Following a 10-year low in blended finance investment in 2022, multilateral development banks and development finance institutions are investing in greater sums to tackle climate change.
Blended finance deals have reached a five-year high, growing to $15bn (€13.9bn) in 2023 as multilateral development banks (MBD) and development finance institutions (DFI) are investing in greater sums to tackle climate change.
Following a 10-year low in blended finance investment in 2022, DFI and MBD activity was central to the market rebound according to a report published by Convergence, a global network of 165 financial institutions with commercial financing from these groups growing by 140% in 2023 from $2bn in 2022 to $4.9bn in 2023.
Convergence’s State of Blended Finance reports— published since 2017— focus on climate blended finance which sees the mobilisation of private investment to emerging markets and developing economies (EMDE).
Concessional funding from the public sector to blended finance has been stagnant since 2018, with Official Development Assistance (ODA) totals dropping 45% from 2021 to 2023, according to the report.
This is in part due to the global response to Russia’s invasion of Ukraine—Ukraine was the primary recipient of ODA, with more than 90% directed to the public sector.
However, 2023 saw the launch of a series of substantial coalition-led blended finance initiatives deploying ODA instruments for deal pipeline development and catalytic capital efficiency, including the Blended Finance for the Energy Transition initiative, the Investment Mobilization Collaboration Agreement, and the Green Guarantee Company.
The latest figures point to a directional shift and mainstreaming of blended finance according to Convergence chief executive, Joan Larrea.
“Large, blended transactions are coming to market in close succession. Multilateral development banks and development finance institutions are investing in greater sums. The data point to continued mainstreaming of blended finance as a tool as well as progress in scaling up the practice,” said Larrea.
“We are taking steps in the right direction to close the Sustainable Development Goals’ financing gap, but we must stride farther and faster to raise the trillions needed to achieve the 2030 Agenda,” he added.
Billion-dollar SDG loan
The 28th United Nations Climate Change Conference (COP 28) marked a burst of action in EMDE investment underscored by the launch and announcements of a series of large transactions.
One of the larger deals was the SDG Loan Fund, a $1.11bn investment vehicle, devised by Allianz Global Investors and the Dutch Entrepreneurial Development Bank (FMO), and backed by the John D. and Catherine T. MacArthur Foundation, that looks to grow the exposure of institutional investors to climate, agriculture, and financial services investments in emerging markets.
To date, Convergence’s database contains 1,123 blended finance transactions with a total deal volume of $213bn. Over the last decade, the blended finance market has comprised 85 deals per year on average.
