This report, produced by Eurodad and ActionAid, examines the use of blended finance as a tool for climate action in the global south. Written by Farwa Sial, Senior Policy and Advocacy Officer at Eurodad, it maps the trends, stakeholders and instruments involved in blended climate finance since 2016, and asks whether the model delivers good value for money. The report concludes that despite being promoted as a "win-win" solution by governments and multilateral institutions, the risks of blended finance currently outweigh its opportunities.

Who wrote this report?

The report was written by Farwa Sial for Eurodad (European Network on Debt and Development) and ActionAid, with input from Eurodad staff and consultative advice from academics and practitioners including Teal Emery (Energy for Growth Hub), Basani Baloyi (Institute of Economic Justice) and Kate Bayliss (SOAS). It also draws on interviews with staff from IFC's Blended Climate Finance Unit and Convergence, and on a November 2023 webinar featuring speakers from ActionAid, EDFI Association and the European Commission.

Best quote

"In developing countries, foreign investors threaten to walk if they are not given guaranteed fiscal privileges and immunities and agreements that subject developing countries for decades to come to international arbitration around compensation for policy changes." — Avinesh Persaud, Special Climate Envoy to the Prime Minister of Barbados

Key takeaways

A declining and elusive instrument: Blended climate finance transactions fell from US$36.5 billion (2016-2018) to US$14 billion (2019-2021), even as total climate finance from the global north continued to rise. There is still no shared definition of blended finance across institutions, which makes measuring its scale, leverage and impact inconsistent and difficult to compare.

Risks outweigh opportunities: The report identifies seven main risks, including the potential for blended finance to perpetuate climate colonialism, crowd out domestic financial markets, deepen sovereign debt burdens, and operate with low transparency and weak democratic accountability. It sets these against four opportunities, centred on stronger regulation, support for public banks, and better targeting of local businesses and communities.

Money flows to the wealthiest recipients: Corporates and project developers received 70 per cent of blended climate finance in 2016-2018, rising to 78 per cent by 2019-2021. Low-income countries and Least Developed Countries, despite being most vulnerable to climate change, received only 27 per cent of financing between 2019-2021.

Mitigation dominates over adaptation: In 2021, mitigation finance made up 60 per cent of climate finance provided and mobilised, compared to 27 per cent for adaptation. The Adaptation Fund remains drastically underfunded relative to ongoing fossil fuel subsidies, which outstripped it by a factor of roughly 35 between 2019 and 2021.

Debt over grants: In 2021, 69 per cent of climate finance was delivered as loans rather than grants, deepening the debt burden on recipient countries. The report notes that Small Island Developing States have spent 18 times more on debt repayments than they receive in climate finance.

What's in this report?

This report sets out to answer a central question: does blended finance represent good value for money as an instrument for climate action, and what role should it play going forward? It does this by tracing the historical roots of blended finance in the World Bank's "From Billions to Trillions" strategy, defining key concepts like leveraging and additionality, and mapping the major institutional stakeholders, from the IFC and EU's EFSD+ to bilateral funds and multilateral facilities like the Green Climate Fund.

The core of the report presents six trends in blended climate finance covering investment volume, stakeholders, type of climate finance, financing instruments, regional distribution and recipients. It then works through seven risks and four opportunities in detail, illustrated with case studies including a proposed blended finance project for waste management in Indonesia. The report closes with five policy recommendations centred on additionality, transparency, freedom from economic conditionalities, country ownership and keeping blended finance separate from the Loss and Damage Fund.

Why should you read this report?

This report offers a critical counterweight to the more optimistic framing of blended finance found in World Bank and IFC materials. Rather than treating blended finance as a neutral technical instrument, it situates it within a broader argument about climate justice, debt and the historical responsibilities of the global north. For anyone working in climate finance, sustainability consulting or development economics, it is a useful corrective to the "silver bullet" narrative that dominates discussion at events like COP.

The report is also a strong practical resource. It brings together data from the OECD, IFC, DFI Working Group and Convergence in one place, along with a clear glossary and worked examples of blended finance structures, which makes it useful for readers who need to get up to speed on the mechanics of the sector quickly.

Who is this report for?

This report is relevant for public servants, policymakers and climate negotiators working on climate finance architecture, particularly those engaged in the ongoing process to set a post-2025 global climate finance goal (the NCQG). It will also be of interest to CSOs and researchers working on debt justice, climate justice or the reform of multilateral development banks.

Given the emphasis on the risks of privatisation, weak transparency and the mobilisation of private capital, the report will also be useful for decision-makers in development finance institutions, philanthropic funders and private investors who want a clear-eyed view of the criticisms levelled at the sector they operate in, alongside civil society readers who want to understand the technical detail behind those criticisms.

Read the full report here.