Norfund’s new CEO talks to Impact Investor about blended finance, the advantages of being 100% financed by the Norwegian government and the operational efficiencies gained from running a “straightforward” institution.
WeLight provides access to electricity for hundreds of thousands of people and many businesses and communities in Madagascar, and is funded by Norfund | WeLight
Erik Sandersen became chief executive of Norfund in July, inheriting an institution that looks increasingly unusual amongst development finance institutions (DFIs).
While aid budgets are being cut across much of Europe and North America, the Norwegian DFI continues to benefit from strong political backing and a funding model that allows it to invest with a long-term perspective. It means that Norfund is free from the funding and regulatory constraints of many of its peers, and has a different approach to thinking about blended finance.
Erik Sandersen, Norfund
“Blended finance instruments can be more of an issue than a solution, when you’re investing alongside people you don’t really know, whose return expectations lack transparency,” says Sandersen, explaining that when Norfund jointly negotiates terms with an investee alongside other DFIs, it can be a challenge to assess whether all parties are sufficiently aligned.
Speaking to Impact Investor about Norfund and its approach to impact investing, as well as his own plans for the organisation, Sandersen, who joined Norfund in 2014 and has headed up its financial inclusion department for the past decade, says that unlike most other European DFIs, Norfund does not “have the luxury of EU guarantees”.
Funding model
However, it benefits from being fully funded by the Norwegian government, which Sandersen says offers the organisation more flexibility, including the ability to take on greater risk and invest over longer time horizons than other DFIs. This includes managing an equity dominated portfolio of NOK 45.5bn (€4.2bn), with 70% of its investments in equity and only 30% in debt.
“The opposite is true of most other DFIs,” says Sandersen, adding that Norfund is also prohibited from raising money on the capital markets through bond issuance, although this reduces its regulatory burden.
“We run a very straightforward institution and are freer to make decisions in what we invest in. We have no requirements on our own cash flow to serve or pay back any debt, so we can also make investments in more long term and uncertain holdings. We see that this allows us to be more additional,” he adds.
Another clear advantage is that the Norwegian government’s aid budget has remained steadfast despite the dramatic fall in official development assistance (ODA) spending in other countries on both sides of the Atlantic. According to OECD data, Norway’s foreign aid budget divided by its population, is the highest globally today.
“Despite rising geopolitical instability and economic pressures, Norway has maintained its levels of investment and prides itself on placing a minimum of 1% of gross national income (GNI) into development aid and we are a portion of that,” Sandersen says. For comparison, the UK plans to cut its ODA budget to 0.3% of GNI by 2027 and the US has already slashed its own budget to 0.09%.
Returning to the question of blended finance, isn’t the recent rise in popularity of blended finance in response to the cuts in development aid, precisely because it offers a more strategic use of public and philanthropic funds?
Sandersen qualifies his response by agreeing there is a role for blended finance and concessionary capital but only as a way to catalyse private investment.
“There are use cases for blended finance, particularly in volatile environments but I think where it should be used is to bring in more private capital that would otherwise not invest in these countries, rather than investment from other DFIs,” he adds.
Investment mandates
Norfund, which was launched in 1997 to relieve poverty and drive economic development in ODA countries, was awarded a second mandate by the government in 2022, the Climate Investment Fund. The fund, whose purpose is to invest in companies and projects that maximise avoided emissions, is centred on investments in the energy sector including into renewable energy, battery storage as well as transmission.
“The idea is to accelerate the transition to renewables by targeting ODA countries and regions which rely heavily on coal and other fossil fuels for their energy,” says Sandersen, explaining that the aim is to help developing countries to reduce their emissions as well as to leapfrog more carbon-intensive technology in favour of cleaner, renewable energy in their economic development.
The development mandate also invests into renewable energy but the primary focus is on development, rather than emissions reductions.
“In Madagascar for example, the country’s impact on the climate is relatively small but they need investment into renewables to increase the availability of electricity for development. India’s emissions, on the other hand, have a huge effect on the climate, so we would invest to reduce these through the climate mandate. It’s about making sure we satisfy the aims of both mandates given to us by the government,” he adds.
Ukraine focus
Norfund also launched a NOK 1bn Ukraine Investment Fund at the end of 2024 to support the country’s resilience during the war and, Sandersen hopes, to help with reconstruction efforts after the war has ended. The Ukraine fund is the DFI’s first foray into Eastern Europe and focuses on the same sectors as its core development mandate, namely renewable energy, financial institutions, agribusiness and light manufacturing. It can also make indirect investment through private equity funds . To date, it has made two fund investments and one direct investment into an industrial park in Lviv to boost the country’s logistics capacity and strengthen the flow of goods in and out of Ukraine.
Since 2022, Norfund has received higher annual funding from the government, with an annual budget of approximately $175m (€152m) for the development mandate, just over $100m for the climate fund and $50m for Ukraine. Thanks to its return on investment, it invests about three times as much as it receives in funding, with the majority of investments channelled through the development mandate.
Lean and local
Despite the increase in investment capacity – in 2025, Norfund invested a total of NOK 8.4bn – the organisation has, for the most part, remained unchanged and the new mandates have been incorporated into the existing organisation, with the same people working across them.
Today, the DFI employs 165 people, a third of which are located outside the Oslo headquarters in regional offices across Asia, Africa and Latin America.
“From the beginning, we realised we couldn’t sit in Norway and use Norwegian expertise to make decisions about investments on the other side of the world. We knew we needed to have people that really understood the local market, knew the culture and the companies we can or can’t do business with,” he says, adding that the final investment decision is made in Oslo but the local teams are in charge of the deal generation and execution.
“That’s a really important part of our operating model,” he adds.
Sandersen says one reason for Norfund’s relatively low headcount is its small impact team, with just five people working directly on impact, climate, gender equity and additionality and 13 environmental and social specialists integrated in the investment departments.
“We assess impact at the asset allocation level. This means we don’t assess each investment for its impact goals as well as its commercial goals. In these constrained environments, commercial success goes hand-in-hand with impact. This way of working reduces inefficiencies internally and a lot of complexity which can slow you down”, he adds.
Outlook
Sandersen says that Norfund has continued to invest much as it has done since its inception, and that he does not have plans to make any fundamental changes to the way the organisation operates. The organisation’s current strategy covers the period 2023 to 2026 and it’s most recent report demonstrates it has already met or exceeded several of its impact ambitions.
“We have stuck to our strategy and duration for some time and in terms of the sectors we think are most in need of development aid. You have to provide access to energy for businesses and people in a country, you have to improve their access to finance through their local financial institutions, you have to continue to build businesses that create added value. The fundamentals are the same regardless of what’s happening in the world.”
Looking ahead, Sandersen says Norfund has cross-party support and the capacity to manage more investment.
“We have been active in saying that we are able to handle more money and that there are great opportunities to do more,” he says, explaining that the Norwegian government is due to set more ambitious targets for its climate finance this year, which will include the climate fund.
“The Climate Investment Fund will be included in that process but we do not yet have any visibility on how much the government is planning to give us,” says Sandersen adding that “all the signals” point to Norfund continuing to have a significant role in the government’s development policy.
“From the far left to the far right of politics, the vast majority of politicians are supportive of what we are doing,” he adds, concluding that politicians on Norway’s far right who have rallied against immigration, also realise that creating stability through investment in ODA countries has a positive impact on migration levels.
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