State of Climate Blended Finance 2025 Report Launch | Global Blended Finance Forum

Summary: State of Climate Blended Finance 2025 Report Launch

Global Blended Finance Forum

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Key Themes & Market Overview

Market Size & Trends

• Climate blended finance mobilized $15.5 billion in 2024 across 84 deals, marking the second highest volume in six years.
• Market volumes remain volatile, heavily influenced by a few “whale” deals (billion-dollar+ transactions):
  • 2023 featured 6 such deals totaling $8.1 billion.
  • 2024 had only 3, causing a 23% decline in volume.
• Climate finance dominates blended finance, accounting for 70% of all financing between 2019-2024.
• Despite breakthroughs like the Catalytic Transition Fund and UAE’s Altera Fund, blended finance has yet to achieve consistent scale.

Challenges Limiting Scale

• External headwinds:
  • Declining investor appetite for emerging markets; Foreign Direct Investment (FDI) in 2023 was the lowest since 2005.
  • Official Development Assistance (ODA) shrinking: 9% drop in 2024, with a projected 17% decline in 2025.
• Structural challenges:
  • Lack of coherent, scalable blended finance strategies.
  • Limited local investor participation (though improving).
  • Poor transparency on deal structures and outcomes.
  • Weak enabling environments in target markets.

ODA Trends

• Overall ODA flows are shrinking, but ODA to climate blended finance increased 50% in 2024, driven mainly by Japan’s Jika and UAE’s Altera Fund, which provide 70% of climate ODA.
• Shift from grants to concessional debt aims to recycle capital and mobilize private investors more sustainably.
• Debt sustainability concerns suggest future concessional lending will target middle-income countries over low-income or least developed countries (LDCs).
• Result: LDCs’ share in blended finance dropped from 23% (2023) to 5% (2024), with capital reallocating to lower and upper middle-income countries.

Climate Themes

• Mitigation dominates, focusing on renewable energy and energy efficiency.
• Adaptation is growing slowly, supported mainly by public investment (70% of adaptation blended finance).
• Crosscutting (mitigation + adaptation) deals are volatile and dependent on large transactions.
• Private investment led by commercial banks ($2.4B) and institutional investors ($1.6B) in 2024, a significant increase from prior years.

Private Investors & Local Capital

• Commercial banks focus heavily on renewables (92% of their deals).
• Institutional investors (insurers, pension funds) favor equity investments via climate funds.
• Local actors now contribute 29% of private commitments (up from 17%), indicating blended finance is gaining traction domestically.

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Strategic Insights & Recommendations (From Convergence & Panel)

Outcomes of Financing for Development Conference (FFD4, Sevilla 2024)

• Blended finance is central to global sustainable development financing.
• Countries pledged to increase private finance mobilization from public sources by 2030.
• Emphasis on effective use of guarantees, first-loss capital, local currency instruments, and FX risk mitigation.
• MDBs/DFIs urged to play stronger catalytic roles: engage earlier, build pipelines, collaborate with institutional investors.
• Need for transparency in data on mobilization, risk, and impact to build investor confidence.
• Importance of country ownership: strong local institutions, policy alignment, and capacity building to ensure debt sustainability and pipeline development.
• Challenges remain: deals often complex and one-off; donor budgets limited and unpredictable; fragile markets require broader reforms beyond finance.

Convergence’s Four Market Priorities

1. MDBs/DFIs to shift from capital holders to capital recyclers, sharing risk proactively and bringing others in.
2. Philanthropy to play stronger catalytic roles in early project design and preparation.
3. Standardization of blended finance structures to enable faster, simpler, scalable deals.
4. Support for practical, repeatable blended finance models aligned with national priorities in at least 70 countries.

Standardization & Platforms

• Importance of shared theories of change, reporting requirements, and automated processes.
• Platforms like M300, CE, and others are emerging to aggregate capital, including philanthropic and DFI funds, focused on specific sectors.
• IDB Invest and others support pooled donor resources under unified frameworks.

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Panel Highlights: Operational & Market Development Insights

Juan Miguel Curio (IDB Invest)

• Emphasized need for standardization in concessional money inflows and outflows.
• Advocated for country-led platforms to align blended finance with national priorities and pipeline origination.
• Combining technical assistance (grants) with blended finance (reimbursable capital) improves upstream project development.
• IDB Invest’s capital increase tied to “originate to share” model to expand investable assets and recycle capital.
• Exploring creative fundraising with philanthropies and reflows to enhance concessional finance use.

Tim Strereer (PIDG)

• PIDG focuses on risk-tolerant, patient capital for LDCs and low-income countries.
• KPIs: Over 50% commitments in these countries; mobilizing private capital.
• Emphasized early-stage project involvement to build pipeline.
• Local currency guarantees are key to unlocking local capital markets and mitigating FX risk.
• PIDG’s success with local guarantee companies (e.g., InfraCredit Nigeria) demonstrated market transformation and mobilization of local pension funds.
• Platforms like M300 and CE show promise for collaboration and scaling.

Elizabeth Beal (Finance Earth)

• Nature-based solutions and adaptation finance need to become more investor-friendly and “vanilla”.
• Combining mitigation, adaptation, and nature outcomes (e.g., water projects) can mobilize capital more effectively.
• Emphasized quantifying value-at-risk to demonstrate financial and impact returns.
• Technical assistance critical to build capacity of local financial institutions and project developers.
• Local investors and communities bring knowledge and skills beyond capital, requiring integrated support.

Luke Franson (Finance in Motion)

• Longstanding blended finance experience shows declining need for first-loss capital as markets mature.
• Private investors impressed by ability to generate returns from emerging markets previously considered exotic.
• Listening to private investors’ needs (e.g., capital market standards like no call protection, IFRS9 compliance) is essential to design investable funds.
• Advocated for understanding local banking environments and building long-term relationships to develop local capital markets.
• Debt preferred over equity in many cases for scalability and predictability; equity reserved for strategic, high-risk market transformation.

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Key Frameworks, Processes, and Playbooks

• Originate to Share Model: Used by IDB Invest to expand investable assets and recycle capital.
• Country-led Platforms: Align blended finance with national priorities and pipelines.
• Standardization Playbooks: Convergence’s tools for affordable housing and insurance sectors to simplify and replicate blended finance models.
• Guarantees & Local Currency Instruments: Critical tools for mobilizing local capital and mitigating FX risk.
• Technical Assistance Integration: Combining grants and reimbursable capital to build pipeline and local capacity.
• Transparency & Data Sharing: Emphasized by FFD4 for risk, mobilization, and impact reporting to build confidence.

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Key Metrics & KPIs

• $15.5B blended finance mobilized in 2024 (84 deals).
• 70% of blended finance focused on climate (2019-2024).
• ODA to climate blended finance up 50% in 2024, driven by Japan and UAE.
• LDC share dropped from 23% (2023) to 5% (2024).
• Commercial banks contributed $2.4B and institutional investors $1.6B in 2024.
• Local private commitments rose from 17% to 29% over recent years.
• PIDG KPI: >50% commitments in LDCs and low-income countries.
• MDBs/DFIs target to help 70 countries adopt repeatable blended finance models by 2030.

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Actionable Recommendations

For MDBs/DFIs

• Transition from capital holders to capital recyclers.
• Engage early in project pipelines and collaborate with institutional investors.
• Combine technical assistance and concessional finance strategically.
• Support country-led platforms and standardization efforts.

For Donors and Philanthropies

• Increase catalytic capital with clear roles and transparency.
• Consider repayable grants carefully balancing risk tolerance.
• Align objectives to reduce fragmentation and enable syndication.

For Private Investors and Fund Managers

• Design funds backward from investor requirements (capital market standards).
• Use guarantees and local currency instruments to unlock local capital.
• Support capacity building of local financial institutions and enterprises.

For Market Actors

• Embrace standardization to reduce complexity and scale deals.
• Build transparency and share detailed data on risk, impact, and mobilization.
• Foster collaboration through platforms and focused sector initiatives.

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Presenters & Panelists

• Aisha Barry, Associate Director, Market Insights, Convergence
• Andrew Pampa, Associate Director, Market Insights, Convergence
• John Lara, CEO, Convergence (Moderator)
• Juan Miguel Curio, Blended Finance Principal Officer, IDB Invest
• Tim Strereer, Global Head of Investor Relations, PIDG
• Elizabeth Beal, Managing Director, Finance Earth
• Luke Franson, Director of Fund Management, Finance in Motion

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This session provided a comprehensive update on the state of climate blended finance, highlighting market dynamics, strategic challenges, and practical pathways to scale blended finance as a core tool for sustainable development finance.