Blended finance for climate fell 60% despite calls for more funds

The level of blended finance for climate projects has declined by 60% in recent years despite global leaders’ sharp focus on the issue, according to a new report. Blended finance is when traditional forms of development finance from public and philanthropic sources are used to bring in private capital to achieve the United Nations Sustainable Development Goals. The decline in blended climate finance occurred even as blended finance overall has recovered from the lows it reached during the COVID-19 pandemic. Climate woes: Between 2019-2021, $14 billion went to blended climate deals, a sharp drop from $36.5 billion in the previous three-year period, according to Convergence, a group that includes public institutions and private sector investors, and releases an annual report on blended finance. Blended finance for climate adaptation trails that of climate mitigation — only 14% of climate deals, worth $6.9 billion, have a pure adaptation focus, while the rest of the finance all goes to mitigation or mixed projects. The private sector has argued there are fewer “bankable” projects in the adaptation segment, especially in low-income countries. Adaptation projects might include building infrastructure that is resilient to climate shocks, whereas mitigation is about reducing emissions. Regional breakdown: Blended finance is strong in Latin America, where it has held steady at about 30% over the last several years. In sub-Saharan Africa, climate makes up 41% of blended deals, but this is a decline from nearly half during the tail years of the previous decade. There is also a move downward in Asia. Ukraine fallout: The blended finance market increased to $7.1 billion in 2021 from a low point of $4.5 billion in 2020. However, with interest rates rising and the global economy shakey, Convergence writes in the report that it is worried about future declines. “The invasion of Ukraine by Russia has exacerbated supply blockages and fueled inflation, which will further dry up climate investment through blended finance as public and philanthropic capital pivots to other urgent humanitarian needs,” the group said. Key finding: “The public sector’s use of concessional capital to catalyze the private sector for development and climate finance has been neither efficient nor effective,” the report says. Additional concessional finance is also needed. Update, Oct. 31, 2022: This article has been updated to reflect a change in Convergence’s own report which calculated the decline in blended finance for climate as 60%.