What is Blended Finance?
Blended finance refers to the use of public or philanthropic capital to mobilize private investment toward sustainable development and climate goals. It’s especially critical in emerging and developing markets, where investment needs are high and perceived risks often deter private capital.
The logic is simple: the world needs trillions in financing to achieve the energy transition and meet the Sustainable Development Goals (SDGs), and roughly three-quarters of that will have to come from the private sector. But private capital won’t move at scale unless risks are reduced, and returns are competitive. That’s where blended finance comes in: by using public capital strategically (through guarantees, first-loss positions, or subsidised terms) it reshapes the risk-return equation and brings private investors to the table.
Why it matters now
Despite widespread recognition of its importance, the blended finance market remains far too small compared to what’s needed. Several barriers hold it back:
- A lack of bankable, investable projects, especially at scale
- Suboptimal deployment of blended finance instruments by concessional actors
- No well-functioning marketplace to connect public and private actors
- Limited institutional investor alignment with this type of investment
Scaling blended finance is not just desirable; it’s essential if we’re serious about closing the financing gap for climate and development.
