Climate Finance
Catalytic capital
Investment accepting disproportionate risk or lower returns in order to attract additional capital.
Catalytic capital is deployed to change a market's risk perception. By taking first loss or accepting sub-market returns, it demonstrates viability and draws in investors who would otherwise wait.
The test of success is mobilisation: how much additional commercial capital followed. Without that, catalytic capital is simply a subsidy.
Frequently asked questions
Does it require a return at all?
Often a below-market return, and sometimes capital preservation rather than profit.
How is impact measured?
By leverage ratios and by whether the market continues without the concession.