The Luxembourg-based vehicle, due for launch at the end of this year, will consist of a contribution from the Luxembourg state and other public bodies as well as investment inflows from other public bodies and from the private sector. It will be managed by global investment manager Schroders and impact investment specialist BlueOrchard, the ministry of finance said in a press release on 16 June.

The fund will focus on investments that support the transition to carbon-neutral and resilient economies, in addition to achieving sustainable growth in emerging markets.

The ministry declined to comment on the target size of the vehicle.

Blended finance, where a strategic public investment is designed to encourage the ‘crowd in’ of private sector money into lesser-loved investment universes such as climate funds, is a strategy used by the Luxembourg government on a number of occasions.

The Luxembourg International Climate Finance Accelerator, launched in 2018, is one example. The ICFA selects an annual cohort of climate funds to benefit from up to 20% public investment from foundations, multilateral institutions and local markets, with the rest coming from private capital.

Stephan Peters, the ICFA’s managing director told  last year that the participation of governments and multilateral organisations in taking the first loss has helped to create investible projects in climate finance.

Luxembourg acknowledged the importance of private sector funding in its International Climate Change Strategy 2021-2025 as a way of leveraging extra investment into the area and eventually making climate finance a mainstream investor choice.