration to the local context, to other geographies.

619See Climate Action Network (2023): Briefing: Can the new
global financing pact summit deliver on climate justice?
and Daniel Gerszon Mahler, Philip Randolph Wollburg andStéphane Hallegatte (2023): The climate implications ofending global poverty for a summary of these discussions andthe links between climate action and broader socioeconomic
development.
 he African Climate Foundation: Energy access andTtransitions

20

S ee Intellidex (2023): Funding Social Justice in the Energy
Transition21

 ee for example the Donor Statement on Supporting LocallyS
Led Development backed by 36 leading development funders
and foundations.

22See OECD (2022): Global Outlook on Financing for Sustainable
Development 2023

7

 ideline (2019): Catalytic Capital: Unlocking More Investment
T
and Impact

23

IPCC (2018): Summary for Policymakers. In: Global Warmingof 1.5°C. PC

8 or an example of a private investor providing catalytic capital,F
see Convergence (2019): WaterCredit Investment Fund 3 Case
Study. Bank of America provided a $5 million zero-interest
facility within this blended structure investing in financial
institutions and enterprises that increase access to safe waterand sanitation services in emerging and frontier markets.

24See OECD (2022): Global Outlook on Financing for
Sustainable Development 2023. and Climate Policy Initiative(2022): Global Landscape of Climate Finance: A Decade ofData. Responsible investment practices seek to integrate
environmental and social factors in investment decisions, while
impact investing seeks to contribute to delivering positivesocial and environmental outcomes alongside a financial return.

9G ood Governance Institute: Defining communities

10U NFCCC (2022): Sharm el-Sheikh Implementation Plan

11U
 NDP (2022): How Just Transition Can Help Deliver the Paris
Agreement

12See We Mean Business Coalition (2023): Business in the justtransition: Why, what and how? for an overview.

13

IHRB (2021): What is just transitions? ; see also Van Deventerand Schultz (2023): Framing the concept of “transitioning in”
and “transitioning out”.

14See ILO (2022): Just transition finance tool for banking andinvesting activities for a further exploration of just transition
actions at the company-, subnational/regional-, national andglobal level.

15See MDB Just Transition High-Level Principles; EBRD: Just
Transition Initiative; PIDG strategy 2023-2030

16

C eniarth (2023): 2022 annual report17

 ee OECD (2022): Green, social, sustainability andSsustainability-linked bonds in developing countries: how candonors support public sector issuances? for an explorationof causes.

25See Convergence (2023): Blended Finance & Leveraging
Concessionality

26

B oston Consulting Group (2023): Global Asset Management
Industry Must Transform to Thrive Amidst Changing
Macroeconomics

27

 or example, a survey of 120 financial institutions conductedF
by Fidelity International showed an overwhelming majority(91%) believed that investing with a just transition approach
would have an overall positive impact on risk and return profiles
in the long term. Despite this recognition, only 42% of investors
were familiar with the term of just transition itself, suggesting
significant further opportunities for awareness raising. See
Investment Week (2023): Investors lack understanding andconviction for ‘just transition’ economy ambitions. See also
African Development Bank (2022). Financing a Just transitionin Africa: Challenges and Opportunities and United Nations
Development Programme (2023): From Fragmentation to
Integration: Embedding Social Issues in Sustainable Financefor further perspectives on the recognition of social factors byprivate investors.

28

29

 NPRI: Statement of Investor Commitment to Support a Just
U
Transition on Climate Change and Impact Investing Institute:
Just Transition Finance Challenge.

39For a complete list see G7 Impact Taskforce (2021): Mobilising
Institutional capital towards the SDGs and a Just Transition

40

General advice on how to reflect these imperatives in the
structuring of a vehicle can be found in the Guidance Notes
on the seeding, scaling and sustaining roles of catalytic capital
published by the Catalytic Capital Consortium.

41

 ee for example Matrix Global (2023): Achieving carbon
S
neutrality: the dilemma of blended finance vs. Commercial
profit and the role of the insurer to help effect a justtransition. Matrix Global designs proprietary insurance
solutions for banks, funds, investors and private equity clientswith the purpose of adjusting and reducing risks to enable
investors to access finance, re-risk investments, and enhance
the security of their transactions and investments.

42

Readers looking for more information on community
engagement in a financial context can refer to Impact
Investing Institute (2023): Fostering impact: An investor
guide for engaging communities in place-based impact
investing, which provides a step-by-step guide to community
engagement and examples of funds doing community
engagement in practice.

43

Further details on asset class considerations in thedevelopment of just transition finance vehicles are available
in the G7 Impact Taskforce (2021): Mobilising Institutional
capital towards the SDGs and a Just Transition

 hurch of England (2022): Emerging Markets Just Transition
C
Investment Initiative: Guiding Principles 

30OECD (2022): Pension Markets in Focus

31

S overeign Wealth Fund Institute: Rankings by total assets

32

 or example, recent regulatory changes in South Africa
F
expanded the range and allocation limits for investments
in asset classes such as infrastructure and private equity
for South African pension funds, and other similar efforts
are underway in other emerging and frontier markets. See
South African Government (2022). Treasury Publishes Final
Amendments to Regulation 28 of the Pensions Fund Act.

33

 ee Tideline (2019): Catalytic Capital: Unlocking MoreS
Investment and Impact and the three Guidance Notes on
the seeding, scaling and sustaining roles of catalytic capital
published by the Catalytic Capital Consortium. 34 hile definitions of catalytic capital traditionally did notWinclude instruments such as grants, as they do not constituteinvestment capital, their widespread use alongside catalytic
capital has led to their inclusion in evolving definitions.
In addition, certain catalytic instruments, such as grants
deployed as capital into transactions, can blur lines between
these definitions and might be considered as falling underthe broad umbrella term of catalytic capital. For a further
exploration, see Catalytic Capital Consortium (2022):
Frequently Asked Questions about Catalytic Capital. 

35For example, research by the United Nations Conference
on Trade and Development (UNCTAD) and the World Bank
suggests that projects that engage local communities are more
likely to be successful in the long term. See UNCTAD-WorldBank (2018): Community Engagement Strategies in RAI
Knowledge Into Action Notes and Impact Investing Institute(2023): Fostering impact: An investor guide for engaging
communities in place-based impact investing for an overview
of evidence on community engagement.

36

 obilising institutional capital towards the SDGs and a Just
M
Transition, section 3

37

Impact Investing Institute (2023): Just Transition Criteria

38

A theory of change is a conceptual model used to describe andmap how specific inputs and activities lead to positive change,measured in terms of ‘outputs’ and ‘outcomes’. This includes acomprehensive description and illustration of how and why adesired change is expected to occur in a particular context.

www.impactinvest.org.uk | 51

Acknowledgements
We would like to thank the Catalytic
Capital Consortium and in particular
Urmi Sengupta and Stacy Xiao for theirfunding and support for this project
and the catalytic capital agenda more
broadly. We would also like to extend
our deep gratitude for the valuable
contributions from various stakeholders
across the investing ecosystem,
especially to those people who havebeen particularly generous with theirtime by contributing to the case studies
as well as sharing their experienceand insights at various workshops andevents, through one-on-one interviews,
and written responses.
These include Africa Investor, Aspen
Network of Development Entrepreneurs(ANDE), BlueOrchard, Chemonics UK,
Children’s Investment Fund Foundation(CIFF), Climate Action Investment Fund(CAIF), Collaborative for Frontier Finance(CFF), Courageous Capital Advisors, theEuropean Bank for Reconstruction andDevelopment (EBRD), Financial Sector
Deepening (FSD) Africa, GAWA Capital,
the Global Steering Group for impact
investment (GSG), Grameen Capital, The
Green Outcomes Fund, ILX Fund, Impact
Investing Ghana, Impact InvestingSouth Africa, Inspired Evolution,
KawiSafi Ventures, Matrix Global,
NABII, P4G, Pacific Capital Ventures,
Private Infrastructure Development

Group (PIDG), RBN Fund Managers,
ResponsAbility, Social Finance NL
and the Taskforce on Sustainable
International Development.

Contributors
Impact Investing InstituteBaafour Otu-Boateng, Lead Expert; Bella
Landymore, Policy and Strategy Director;
David Krivanek, Senior ProgrammeManager; Hanan Arman, Programme
Officer; Jamie Broderick, Lead Expert
and Deputy Chair; Kieron Boyle, Chief
Executive; Lizzy Robins, Events Manager;
Riah Knowles-Brock, Programme Officer;
Sophia Omar, Programme Manager;
Steffi Dawoud, Communications andEngagement Manager.
KruthamJana van Deventer, Research Manager; Dr
Cecilia Schultz, Senior Researcher.

DesignToast Design

Feedback
The production of this guide has been
an iterative and collaborative endeavour.
We welcome feedback on the guide andfurther cases studies of best practice of
deployment of catalytic capital for a justtransition. Feedback can be submitted tojusttransition@impactinvest.org.

How to cite
Impact Investing Institute (2023):
Bridging divides: A guide on using
catalytic capital for a global just transition.

Disclaimer
Information and case studies in this guideare provided for information only andshould not be interpreted as constituting
investment advice or any regulated
activity. The information and figures
provided are accurate as per the latest
information publicly available and / ormade available to the Institute for the
purpose of this research.

www.impactinvest.org.uk© 2023 Impact Investing Institute. All rights reserved.