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.
International climate finance
Moderate - tried and tested
- 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.
Referenceshttps://www.oecd.org/cgfi/forum/blended-finance-policy-perspectives.pdf https://www.climatepolicyinitiative.org/blending-finance-for-risk-mitigation/ https://www.weforum.org/agenda/2021/09/why-blended-finance-is-our-best-bet-in-successfully-adapting-to-climate-change/ https://www3.weforum.org/docs/WEF_Blended_Finance_Insights_Investments_Vehicles_Facilities_report_2016.pdf Gregory, Neil; Sierra-Escalante, Kruskaia. (2016) Blending Public and Private Finance : What Lessons Can Be Learned from IFC’s Experience? https://www.southpole.com/clients/case-study-landscape-resilience-fund
Blended finance for the expansion of the As-Samra Wastewater Treatment Plant in JordanView case study