Case Study

Climate Investor Two

The importance of grants or public funds to ‘prime the pump’ for private investment in infrastructure resilience
Country/Geographic region Kenya/Sub-Saharan Africa

Thailand/East Asia & Pacific

Global Program
Country Income Level Classification Lower-Middle Income Country

Upper-Middle Income Country

Hazard(s) mitigated Water salinization due to sea level rise (climate adaptation included)

Water contamination from pollutants (climate adaptation included)

Type of financing Debt/Grant (Blended Finance)
Type of governance Public Utility
Lever of change Decarbonization (for both projects)
Main Actors ●        Climate Fund Managers (CFM)
●        Finance Development Company (FMO)
●        SNV Netherlands Development Organization
●        World-Wide Fund for Nature
●        Solar Water Solutions
●        Azur
Case study Summary Climate Investor Two (CI2) is an infrastructure fund using a blended finance approach that invests in private equity water, water-based energy, and ocean infrastructure projects in emerging markets.
Key Takeaways ●        CI2 closed its first round at $675 million in November 2021 with an innovative financing structure composed of three stages: a development fund, a construction equity fund, and a climate credit fund.
●        Blended finance was an enabler to accelerate the development of, and subsequent investment in, resilience solutions like solar-powered desalination units in Kenya and two waste-to-energy facilities in Thailand.
●        The fund’s management and advisory boards guide the investment strategy providing independent governance, which optimizes the capital allocation framework.

Program Rationale

Climate Fund Managers (CFM) is an investment manager that offers green assets to institutional investors at market rate returns in both private debt and private equity. It uses blended finance to attract public and private capital to projects mitigating climate change and building resilience in emerging economies to the consequences of climate change. It was established in 2015 as a joint venture between the Finance Development Company (FMO), the Dutch development bank, and Sanlam Infraworks, an infrastructure specialist. Its goal is to respond to three market barriers for sustainable development (1) protracted project construction timelines due to a lack of appropriate financing, (2) high cost of capital because of perceived market risk, and (3) green investment opportunities for private investors.

CFM’s first fund is Climate Investor One (CI1) – a $930 million infrastructure fund investing in private equity in renewable energy assets, focused on developing renewable energy infrastructure projects across Africa, Asia, Latin America, and the Caribbean. Climate Investor 2 (CI2) was established in 2019 as a follow-on project between FMO and Dutch non-profits SNV Netherlands Development Organization and the World-Wide Fund for Nature of the Netherlands.

Like CI1, CI2 has a blended fund structure but shifts the investment focus from only mitigation to adaptation and mitigation. CI2 focuses on three thematic areas: water, water-based energy, and oceans, including: municipal and industrial water and wastewater supply, desalination, bulk water supply, waste and wastewater to energy, and riverine and coastal ecosystem management and protection. CI2’s investments aim to build community resilience through increased adaptive capacity to climate stresses and by addressing climate risks and vulnerabilities identified during project development.

Program Development

The investment criteria and capital allocation framework are governed by CFM and its founding shareholders. CI2’s governance approach was built from CI1’s model. The fund is comprised of two separate legal entities – the Stichting Development Fund and Coöperatief Construction Equity Fund U.A., both of which have delegated day-to-day management authority on decision-making to CFM. Governance structures include a Funds Advisory Board, which has extensive representation of both the donor and commercial investors, and two independent investment committees which approve final investment decisions taken by the Development Fund and Construction Equity Fund. Together, these legal entities, the Fund’s investment committees, and the advisory board guide the investment strategy. 

Program Implementation

CI2 is structured to finance projects across three stages: 1) a development fund (DF), 2) a construction equity fund (CEF), and 3) a climate credit fund. The DF is a wholly concessional capital pool funded by donor contributions that aims for capital preservation and mobilizes private capital into the CEF (see Figure 7). The DF offers up to 50% of the planning and development costs of the projects along with technical assistance. CI2 extended development funding into a number of projects, all of which have a climate mitigation benefit, climate adaptation benefit, or both. CI2 uses a preferred investment criteria to select cases.[i]

Equity financing of up to 75% of construction costs is available under the CEF. The CEF is tranched into three tiers with unique risk-return profiles, thereby creating a revenue distribution waterfall where senior investors receive returns first before remaining gains flow down to more junior investors. The most senior tier (USD 400 million) of the CEF earns a AAA-rated fixed return and targets institutional investors seeking large ticket sizes. In November 2021, CI2 reached first close at $675 million. The second tier of commercial investors and first-year concessional capital have final targets of $400 million and $200 million each. CI2’s credit fund (USD 1 billion), yet to be launched, can cover up to 50% of post-construction debt in the operational phase.

Two notable projects implementing climate resilience infrastructure from CI2 are Solar Water Solutions (SWS) in Kenya and Azur in Thailand.  CI2 is working with SWS to provide development and construction equity capital for stand-alone solar-powered desalination units in Kitui County, Kenya. CI2 has invested nearly $2 million in the project, which is expected to treat 1,667 m3 of water per day, bringing improved drinking water to 22,500 people. This project provides a climate adaptation solution by providing access to clean water, building resilience against physical climate risks from freshwater sources in Kenya becoming salinized due to sea level rise.

In northern Thailand, CI2 is working with Azur Pacific Capital Management to develop two waste-to-energy facilities that will incinerate an estimated 570 tons per day of municipal solid waste each, generating a combined 20 MW of power. CI2 has invested up to $5 million to help ramp up the project past its early-stage development into conducting more in-depth feasibility studies and gain approval from Thailand’s Ministry of Interior to secure the solid waste. The project is explicitly funded to support climate mitigation and sanitation and proper management of waste, which is critical to mitigating toxic contamination of ground and surface water that could occur from flooding as Thailand is one of the ten most flood-affected countries in the world.


Date/Period Description Actors Involved
2014-2015 Climate Investor One (CI1) is endorsed by the Global Innovation Lab for Climate Finance (the Lab) Finance Development Company (FMO), Sanlam Infraworks, Climate Policy Initiative
2015 Climate Fund Managers (CFM) was established to manage CI1 FMO and Sanlam Infraworks
2016 Government of the Netherlands provides CFM bridge-capital to focus on staffing and pipeline generation and CI1 signs its first term sheet for a 15MW solar PV facility Government of the Netherlands and Climate Fund Managers (CFM)
2017 CI1 announces its first close at $412 million and approves its first development fund for the Tra Vinh Wind Project in Vietnam CFM
2018 Green Climate Fund approves $100 million investment into CI1 finishing its third close at $535 million. The first CI1 Construction Equity Fund (CEF) deal is also approved for a commercial and industrial solar PV platform in conjunction with Cleantech Solar Green Climate Fund, CFM
2019 CI1 reaches its final close at $850 million and CFM’s second, adaptation-focused fund, CI2 is launched FMO, SNV Netherlands Development Organization, and the World Wide Fund for Nature
2020 CI2 project in Kenya, Solar Water Solutions, begins development CFM, Solar Water Solutions
2021 CI1 completes 9 project assets under development with 6 equity transactions successfully closed. CI2 announces first close at $675 million. CFM

Lessons Learned

CFM’s CI1 and CI2 funds provide a replicable model to increase capital flows towards the renewable energy and adaptation sectors. Their experience demonstrates three insights related to innovative finance regarding how to facilitate sustainable growth in developing economies.

  • Aligning investment instruments to focus on distinct risk periods in the project lifecycle lowers the cost of capital and accelerates timelines. This is known as fit-for-purpose financing, and it remains rare among blended finance instruments in the market. This set-up replaces the need for project developers to arrange a mix of assistance packages from donors in the preparation phase and avoids the prohibitive costs and strict terms of debt financing for construction.
  • A governance structure that can aggregate many projects is critical to attract institutional investors at scale and deliver projects locally. CFM’s fund structure aggregates the development of individual projects to meet the investment return expectations of large investors and can deliver large ticket sizes – a central challenge in attracting private investors to developing countries. This structure also allowed CFM to access large-scale institutional investors by encompassing different technology types, geographies, and stages of the project finance cycle. To do so, CFM’s multi-governance structure is flexible and modular. Each component of the structure is focused on a specific aspect of project delivery, which allows the fund to aggregate projects for investors yet assist in the delivery of local projects. Leadership (CFM and Funds Advisory Board) oversees the collation of projects that are high-impact and will attract investment. Following successful rounds of investing, these projects are transferred to international partners, who assist in the development and execution of the project.
  • Flexibility and adaptability in transaction design can prove critical to successful fundraising. This includes structuring different fund terms for concessional and commercial investors to reconcile the differing mandates of impact vs. return-oriented investors. Examples include the integration of a first-loss mechanism into the repayment waterfall and establishing a wholly concessional development fund to expedite a project’s progress into the construction phase, thereby mitigating the high-perceived risks of the project pre-construction phase.

[i] Criteria include LIMC status, a minimum ticket size of 10 million, and 25% or more of equity contribution toward construction costs.

Read more case studies...

Filter by