African Infrastructure Leader Sanlam Pioneers Bridge-to-Bond Climate Finance Structure in €205M EU-Backed Deal Supporting Water and Sanitation Projects Across Emerging Markets

Sanlam Alternative Investments, one of Africa’s largest and most experienced alternative investment managers, has completed a landmark transaction that positions South Africa at the forefront of innovative climate finance structuring for emerging markets. The firm has provided a bridge facility to Climate Investor Two, a blended finance platform focused on water, sanitation, and oceans infrastructure projects across developing economies in Africa, Asia, and Latin America—sectors facing acute climate-related risks and chronic underinvestment despite their fundamental importance to human development and economic resilience.

The transaction introduces a pioneering Bridge-to-Bond mechanism backed by a €205 million guarantee from the European Commission, creating an efficient pathway for fixed-income markets to access Climate Investor Two’s portfolio of high-impact, climate-aligned infrastructure assets. This innovative financing structure will eventually be refinanced through a long-term climate bond, enabling institutional bond investors to support adaptation projects that have historically struggled to attract private capital at scale.

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Strategic Imperative: Closing the Adaptation Finance Gap

The Bridge-to-Bond structure addresses a critical global challenge: the massive shortfall between climate adaptation financing needs in developing countries and actual capital flows. According to the United Nations Environment Programme’s 2025 Adaptation Gap Report, developing nations require $310 billion annually by 2035 based on modeled costs—a figure that rises to $365 billion when accounting for needs expressed in national climate plans. Yet international public adaptation finance flows reached only $26 billion in 2023, creating a gap 12 to 14 times larger than current funding levels.

Water, sanitation, and oceans infrastructure represent particularly underfunded yet essential adaptation priorities. These sectors directly determine communities’ ability to withstand climate shocks including droughts, floods, sea-level rise, and extreme weather events. They also fundamentally enable economic development, public health, and human dignity in regions where access to safe water and adequate sanitation remains far from universal.

Mark Moorhouse, Executive Head of Infrastructure Finance at Sanlam Alternative Investments, framed the transaction within this context: “This transaction reflects our conviction that commercial success and climate resilience can, and must, go hand in hand. By backing CI2, we are enabling infrastructure that directly improves lives and meets climate challenges faced by emerging markets.”

The bridge facility mechanism allows Sanlam to provide immediate capital that CI2 can deploy into projects while the longer-term climate bond is structured and placed with institutional investors. This sequencing addresses a common challenge in infrastructure finance: the mismatch between project development timelines and capital market fundraising processes. By providing bridge capital supported by the European Commission guarantee, Sanlam enables Climate Fund Managers to maintain investment momentum while preparing bond issuance documentation and conducting investor roadshows.

Climate Investor Two: Portfolio Scale and Impact Targets

Climate Investor Two reached final close in October 2025 at $1.065 billion, surpassing its initial $1 billion target and establishing itself as the largest climate adaptation infrastructure fund focused on emerging markets globally. Formed in 2019 through partnership between the European Commission and the Dutch Fund for Climate and Development, the facility employs blended finance structuring that combines public and private capital to balance risk profiles and mobilize private sector investment at commercial scale.

Since its first close in 2021, CI2 has committed approximately $339 million across 25 projects spanning Africa, Asia, and Latin America. The portfolio demonstrates breadth across the water-sanitation-oceans value chain: water supply and distribution systems in Vietnam and the Philippines addressing chronic infrastructure deficits in rapidly urbanizing regions; desalination facilities in Thailand and Kenya providing climate-resilient water sources in water-stressed areas; waste-to-energy platforms in Sierra Leone, South Africa, and Thailand converting organic waste streams into renewable energy while solving waste management challenges; and conservation finance including the world’s largest debt-for-nature swap in Ecuador securing long-term funding for the Hermandad Marine Reserve and Galápagos Islands protection.

By the conclusion of its investment period, CI2 aims to provide safe drinking water and improved sanitation to 16.5 million beneficiaries while protecting or restoring 2.2 million hectares of ecosystems. These impact targets translate abstract climate finance commitments into tangible human development outcomes: millions of households gaining access to reliable water supplies that reduce waterborne disease, support economic productivity, and enhance resilience to drought; communities receiving sanitation infrastructure that improves public health, protects water quality, and maintains human dignity; ecosystems restored or protected to maintain watershed functions, coastal protection, and biodiversity that underpin long-term climate adaptation.

Blended Finance Structure Enables Full Project Lifecycle Support

Climate Investor Two’s architecture reflects sophisticated understanding of infrastructure project risk evolution across development stages. The facility comprises two complementary funds addressing different phases of project maturation. The Development Fund provides concessional capital and technical expertise for early-stage project development, absorbing risks that private investors cannot commercially justify. This patient capital finances feasibility studies, permitting processes, stakeholder engagement, engineering design, and other preparatory activities that de-risk projects sufficiently for private capital entry.

The Construction Equity Fund employs a tiered structure accommodating diverse risk-return profiles during asset build-out. Public sector donors occupy first-loss positions accepting below-market returns in exchange for catalyzing private investment. Commercial investors participate in mezzanine tranches targeting risk-adjusted market returns. Institutional investors including pension funds, insurance companies, and asset managers access senior positions offering lower returns with enhanced capital protection. This stratification enables CI2 to attract investors with varying mandates and constraints who would not otherwise participate in emerging market infrastructure.

The integrated structure delivers what Climate Fund Managers characterizes as a “whole-of-life” funding solution: single financing source continuity from development through construction into operational refinancing. This approach contrasts with fragmented conventional financing where projects must repeatedly access capital markets or arrange new facilities as they transition across stages, each transition creating execution risk, transaction costs, and potential delays. By committing to fund projects across their entire lifecycle, CI2 reduces uncertainty for project developers and host governments while streamlining capital deployment.

South Africa’s Positioning in Climate Finance Leadership

For South Africa, the transaction represents more than financial engineering innovation. It signals the country’s evolution as a climate finance hub capable of originating sophisticated transactions that mobilize international capital toward African and broader emerging market priorities. Sanlam Alternative Investments brings substantial infrastructure investment experience, having deployed over R6 billion of capital across more than 25 South African projects spanning renewable energy, conventional power, housing, transportation, water, waste management, and other essential infrastructure sectors.

The firm operates as part of the broader Sanlam Group, which has established itself as a major institutional investor in sustainable infrastructure across Africa. Through Sanlam InfraWorks, the group co-owns Climate Fund Managers alongside Dutch development bank FMO, providing both capital and strategic direction to CFM’s suite of blended finance facilities. This ownership stake positions Sanlam at the center of climate infrastructure finance innovation targeting African and emerging market opportunities where the firm possesses local knowledge, networks, and execution capabilities that purely international investors lack.

Moorhouse emphasized the transaction’s broader significance: “By enabling the bridge facility, we have directed capital into essential projects that build climate-resilient communities, enhance water security and support sustainable economic growth in regions most vulnerable to climate change. We anticipate that this investment will attract further institutional capital, helping to strengthen South Africa’s leadership in climate- and adaptation-aligned financing.”

The Bridge-to-Bond mechanism creates template potential for additional transactions mobilizing fixed-income capital toward climate infrastructure. Bond markets dwarf equity markets in scale, and institutional bond investors including pension funds, insurance companies, and sovereign wealth funds face mandates to deploy enormous capital pools into investment-grade fixed-income instruments. However, these investors typically cannot participate in project development or construction equity given illiquidity, complexity, and risk profiles incompatible with their mandates.

By structuring a bridge facility supported by a multilateral guarantee that will be refinanced through a climate bond, the transaction demonstrates how blended finance guarantees can transform construction-stage infrastructure equity into investment-grade bonds suitable for institutional portfolios. If successfully executed and replicated, this approach could dramatically expand the capital available for climate adaptation infrastructure in emerging markets.

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European Commission Guarantee: Catalytic Capital Mechanics

The €205 million European Commission guarantee plays the catalytic role essential to blended finance theory. Without the guarantee, Sanlam Alternative Investments would face substantially higher risk providing a bridge facility to a construction-stage infrastructure portfolio in emerging markets. The guarantee absorbs first losses up to the specified amount, transforming the risk-return profile of Sanlam’s facility from one requiring high returns compensating for elevated emerging market infrastructure risk to one offering investment-grade characteristics with corresponding moderate returns.

This risk transformation enables Sanlam to provide capital at terms that CI2 can afford while achieving returns satisfactory to Sanlam’s investors. The European Commission, operating with development objectives rather than purely commercial mandates, accepts below-market returns on its guarantee in exchange for mobilizing private capital at multiples of its own exposure. The €205 million guarantee supports a larger bridge facility from Sanlam, which in turn backs CI2’s entire portfolio, creating substantial leverage of public resources.

The guarantee originates from the European Fund for Sustainable Development Plus (EFSD+), an instrument established to mobilize private investment toward sustainable development priorities in Africa and European Neighborhood countries. By deploying guarantees rather than grants, EFSD+ aims to achieve greater capital mobilization per euro of European taxpayer resources while building sustainable markets that can eventually operate without concessional support.

Andrew Johnstone, CEO of Climate Fund Managers, highlighted the mechanism’s breakthrough potential: “With the support of Sanlam Investments and the European Union, we have been able to pioneer the new Bridge-to-Bond mechanism, opening access to climate finance for a much broader group of investors.”

Implementation Challenges and Execution Considerations

While the Bridge-to-Bond structure offers elegant theoretical appeal, successful execution faces substantial practical challenges. The climate bond refinancing must achieve pricing and terms that enable repayment of Sanlam’s bridge facility while delivering returns acceptable to bond investors. If bond market conditions deteriorate or credit spreads widen significantly between bridge facility provision and bond issuance, the refinancing could prove difficult or impossible at originally anticipated terms.

Project performance during the bridge period critically influences bond investor appetite. Climate Investor Two must demonstrate that portfolio projects are meeting construction timelines, staying within budgets, and progressing toward operational commissioning as planned. Significant delays, cost overruns, or project failures would undermine confidence and complicate bond placement. The Development Fund’s role in de-risking projects before Construction Equity Fund investment becomes essential to maintaining portfolio quality.

Credit rating agencies will assess the eventual climate bond, and achieving investment-grade ratings requires demonstrating robust portfolio diversification, conservative loan-to-value ratios, experienced management, and sound governance structures. Climate Fund Managers must prepare extensive documentation supporting the portfolio’s credit quality while navigating rating agency methodologies that may not fully account for climate infrastructure’s unique characteristics including long-term social benefits, government policy support, and essential service nature.

Currency risk management presents additional complexity. Many CI2 projects generate revenues in local currencies while international investors typically require returns in hard currencies. Exchange rate volatility could undermine project economics and debt service capacity. Climate Fund Managers must implement hedging strategies, carefully structure local-currency versus hard-currency financing, and potentially absorb currency risk in fund structure layers designed for that purpose.

Broader Implications for Climate Finance Markets

The transaction’s success or failure will influence subsequent climate infrastructure financing innovation. If Sanlam and Climate Fund Managers successfully complete the bridge-to-bond refinancing, demonstrate attractive risk-adjusted returns to bond investors, and establish precedent for similar structures, the mechanism could catalyze substantial additional capital mobilization. Other development finance institutions and commercial asset managers might adopt similar approaches, using public guarantees to transform construction-stage equity into investment-grade bonds.

Conversely, if execution encounters significant challenges—failed bond placement, pricing deterioration, project underperformance—the setback could dampen enthusiasm for blended finance innovation and reinforce conservative approaches prioritizing proven structures over novel mechanisms. The climate finance community will monitor the transaction closely as a test case for whether sophisticated financial engineering can genuinely unlock private capital at the scale required to close adaptation finance gaps.

The transaction also exemplifies shifting dynamics in climate finance geography. Rather than European or North American institutions structuring deals for African implementation, South African asset managers are originating transactions, providing capital, and demonstrating capability to execute complex blended finance mechanisms. This evolution reflects both African institutional investor sophistication and recognition that local knowledge, networks, and commitment create advantages in emerging market infrastructure investment.

Moorhouse articulated this positioning: “As a sustainability-driven asset manager, our purpose is to create long-term sustainability for investors—but also for future generations and our planet. We leverage strategic partnerships to create bespoke opportunities for clients, ensuring that our global reach translates into meaningful, customised investment experiences that deliver strong financial returns alongside measurable social and environmental benefits.”

Portfolio Diversification and Risk Management

Climate Investor Two’s 25-project portfolio spanning three continents provides geographic and sector diversification that reduces concentration risk compared to single-country or single-sector funds. Water supply projects face different risk drivers than waste-to-energy facilities; Vietnam presents distinct regulatory and economic conditions from Kenya; desalination technology carries separate technical risks from conventional water distribution infrastructure. This heterogeneity means that challenges affecting one subset of projects are unlikely to simultaneously impact the entire portfolio, smoothing aggregate returns and enhancing resilience to localized shocks.

However, emerging market infrastructure faces common risk factors that diversification cannot eliminate. Currency volatility affects most developing economies; political transitions can alter regulatory frameworks across countries; global commodity price swings impact construction costs universally; climate change itself introduces systemic risks that span geographies. Climate Fund Managers must implement portfolio-level risk management addressing these common factors while maintaining sufficient diversification across idiosyncratic risks.

The Development Fund’s early-stage involvement creates information advantages and relationship capital that enhance ongoing portfolio management. By participating in project conception, feasibility assessment, and design, CFM’s team develops deep understanding of project fundamentals, local contexts, and stakeholder dynamics. These insights inform investment decisions, risk mitigation strategies, and operational support as projects progress through construction and into operations.

Climate Adaptation Urgency and Investment Imperatives

The transaction unfolds against escalating climate impacts that underscore adaptation’s urgency. The 2025 UNEP Adaptation Gap Report documents that international public adaptation finance declined from $28 billion in 2022 to $26 billion in 2023, moving in the wrong direction precisely when needs are accelerating. Extreme weather events, sea-level rise, changing precipitation patterns, and temperature increases are already causing humanitarian crises, economic losses, and infrastructure failures across developing countries with limited adaptation capacity.

Water infrastructure proves particularly climate-sensitive. Droughts intensify in many regions, reducing surface water availability and depleting aquifers. Extreme rainfall events overwhelm drainage systems and contaminate water supplies. Sea-level rise threatens coastal freshwater resources through saltwater intrusion. Glacial melt alters river flows that billions depend upon. Against these pressures, aging infrastructure designed for historical climate conditions proves increasingly inadequate.

Sanitation systems face parallel stresses. Flooding damages treatment facilities and distribution networks. Water scarcity complicates wastewater management. Population growth and urbanization strain capacity. The consequences of sanitation failure—waterborne disease, environmental contamination, public health crises—fall disproportionately on poor communities with limited alternatives.

Climate Investor Two’s focus on these essential services addresses both immediate humanitarian needs and long-term economic foundations. Reliable water and sanitation infrastructure enables education (children, especially girls, can attend school rather than spending hours collecting water), economic productivity (businesses and agriculture depend on water security), public health (preventing waterborne disease), and climate resilience (communities can withstand droughts and floods). The social returns on these investments substantially exceed financial returns captured by private investors, justifying public support through blended finance structures.

Looking Forward: Scaling Climate Infrastructure Investment

As Sanlam and Climate Fund Managers proceed with the Bridge-to-Bond execution, the transaction will test whether innovative financing structures can genuinely mobilize private capital at the scale climate adaptation requires. Success would validate blended finance as a replicable mechanism for channeling institutional investment toward high-impact infrastructure in emerging markets. It would demonstrate that African asset managers can lead in structuring complex climate finance transactions. And it would provide a template for additional deals mobilizing bond market capital toward the $310 billion annual adaptation finance gap.

The transaction also establishes South Africa’s positioning as a climate finance hub for the African continent and broader emerging markets. With demonstrated capability in origination, structuring, execution, and portfolio management of climate infrastructure investments, South African institutions can play growing roles in directing global capital toward regional priorities. This leadership creates economic opportunities for South African financial services firms while ensuring African perspectives shape climate finance evolution.

For the 16.5 million people who may ultimately benefit from safe water and sanitation through Climate Investor Two’s investments, the financial engineering matters less than the infrastructure it enables. Communities gaining access to reliable water supplies will experience improved health, enhanced productivity, and greater resilience to climate shocks. The bridge facility, European guarantee, climate bond, and blended finance structure serve as means to an end: building the essential infrastructure that climate adaptation demands and human development requires.

Moorhouse summarized the dual mandate: “Investors are increasingly seeking solutions that drive positive change while offering robust governance and disciplined risk management. This investment demonstrates our leadership in delivering on this dual mandate—achieving strong financial returns while directing capital toward projects that build climate resilience and improve lives in the communities most vulnerable to climate change.”

As climate impacts intensify and the adaptation finance gap widens, transactions like Sanlam’s bridge facility to Climate Investor Two will determine whether the international community can mobilize sufficient private capital to complement limited public resources. The innovative Bridge-to-Bond structure represents one pathway toward that goal, pioneered by an African asset manager backing water and sanitation infrastructure across the emerging markets most exposed to climate risks.

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By: Montel Kamau

Serrari Financial Analyst

27th January, 2026