By Gerelyn Terzo, Global AgInvesting Media
The GAIA Climate Loan Fund, co-founded by Japan’s MUFG, FinDev Canada and the Green Climate Fund (GCF), has achieved a successful first close with $600 million. Buoyed by cornerstone commitments from impact-focused investors and fund partners MUFG, FinDev Canada and the Green Climate Fund, the capital raising signals a step forward toward mobilizing long-term capital for climate adaptation and mitigation in emerging markets most vulnerable to climate risk.
Targeting a final fund size of $1.48 billion by 2027, GAIA is designed to help narrow the finance gap while advancing bankable projects that strengthen resilience, support low carbon growth and attract institutional investors. Managed by Climate Fund Managers, GAIA is also supported by Pollination, a global advisory firm focused on climate and nature.
The GAIA facility is blazing a new trail in climate finance by extending long-term loans to public sector borrowers in almost two-dozen emerging and developing markets, including national and local governments, development banks and state owned utilities. At least 25 percent of the capital will be directed to the most vulnerable economies, where climate adaptation funding is scarcest. No less than 70 percent of the fund will target projects such as climate smart agriculture, water and ecosystem resilience and infrastructure, with the balance supporting mitigation efforts like renewable energy and low carbon transport.
The fund’s capital structure is anchored by a senior commitment from MUFG, which also serves as the origination partner to drive deal flow. FinDev Canada bolsters this foundation with a blend of senior and junior capital, complemented by grant funding to enhance the foreign exchange (FX) and technical assistance (TA) facilities. Rounding out this strategic alliance, the Green Climate Fund delivers essential junior capital, enabling climate adaptation and mitigation projects to deliver a long-term impact throughout emerging markets.
Once fully deployed, GAIA is expected to reach roughly 19 million people while supporting local communities with jobs. The portfolio is designed to avoid about 30 million tons of carbon dioxide equivalent each year while adding approximately 700 MW of renewable capacity and generating roughly 36,000 GWh of clean power annually, all while strengthening the climate resilience of more than 5,000 square kilometers of land and the natural assets it holds.
To achieve this, the fund uses a blended finance model that brings public and private capital into the same fund, with attractive concessional capital used to offset risk. It is organized with a junior tranche from concessional partners and a senior tranche for market rate or commercial investors, supported by an FX facility to enable local currency lending and a technical assistance window to improve project preparation, ESG performance and overall impact.
Christopher Marks, Head of Growth Markets, Innovative Finance and Portfolio Solutions, EMEA, at MUFG stated, “Achieving first close of GAIA is a major milestone in our ambition to help bridge the climate finance gap through an innovative public-private platform. As origination partner, MUFG will leverage its global network to source high-impact projects that improve lives and livelihoods in developing and emerging economies.”
FinDev Canada CEO Lori Kerr commented, “By combining commercial and concessional capital, alongside grant funding for technical assistance and FX facilities, FinDev Canada is accelerating the mobilization of critical investment and enabling local-currency lending where it is needed most, maximizing the impact of every development dollar.”
Green Climate Fund Executive Director Mafalda Duarte said, “GAIA stands to show that adaptation in the world’s most climate-vulnerable regions can yield returns for global investors and communities facing the harshest impacts of the climate crisis. GCF is committing up to $150 million as a first-loss investor to anchor a platform set to mobilize nearly ten times that amount for resilience across Africa, Asia and Latin America.”
Climate Fund Managers CEO Andrew Johnstone shared, “GAIA marks an important step in CFM’s evolution – extending our blended finance model beyond private equity into private credit for the first time, enabling us to provide long-term funding for adaptation projects that build the resilience of climate-vulnerable communities.”
Efforts to help communities withstand climate impacts have long drawn primarily from public funds, which have been constrained amid the realities of tight budgets and other pressing demands. They have struggled with challenges in attracting private investment due to uncertainties. GAIA is looking to flip the script by directing private credit toward public and quasi-public entities, closing a persistent shortfall in climate adaptation finance while easing the scarcity of resources for the infrastructure hit hardest by climate risks. This blended approach is designed to usher institutional capital into and pave the way for sustainable progress where it is needed the most.
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