Why blended finance?

Blended finance is defined as the strategic use of catalytic or concessional capital from public, philanthropic, or development sources to improve the risk-return profile of investments. This approach aims to unlock private capital flows into underserved markets and sectors to generate measurable social, environmental, and economic impact. The report highlights that blended finance is a critical tool for aligning public and private capital around shared objectives, particularly as economic uncertainty and tightening balance sheets constrain capital flows. A key highlight is the concept of “business-led blended finance,” where real economy players move from being passive recipients to active architects of deals, shaping transactions around operational realities and on-the-ground needs.

Market overview: Moving from proof-of-concept to scale

The blended finance market has grown rapidly, reaching $24 billion in 2024, up from $14 billion in 2020. Despite this growth, an estimated $4 trillion annual financing gap for the Sustainable Development Goals (SDGs) persists. The report identifies that growth has been driven largely by a small number of mega-transactions rather than a proportional increase in the number of projects financed. Geographically, Sub-Saharan Africa remains the primary anchor for transactions, capturing 46 per cent of total market deals, followed by Latin America and the Caribbean at 17 per cent. In 2024, corporate recipients accounted for $23 billion of the $24 billion total capital, representing a 93.8 per cent allocation and suggesting the ecosystem is increasingly effective at channeling funds to the real economy.

Business-led blended finance: Strategic operators, not passive financiers

A clear divide has emerged between companies as recipients of blended finance and as capital providers. While corporate recipients have increased, corporate participation as active investors has remained largely stagnant, with deal counts consistently below 34 per year. Corporate investment is heavily skewed towards energy and infrastructure, which together account for 74 per cent of corporate activity (46 per cent for energy and 28 per cent for infrastructure). The report recommends that business leaders build readiness now to act decisively when opportunities emerge. Suggested actions include aligning blended finance to long-term growth targets, investing in cross-sector relationships with Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) early, and prioritising peer learning across sectors and regions.

Business-led blended finance in practice

The playbook showcases several case studies to demystify deal design. In the United Kingdom, a £500 million government grant enabled Tata Steel UK to accelerate a £1.25 billion transition to electric arc furnace technology, reducing emissions at Port Talbot by approximately 90 per cent. In Ethiopia, a consortium led by Safaricom utilised $1 billion in MIGA guarantees and IFC equity and debt to expand digital access in a high-risk market. Another example is the SoutH2 Corridor, where Snam partnered with the EU to secure a €24 million grant for engineering and feasibility studies for a hydrogen pipeline connecting North Africa to Europe. In Mexico, the Aguas Firmes programme, driven by AB InBev subsidiary Grupo Modelo and GIZ, mobilised $10 million in its first phase to manage aquifers through nature-based solutions.

Resources for practitioners: Risk management, capital structuring and due diligence

To navigate the complexity of these deals, the report provides a toolkit for identifying and matching investment barriers to appropriate instruments. Key risks identified include credit, market, political, currency, liquidity, and inflation risks. Blended finance archetypes such as concessional debt and equity, which dominate the market at 72 per cent of transactions, help mitigate these barriers. The playbook also features a due diligence checklist covering financial, legal, and operational readiness. It notes that due diligence is often the costliest hurdle, as transaction costs can be high and processes can take six to nine months or even over a year for public funds and MDBs. The report suggests that early planning and internal team alignment across finance, legal, and sustainability functions can significantly reduce these burdens.

Blended funds in action

Blended funds offer a strategic pathway to mobilise capital for specific themes. The Water Access Acceleration Fund (W2AF), initiated by Danone and managed by Incofin, closed at €61 million to scale water access businesses in underserved markets. In India, Rite Water utilised a €7.5 million equity investment from W2AF to strengthen its balance sheet and triple its commercial debt exposure to €16.3 million, enabling the rapid deployment of solar water pumps. In Zimbabwe, the Zimbabwe Renewable Energy Fund (ZimREF) provides technical assistance and investment, including an $810,000 loan to Mater Dei Hospital for a solar power system, illustrating how local knowledge from businesses is vital when finalising blended finance transactions.