Sliced: Blended Finance – A Key Catalyst for Climate Action
Gordian Knot Strategies
We are Igniting Climate Solutions: Mobilizing $1 Billion Per Year in Impact Investment by 2030!
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By: Jay Tipton
The need for climate finance has never been more urgent. We are watching disasters unfold in real time – wildfires reducing homes to ash, floods leveling entire communities, and heat waves pushing ecosystems to their limits. Although, global climate finance reached an all-time high of nearly USD 1.3 trillion per year in 2021/2022, but this is still nowhere near enough. According to recent assessments by Climate Policy Initiative, annual climate finance flows must increase by at least sixfold to meet the scale of the crisis, reaching USD 8.5 trillion per year between now and 2030, and over USD 10 trillion per year from 2031 to 2050. Without this level of investment, keeping global temperature rises within 1.5°C by the end of the century and avoiding the worst impacts of climate change will be out of reach.
Traditional financial systems are simply not built for a crisis of this scale. If we want real change, we need to rethink how money moves. As we wrote about in the first 'Our Take' of the new year last week, 'IMPACT 2025 Predictions,' in the realm of impact investing, we believe 2025 will be the year of blended finance, as the combination of public, private, and philanthropic capital continues to gain traction. This approach reduces risk for private investors and enables the mobilization of large-scale capital to address climate change and sustainability challenges. Enter blended finance.
Blended finance takes capital from public, philanthropic, and private sources and strategically layers it to reduce risks that typically deter investors. It’s not a silver bullet, but it’s proving to be an effective mechanism for scaling up climate investments. By absorbing some of the early risks through grants, guarantees, and concessional loans, governments and nonprofit organizations help create the conditions that make climate projects more attractive to institutional investors and commercial lenders. This approach doesn’t just unlock more capital; it catalyzes momentum, making climate solutions viable at a scale that would otherwise be out of reach.
One of the areas where blended finance is making a measurable impact is in natural climate solutions – particularly sustainable agriculture and forestry. These landscapes do more than just support biodiversity; they are among our most powerful tools for pulling carbon from the atmosphere and stabilizing the climate. Yet, financing these solutions has historically been a challenge. Blended finance is changing that. Farmers are gaining access to capital that allows them to adopt regenerative practices, restoring soil health while keeping carbon in the ground. The Land Degradation Neutrality Fund is one example, directing investment into sustainable land-use projects that rebuild degraded ecosystems. Meanwhile, long-term financing structures like the Tropical Landscape Finance Facility in Indonesia are ensuring that forests continue to provide economic and environmental value rather than being cleared for short-term profit.
These aren’t just theoretical models – blended finance is already at work in the real world, shifting billions toward critical climate projects. The Climate Investment Funds have successfully mobilized private capital to expand renewable energy and build climate resilience. The Green Climate Fund has blended public and private capital to fund climate-smart infrastructure in vulnerable regions. The &Green Fund has given investors the confidence to back large-scale conservation projects, knowing that some of the financial risks are mitigated by public and philanthropic partners. These successes illustrate the power of blended finance in bridging the gap between ambition and action.
That said, no financial mechanism is perfect. One of the most significant challenges facing blended finance is ensuring that public funds aren’t just subsidizing private returns. If too much risk is offloaded onto public entities, private investors may become dependent on these guarantees rather than building self-sustaining financial models. The complexity of blended finance structures also raises concerns about transparency and accountability. Are funds reaching the communities that need them most? Are projects delivering on their promises? These questions highlight the need for strong policy frameworks and rigorous oversight to ensure blended finance works as intended.
Despite the challenges, blended finance is set to play an even greater role in the climate transition. With carbon markets expanding, impact investing gaining traction, and governments tightening sustainability regulations, there is a growing recognition that traditional financing models alone won’t cut it. New financial instruments, like blue bonds for ocean conservation, are emerging as powerful tools to scale climate solutions even further, as shown by the International Finance Corporation (IFC). The momentum is building, but only if governments, investors, and financial institutions commit to pushing it forward.
Blended finance won’t solve the climate crisis on its own, but it’s one of the best tools we have for closing the investment gap and mobilizing resources at the scale this crisis demands. The opportunity is here, and the need has never been greater. If we want to move beyond theoretical commitments and into transformative action, we must lean into blended finance with everything we’ve got. The climate isn’t waiting – and neither should we.
领英推荐
The?U.S. Endowment for Forestry and Communities?has announced an RFP for their new Impact Investing Program. The program seeks to deploy up to?$5 million in 2024 through impact investments?in companies, funds, or projects that advance systemic, transformative, and sustainable benefits for the health and vitality of?working forests and forest-reliant communities in the United States.
Gordian Knot Strategies is supporting the development of the Impact Investing program. We encourage you to read the Endowment’s press release?here, review the RFP materials?here, and share with your network.
This is a great opportunity for companies and project developers seeking capital on reasonable investment terms. Please note that this is not a grant making endeavor.
An informational webinar about the RFP response process was held on January 15, 2025. A recording of the webinar is available?here.
Deadline for initial “pre-screen” submittal:?Wednesday, February 5, 2025 by 5pm PST
Deadline for final submission:?Thursday, March 13, 2025 by 5pm PST
Please direct any questions to:?[email protected]
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