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Blended Finance

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The latest IPCC report shows a $1.6 to $3.8 trillion (USD) energy system investment requirement to keep warming within a 1.5 degree Celsius scenario to avoid the most harmful effects of climate change. Securing decarbonization pathways for developing and emerging countries is critical, yet in many cases, shallow and immature local financial markets, coupled with information asymmetries and market failures, discourage private investors.

Blended finance has emerged as one solution with significant potential to tackle this challenge. By strategically combining public and philanthropy finance and commercial investment in support of low-carbon investments, blended finance aims to mobilize additional finance for climate impact. Blended finance improves the risk-return profile of climate investments in developing countries by using a range of approaches, including the use of financial instruments to crowd in private finance (equity, loans, mezzanine instruments, guarantees, or grants) and mechanisms to structure instruments (funds, syndication, securitization, or public-private partnership).

SFI’s research on blended finance undertakes an assessment of the state of blended finance vehicles and priorities for action, drawing on in-depth case studies and engaging with institutional investors and development finance institutions. Working in partnership with investors, development finance institutions, NGOs, and governments, SFI will investigate and assess the structure and governance of blended finance vehicles with the goal of making recommendations for systems change aligned with 2050 deep decarbonization pathways.