Blended finance uses catalytic public or philanthropic capital to de-risk investments and mobilise private money for sustainable development in emerging markets. It is a structuring approach, not an asset class, that addresses the fundamental challenge of financing projects with strong development impact but commercial returns that may not initially attract private capital.

Market Scale and Growth

The market is still small relative to need: $18 billion in annual flows in 2024 (Convergence), with $213 billion invested cumulatively across 1,123 deals since inception (Convergence, 2024). This contrasts sharply with the $4 trillion annual SDG financing gap, highlighting both the challenge and the opportunity for scaled deployment.

Market momentum is building. Following a rebound from 2022 lows, blended finance reached a five-year high in 2023, with deals trending larger and more frequent. The median deal size increased to $65 million in 2024, reflecting growing ambition and institutional participation (Convergence, 2024).

How It Works

Blended finance mechanisms include first-loss capital that absorbs initial losses to protect commercial investors, concessional debt or equity offered at below-market rates, guarantees and risk insurance that transfer specific risks away from private investors, technical assistance to build capacity and reduce execution risk, and dedicated blended vehicles that pool different types of capital.

The key is strategic layering of capital with different risk-return profiles. Development finance institutions, donor agencies, and philanthropic funders provide patient capital that enables commercial investors to participate in markets and projects they would otherwise avoid due to perceived risks or insufficient returns.

Sector Applications and Impact

Applications span diverse sectors addressing critical development needs. Climate and energy investments include renewable energy projects, grid infrastructure, and climate adaptation measures. Financial services focus on expanding access to banking, credit, and insurance in underserved markets. Infrastructure projects encompass transport, water, and digital connectivity essential for economic growth.

Agriculture investments support smallholder farmers, sustainable farming practices, and agricultural value chains. Healthcare applications include medical facilities, pharmaceutical access, and health technology solutions for low-income populations.

Climate Finance Leadership

Climate-related blended finance has emerged as a standout success, growing by 120% to $18.3 billion in 2023 (Convergence). This growth reflects private sector recognition that climate solutions in emerging markets offer both impact and commercial opportunity, particularly in renewable energy where costs have declined dramatically. However, adaptation financing remains significantly underfunded compared to mitigation projects.

By strategically combining public patience with private efficiency, blended finance offers a scalable model for channeling the trillions needed to achieve global development goals whilst delivering returns for all stakeholders involved.

Climate finance directs capital specifically towards climate change mitigation and adaptation, representing the largest and most established category within sustainable finance. Unlike broader green finance, it has a precise focus: reducing greenhouse gas emissions and building resilience to climate impacts, particularly in developing countries most vulnerable to climate change.

International Framework and Commitments

Climate finance operates within a robust international policy framework anchored by the Paris Agreement. Developed countries committed to mobilising $100 billion annually for developing country climate action, with ongoing negotiations to scale up future targets significantly.

The UNFCCC defines climate finance as local, national, or transnational financing that seeks to support mitigation and adaptation actions addressing climate change. This includes public, private, bilateral, multilateral, and alternative sources of funding.

Market Scale and Growth

Climate finance flows have grown substantially but remain insufficient relative to global needs. The sector has seen significant acceleration in recent years driven by policy support and falling clean technology costs, though comprehensive tracking remains challenging due to varying definitions and methodologies across institutions.

Mitigation vs. Adaptation Balance

Climate finance traditionally skewed heavily towards mitigation (emission reduction) projects, which often generate clearer revenue streams. Renewable energy, energy efficiency, and sustainable transport attract substantial private investment. However, adaptation financing—building resilience to climate impacts through infrastructure, agriculture, and disaster risk reduction—has received significantly less funding despite urgent need.

Recent years show growing recognition that adaptation is equally critical, with new initiatives and funding mechanisms being developed to address this imbalance.

Delivery Mechanisms

Climate finance flows through diverse channels including bilateral climate funds managed by development agencies, multilateral climate funds like the Green Climate Fund and Adaptation Fund, development finance institutions providing concessional climate loans, climate bonds issued by governments and corporations, and private climate investment in clean technologies and resilient infrastructure.

Blended finance mechanisms increasingly combine public climate funding with private investment to scale up deployment, particularly in emerging markets where risk perceptions may deter purely commercial investment.

Measurement and Accountability

Robust measurement frameworks track climate finance flows and impacts, with institutions like the OECD and Climate Policy Initiative providing market analysis and transparency. Enhanced reporting requirements are being developed to ensure climate finance delivers genuine additional impact rather than relabelling existing development aid.

By channelling capital towards both emission reductions and climate resilience, climate finance serves as the financial backbone of global climate action.

Impact investing deliberately seeks measurable social and environmental outcomes alongside financial returns. Its hallmarks are intentionality, measurability, and accountability, setting it apart from ESG integration, which mainly manages risk, and philanthropy, which typically foregoes financial returns.

Market Scale and Momentum

The market has grown to $1.571 trillion in 2024, managed by over 3,900 organisations worldwide (GIIN, Sizing the Impact Investing Market 2024), representing a 21% compound annual growth rate since 2019. This reflects impact investing's evolution from a niche strategy to mainstream investment approach.

Driving Forces

Growth is powered by multiple converging trends. Younger investors increasingly seek alignment between values and portfolios, whilst institutional uptake from pension funds, insurance companies, and asset owners is accelerating (GIIN, 2024). Evidence of competitive returns has dismantled the myth that doing good requires sacrificing profit—around 90% of investors report satisfaction with their financial performance (GIIN, State of the Market 2024) whilst achieving meaningful impact outcomes. Innovation in financial structures and technology, combined with supportive policy frameworks, are creating new deployment opportunities and enabling environments for impact investing to flourish.

Sector Applications

Impact investing spans diverse sectors addressing critical global challenges: financial inclusion for underserved populations, healthcare access through medical facilities and health technology, education via workforce development and digital learning, sustainable agriculture promoting regenerative farming, climate solutions including renewable energy and adaptation technologies, affordable housing addressing urbanisation challenges, and circular economy innovations creating value from waste reduction.

Measurement and Accountability

Credibility depends on robust frameworks that distinguish genuine impact from superficial claims. IRIS+ provides the generally accepted system for measuring, managing, and optimising impact (GIIN), offering standardised metrics aligned with the UN Sustainable Development Goals. Third-party verification and ensuring additionality—impact that would not occur through business-as-usual scenarios—remain critical for maintaining integrity.

Impact Venture Capital

Impact VC represents a particularly dynamic segment, backing early-stage companies developing scalable solutions to social and environmental challenges. From fintech platforms expanding financial inclusion to healthcare technology improving rural access, impact VCs fund innovations that achieve both competitive returns and systemic change through rapid scaling of purpose-driven technologies.

By combining capital with purpose, impact investing proves that profit and positive change can reinforce each other at scale, offering a pathway toward more inclusive and sustainable economic growth.

Just Transition Finance directs capital towards ensuring the shift to a sustainable economy is fair and inclusive, leaving no one behind. Unlike traditional climate finance, which focuses primarily on environmental outcomes, it explicitly addresses the social equity dimensions of decarbonisation, particularly for workers and communities dependent on fossil fuel industries.

The Equity Imperative

The transition to net zero will fundamentally reshape economies, with some regions and sectors facing significant disruption. Coal miners, oil refinery workers, and entire communities built around carbon-intensive industries risk being stranded without targeted support. Just transition finance recognises that climate action must be socially sustainable to be politically viable and morally acceptable.

Policy Framework and Scale

The concept has gained substantial institutional backing. The EU's Just Transition Fund allocates €150 billion to support affected regions, whilst the ILO provides formal guidelines for just transition approaches. The principle is embedded in the Paris Agreement's preamble and was reinforced at COP26 in the Glasgow Climate Pact.
However, comprehensive market sizing remains challenging as just transition elements are often embedded within broader sustainable finance flows rather than tracked as a distinct category.

Mechanisms and Applications

Just transition finance operates through workforce retraining programmes that prepare workers for green economy jobs, economic diversification initiatives that create new industries in carbon-dependent regions, community-led development projects that ensure local ownership of transition processes, social infrastructure investments in healthcare, education, and digital connectivity, and Indigenous and local community financing that respects traditional knowledge and land rights.

Regional Focus

Applications are particularly concentrated in coal-mining regions, oil-producing areas, and industrial zones facing transformation. Examples include financing renewable energy manufacturing in former coal regions, supporting sustainable agriculture transitions for fossil fuel-dependent rural communities, and investing in green skills development for displaced workers.

Growing Recognition

Major financial institutions increasingly recognise that ignoring social impacts can undermine climate investments through political backlash or social unrest. Just transition finance represents an evolution in sustainable finance thinking—acknowledging that environmental sustainability and social equity are mutually reinforcing rather than competing priorities.

By ensuring that the benefits and costs of the green transition are fairly shared, just transition finance helps build the social license necessary for the rapid decarbonisation the climate crisis demands.

Nature finance is reshaping how we value and invest in the natural world. Healthy ecosystems are not just environmental assets — they are economic necessities, from the pollination services that sustain agriculture to the wetlands that protect coastal cities from flooding.

What is Nature Finance?

Nature finance directs money towards protecting and restoring the environment whilst generating returns for investors. Unlike clean energy investments, nature finance specifically focuses on protecting wildlife, restoring damaged ecosystems, and using natural resources sustainably. This happens through several approaches: biodiversity credits that reward landowners for restoration projects (currently being tested in Australia, Colombia, and the UK, with the European Commission planning a certification framework by 2027), funding for conservation efforts, investments in natural resources, and payments to landowners for protecting ecosystems.

The world needs around $700 billion annually to properly protect biodiversity (UK Government Biodiversity Finance Trends Dashboard 2024), creating both a massive funding gap and an investment opportunity. Companies that have started early are finding that nature-based solutions can deliver real environmental results whilst also making money — proving that conservation doesn't have to mean sacrificing profits.

Why This Matters Now

Climate change and the loss of wildlife are connected problems. Nature finance tackles both by protecting forests, wetlands, and other natural areas that absorb carbon whilst supporting farming methods that improve soil health and food security. This approach creates water systems that protect against floods and droughts, builds supply chains that work with nature rather than against it, and creates new income streams from services that nature provides for free.

New regulations are speeding up this change. Over 500 organisations have now adopted the recommendations of the Taskforce on Nature-related Financial Disclosures, the EU's Nature Restoration Law, and corporate sustainability reporting rules are making companies measure and report their impact on nature. This affects their credit ratings, insurance costs, and access to markets.

Investment Opportunities

The sector offers various ways to invest across different risk levels. Conservation finance funds protected areas and restoration projects, generating returns through eco-tourism, carbon markets, or sustainable resource use. Sustainable agriculture investments support regenerative farming, new technologies, and resilient supply chains. Blue economy investments focus on sustainable fishing, ocean-based renewable energy, and coastal protection. Nature-based infrastructure like wetlands, green roofs, and natural flood plains often work better and cost less than traditional concrete-and-steel solutions. Biodiversity credits represent emerging markets that pay for improvements in species and ecosystem health, though these markets are still developing.

From nature-focused start-ups to large institutional investments, nature finance is becoming a real investment category — though it's still in its early stages.

Sustainable finance is reshaping the global financial system, shifting from short-term returns to a broader view: long-term prosperity depends on environmental sustainability and social responsibility.

Beyond Traditional Finance

Sustainable finance integrates environmental, social, and governance (ESG) factors into decision-making. Unlike philanthropy or CSR, it acknowledges that environmental and social risks are also financial risks. Integration is no longer optional — it is essential for resilience and long-term value creation.

Market Growth

The sustainable finance market shows robust growth, though estimates vary significantly based on methodology and scope. Recent assessments indicate the market reached approximately $5.87 trillion in 2024 for assets explicitly integrating ESG factors, whilst global sustainable fund assets alone totalled $3.2 trillion by year-end. Annual issuance of green, social, sustainability and sustainability-linked bonds reached $1.1 trillion in 2024. Together, these figures demonstrate the rapid scaling of sustainable finance globally.

Driving Forces

Regulation: EU Taxonomy, ISSB standards (effective January 2024), and SEC climate disclosure rules (adopted March 2024 but currently stayed pending legal challenges) are transforming compliance.

Risk Management: Climate impacts and stranded assets are now mainstream portfolio concerns.

Consumer Demand: Sustainability credentials influence market share and brand value.
Innovation: Clean technology, renewable energy, and circular models are unlocking new opportunities.

Financial Innovation

The toolkit includes instruments and strategies such as green bonds (capital earmarked for environmental projects), sustainability-linked loans (rates tied to borrower sustainability performance), ESG integration (systematic analysis of ESG risks and opportunities), impact investing (intentional pursuit of measurable social/environmental outcomes), transition finance (supporting hard-to-abate sectors on net-zero pathways), and blended finance (combining public and private capital to de-risk projects in emerging markets).

Sustainable finance shows that aligning money with mission is not only possible but increasingly necessary — dismantling the outdated trade-off between profit and purpose.

Industries responsible for most emissions — steel, cement, aviation, shipping, oil & gas, and heavy manufacturing — require deep technological change, not quick substitution. Transition finance supports this transformation through hydrogen-based steelmaking, sustainable aviation fuels, carbon capture and storage, and industrial efficiency upgrades.

According to the International Energy Agency's 2023 Net Zero Roadmap update, achieving net zero requires around $4.5 trillion in annual clean energy investment by the early 2030s. Transition finance is therefore indispensable.

Strategic Importance

Targets high-emission sectors where change has the biggest climate payoff, supports staged pathways aligned with technology readiness and infrastructure needs, mobilises private capital beyond concessional or government funds, prevents stranded assets whilst protecting carbon-dependent economies, and enables a Just Transition, safeguarding workers and communities.

Ensuring Credibility

To avoid greenwashing, credible transition finance must include science-based targets aligned with 1.5°C pathways, interim milestones with transparent disclosure, technology roadmaps and scaling timelines, capex alignment showing majority spend on transition activities, and independent frameworks (GFANZ, ICMA, OECD) for guidance and verification. Critics warn that weak standards risk becoming a licence to delay. Clear frameworks are essential to ensure real progress.

Market Development

Transition finance is advancing through transition bonds (with Japan becoming the dominant market and issuing the world's first sovereign transition bond in 2024), sustainability-linked finance tied to emissions KPIs, blended finance to de-risk emerging market investments in new tech, active ownership strategies pressing companies for credible plans, and policy support via OECD, ICMA, and national taxonomies.

When governed by robust standards, transition finance accelerates systemic change and unlocks major new markets for investors seeking both returns and climate impact.