Description

Blended finance approaches use international climate finance sources to mobilise additional finance - primarily from private and commercial sources - to address the SDGs and promote climate action in developing countries.

Instrument category

International climate finance

Implementation status

Moderate - tried and tested

Instrument benefits

• Blending finance is a proven approach for optimised risk management and can help to make otherwise high-risk investments viable for private sector investors.
• Public finance will only cover a fraction of investment needs to meet low-carbon and adaptation requirements. Blended finance allows much greater private sector investment.

Challenges and risks to implementation

• The maturity of policies and practices guiding blending operations is still very uneven among donor governments. OECD has shown that only a few Development Assistance Committee (DAC) members have dedicated strategies or guidance in place and to resolve this, the OECD is preparing ‘Blended Finance Principles'.
• A blending approach is less accessible to smaller projects - it is more easily attracted to large projects, where it is typically brought in on the back of large public sector investments
• Monitoring and evaluation (M&E) for blended finance is particularly challenging because it must cater to the needs of diverse stakeholders. However, this is a critical step to build the evidence around the credibility and effectiveness of blended finance approaches.

References

Case studies

Blended finance for the expansion of the As-Samra Wastewater Treatment Plant in Jordan