Blended Finance: Bringing Public and Private Sectors Together for Climate Action

Photo by Towfiqu barbhuiya on Unsplash

As the impacts of climate change intensify and the urgency to move away from fossil fuels grows, countries face a dual challenge: financing adaptation to climate shocks while investing in clean energy infrastructure. Traditional public and donor funding alone cannot meet the scale of need. Enter blended finance. The combining of public, private and philanthropic capital to fund projects that deliver social and environmental benefits is increasingly recognised as a critical tool to bridge financial gaps.

By reducing risk and improving returns, blended finance makes climate-related projects more attractive to investors who might otherwise avoid them. Key instruments include concessional loans and grants that lower the cost of capital, guarantees and insurance to provide risk protection for investors, first-loss capital to absorb initial losses to encourage private participation and green bonds and debt-for-nature swaps to attract institutional investors to climate-aligned projects.  

No longer just a concept, blended finance has proven its value in climate action, with several high-profile projects successfully mobilising billions in private capital while reducing risk for investors. The World Bank Group has used blended finance mechanisms (namely concessional capital and guarantees) to mobilise almost $197 billion across 93 countries towards renewable energy, infrastructure, and resilience projects. A 2025 working paper by the World Resources Institute shows that between 2015 and 2025, blended finance (alongside other instruments) supported climate adaptation projects.

Blended finance is a key feature in COP30 negotiations on mobilising climate finance towards adaptation, mitigation, resilience building and loss and damage. Positioned as a bridge between public pledges and private capital, the focus is on designing blended finance mechanisms in such a way to “derisk private investments and reduce the cost of capital.” This is particularly important for developing countries dealing with the impacts of climate change and who struggle to access funding for climate-related projects.  There are already success stories coming out of COP30: the African Development Bank Group’s Sustainable Energy Fund for Africa (SEFA) secured investment commitments worth up to €50 million. The Climate Bonds Initiative and the Japan International Cooperation Agency signed a Memorandum of Understanding to cooperate on boosting private finance for sustainable, low-carbon development and support credible transition finance in developing and emerging economies.    

Blended finance is not a silver bullet, but it is a practical mechanism to turn pledges into pipelines of real projects. Without it, the trillions needed for climate action will remain locked in boardrooms rather than flowing to communities. For climate vulnerable regions, it could mean the difference between stalled plans and scaled transformation.