This is a quick glossary for common terminology used within blended finance – the strategic use of public capital to attract private investment funding – developed with and for the combined authorities that took part in the Local Net Zero Accelerator (LNZA) pilot (Greater Manchester Combined Authority, West Midlands Combined Authority, and York and North Yorkshire Combined Authority).

• Outcome-Seeking or Impact Investors are those who invest not just for financial returns, but also to achieve measurable social or environmental impact.
• Lending (Debt Capital) refers to money provided to projects or companies with the expectation of repayment with interest. It is typically used in later stages of a project. Example: an Able to Pay Loan Fund offering low-interest loans to households undertaking energy retrofits.
• Equity Capital involves investing in return for ownership in a project or company, with returns linked to performance. It is generally used in early-stage or higher-risk investments. Example: Mayor of London’s Energy Efficiency Fund has made equity investments in decentralised and renewable energy projects.
• First Loss Capital is a layer of capital that absorbs initial investment losses, thereby protecting other investors and encouraging participation. Example: local authorities or central government often provide first-loss capital in Net Zero projects to de-risk private investment.
• Concessional Capital is funding provided on terms more generous than market rates (e.g., low interest, long grace periods) to make lower financially returning but impactful projects viable.
• Mezzanine Capital is a hybrid form of financing that blends characteristics of debt and equity, often used when projects need flexible, long-term capital.
• Guarantees are commitments by a third party to repay a lender in the event of borrower default, reducing the risk for private investors.
• Subordination refers to the structuring of capital so that certain tranches (e.g., junior capital) take losses before others (senior capital).