Making things happen

Insuf­fi­ci­ent capi­tal is not always the problem. The chall­enge often lies ensu­ring it’s correctly allo­ca­ted – and this is where blen­ded finance comes in: mixed forms of finan­cing combine funds from diffe­rent sources, faci­li­ta­ting projects that would other­wise fail due to the level of risk. ‘We under­stand blen­ded finance to mean using public funds to mobi­lise private funds,’ explains Simon Tribel­horn, Mana­ging Direc­tor of the Liech­ten­stein Bankers Asso­cia­tion. This can be a promi­sing approach, parti­cu­larly in deve­lo­p­ment coope­ra­tion. Count­ries with poor credit ratings or uncer­tain poli­ti­cal condi­ti­ons often pose too great a risk for inves­tors. ‘We see blen­ded finance as a way to mini­mise risks and model returns in line with the market,’ he says. When public bodies bear the first risks, private capi­tal may follow – making it possi­ble to imple­ment projects that would other­wise never see the light of day.

This allows larger volu­mes to be gene­ra­ted and means that projects can be scaled.

Simon Tribel­horn, Geschäfts­füh­rer
des Liech­ten­stei­ni­schen Bankenverbands

Under­stan­ding success correctly

The model works in tran­ches: deve­lo­p­ment agen­cies and foun­da­ti­ons cover the riskier first-loss tran­ches, which are prima­rily aimed at gene­ra­ting impact, not returns. ‘Private inves­tors only get invol­ved when they have a certain level of protec­tion,’ says Tribel­horn. This bedrock is what makes the commit­ment of family offices or insti­tu­tio­nal inves­tors wort­hwhile. ‘This allows larger volu­mes to be gene­ra­ted and means that projects can be scaled.’ Rudolf Hilti, foun­der of The System Change Foun­da­tion and Rhei­nest, goes further in his view of blen­ded finance. ‘For me, it’s about deli­bera­tely mixing diffe­rent factors, market powers and finan­cing opti­ons to pave the way for change in the first place.’ Hilti draws a clear distinc­tion between impro­ve­ments and chan­ges. The fact that impro­ve­ments can be plan­ned makes them attrac­tive for compa­nies. Chan­ges, by contrast, involve a great deal of unknown and unpre­dic­ta­ble elements, but you can adapt to them and prepare for them. Real change requi­res the courage to try new things and the willing­ness to give up the fami­liar and venture into the unknown. ‘This includes admit­ting that mista­kes are being made,’ he says. This is where a purely private-sector approach reaches its limits. Hilti says that, even in the past, most of the biggest inno­va­tions only came about thanks to mixed finan­cing approa­ches: ‘All the major tech­no­lo­gies usually have a back­ground that was not shaped commer­ci­ally, but arose from the inte­rests of society,’ says Hilti. Tech­no­lo­gies such as the Global Posi­tio­ning System (GPS) were deve­lo­ped with state funds for mili­tary purpo­ses before they bene­fi­ted civil society. Just because compa­nies then use these inno­va­tions in their busi­ness model does not mean that we can ignore the finan­cing that made them possi­ble. ‘We need these kinds of pots to gene­rate inno­va­tions for the future, for the envi­ron­ment and for social chal­lenges,’ he says. It is important that the funds are used in a targe­ted manner, with them being selec­ted in a conscious, focu­sed way. ‘We also need the coope­ra­tion of large sources of private funds, such as foun­da­ti­ons or family busi­nesses – and dona­ti­ons from them – if we want to make long-term decis­i­ons,’ says Hilti. ‘After all, it doesn’t matter whether it’s a for-profit company or a non-profit orga­ni­sa­tion. What counts is whether the outcome makes sense.’ Having an under­stan­ding of success is important to him. ‘Indi­vi­dual success should serve the coll­ec­tive,’ he empha­si­ses. ‘The worst thing for me is when people have made a lot of money because others have lost money.’ For him, true success means crea­ting real added value for the envi­ron­ment and the world around us. This kind of progress can also be cele­bra­ted and it is legi­ti­mate to earn money from it, because the person who crea­ted the value only keeps a frac­tion of the over­all bene­fit for them­sel­ves. True success is a stimu­lus that shapes the future in a meaningful way, be it from a non-profit, for-profit or a connec­tion, because true change requi­res deter­mi­na­tion and a willing­ness to pool resour­ces and risks.

Impact and returns

Simon Tribel­horn is working on a large fund. He is also Mana­ging Direc­tor of the Life Climate Foun­da­tion, which aims to raise aware­ness of climate protec­tion and envi­ron­men­tal sustaina­bi­lity. Toge­ther with UNICEF and the Univer­sity of Liech­ten­stein, the foun­da­tion is model­ling a fund that was laun­ched as a pilot three years ago. It is expec­ted to have an initial volume of CHF 50 to 70 million and func­tion like an umbrella struc­ture. The fund is inten­ded to bring toge­ther diffe­rent inves­tors: some of whom focus on impact, while others care about returns. ‘This would be the first blen­ded finance struc­ture to be set up here in the coun­try. We want to use this struc­ture to break down the diffe­rent cate­go­ries of inves­tor,’ says Tribel­horn. This has an impact beyond finan­cial feasi­bi­lity: the approach streng­thens dialo­gue and under­stan­ding between the diffe­rent inves­tors. ‘In the finan­cial sector, I think we have a very limi­ted under­stan­ding of what goes on in the deve­lo­p­ment world,’ says Tribel­horn, adding, ‘conver­sely, deve­lo­p­ment agen­cies have little know­ledge of how private and insti­tu­tio­nal inves­tors think and what they need in order to invest in the first place.’ Blen­ded finan­cing also promo­tes the sustaina­bi­lity of the commit­ments in ques­tion. Reports on the impact on people or the envi­ron­ment can be of inte­rest to the finan­cial sector, while, in turn, know­ledge about the econo­mic viabi­lity of funded projects and orga­ni­sa­ti­ons helps the Deve­lo­p­ment Agency. 

Indi­vi­dual success should serve the collective.

Rudolf Hilti, Foun­der of The System
Change Foun­da­tion

Time to be serious

Rudolf Hilti is criti­cal of tradi­tio­nal phil­an­thro­pic funding. ‘It’s often too much about the people who want to donate and do good. But it should actually be about doing good and doing it well, such that doing good inspi­res rather than binds,’ he says. Nevert­hel­ess, he sees poten­tial for phil­an­thro­pic foun­da­ti­ons. If they take a serious stance on envi­ron­men­tal and social issues, they can make a signi­fi­cant contri­bu­tion to brin­ging about change. To do this, it’s important to have the right people on the board of trus­tees. Rather than those who focus on mini­mi­sing risk, you need curious minds from a wide range of areas. I’d rather have people, like coaches or mentors, in a foun­da­tion who reco­g­nise poten­tial,’ he says. When foun­da­ti­ons trust, they can have a huge impact. The important thing is that someone is willing to take the risk. ‘If you wait until the market is ready, if no one steps forward and is crazy enough and just takes the plunge, no new markets are crea­ted,’ he says. When foun­da­ti­ons build trust through their work and take on risks, other inves­tors can build on this and raise addi­tio­nal funds more easily. And if inves­tors make the best choice, the money acts as a cata­lyst for change, says Hilti. It has a long-term effect: ‘It doesn’t fade away into obscu­rity; it beco­mes a long-term trend,’ says Rudolf Hilti.