Given the multitude and variety of climate finance flows, a single global measurement tool is unavailable. As data can be sliced, aggregated, and analysed differently, it is important to take a comparative look at climate financing. In our 2022 State of Blended Finance report, we explored one piece of the bigger picture by taking a closer look at blended finance transactions. Using data from our Historical Deals Database (HDD), we analyzed a $108 billion market composed of 359 blended climate-focused deals in developing countries¹. Since the HDD only includes blended transactions, the trends we saw do not account for the entire market. Because of this, comparing our findings to other data sets similarly focused on climate financial transactions can be helpful.

Difficulties arise, however, in making direct comparisons since different organizations focus on different segments of the market. For example, Tameo looks at investments made specifically through private asset impact funds, while the Organization for Economic Cooperation and Development (OECD) considers only climate financing flows from developed to developing countries. Additionally, the International Renewable Energy Agency (IRENA) very narrowly looks at financial transactions that achieve indicator 7.a.1² of the Sustainable Development Goals (SDGs). Meanwhile, data from the Climate Policy Initiative (CPI) consists of primary capital flows directed toward low-carbon and climate-resilient development interventions, and the United Nations data we highlight focuses solely on private climate finance transactions.

While different data sources may explain some of the variability in overall findings, it is still useful to understand additional factors within the data sets that could lead to seemingly contrasting results. The sections below will attempt to explain how the findings in the 2022 State of Blended Finance compare to other publications in terms of overall climate finance trends.

Market trends in climate financing

In the 2022 State of Blended Finance, we found an overall downward trend in blended climate aggregate financing from 2016-2018 to 2019-2020, from $36.5 billion to $14 billion, respectively. Between these periods, the average size of climate-focused blended finance deals also decreased. Figure 1 below shows how between 2016-2018, deal counts remained relatively stable, and deal size averaged $367 million.³ From 2019-2021, deal count fluctuated to reach a high of 38 in 2020. However, the average deal size fell to $182 million, a 50% decrease from the previous three years. The decline can be partly attributed to private investors investing in smaller renewable energy projects on average and the size of their investment commitments to these projects also falling on average. The average size of public investors’ commitments to blended climate transactions also decreased between these time periods.

IRENA has similarly proposed that international public financial flows supporting clean energy in developing countries started decreasing before the COVID-19 pandemic and continued to do so through 2021. IRENA considers a few factors in explaining this decrease. One is that flows from public actors are inconsistent and variable year-over-year. In this case, a significant drop in hydropower public investment contributed to the overall decrease. A second factor suggests that despite the decrease beginning earlier, the COVID-19 pandemic caused an even larger shift in public funds in 2020. This explanation was also explored in the 2022 State of Blended Finance report as a reason for the decrease in blended finance funding.

On a broader scale, looking beyond blended transactions or those tied to Indicator 7.a.1, the OECD found that climate finance mobilized by developed countries to developing countries has actually increased annually since 2016. The increases have largely been driven by multilateral and bilateral public finance. The OECD data suggests that within public finance instruments (including multilateral and bilateral), non-concessional loans accounted for approximately 15% of total climate financing. This is in contrast to the Convergence HDD, which excludes transactions without a concessional component and may help explain the differing trends.

CPI similarly shows that total climate financing flows have been steadily increasing since 2011-2012, reaching a high of $632 billion in 2019-20. Part of this difference can be explained by looking at the regional focus of data within the HDD. Given that deals in the HDD focus on transactions within developing countries, the data excludes those that occur in other regions. In the CPI report, a significant portion of climate financing comes from strong domestic spending in China, which is not captured in the HDD. More specifically, CPI found that domestic climate flows in East Asia & Pacific accounted for $270 billion, or approximately 43% of total 2019-2020 tracked global climate investments. Of that amount, over three quarters of the investments were concentrated in China. In contrast, within the HDD, between 2019-2021, approximately 27% of climate deals were in West & East Africa, 13% were in South America, and 10% in South Asia.

Underrepresentation of adaptation deals

There is general agreement within different data sets on the dominance of mitigation over adaptation financing, even if the proportion of transactions vary. For example, we can compare the HDD’s findings (14% adaptation-focused); the United Nations (UN) World Investment Report 2022 (5%); the Climate Policy Initiative (CPI) findings (7%); and the Organization for Economic Cooperation and Development (OECD) data (34%) to clearly see the overreliance on mitigation strategies and the need for greater levels of private investment in adaptation transactions.

Due to their steep upfront costs, long investment timelines, and lack of clear revenue streams, adaptation investments more often fall in the public financing realm. This is apparent when we consider the data sources that primarily include private financing levels, such as the UN report that shows the lowest levels of adaptation financing (5%); without accounting for public contributions, adaptation financing is particularly underrepresented. Likewise, the prevalence of private sector investments in the CPI data can explain the lower proportion of adaptation transactions (7%). CPI also states almost all adaptation finance tracked in their study was funded by public actors.

The OECD data also supports the importance of public financing in adaptation. The report analyses flows from developed to developing countries, which tend to have a higher proportion of investments made by public sector entities. Specifically, public climate finance accounts for just over half of the OECD investment data. With a higher representation of public financing, there would be a higher proportion of adaptation transactions.

In general, the findings bolster the 2022 State of Blended Finance conclusion: adaptation finance is underdeveloped and requires expansion and acceleration. Overall, HDD climate data (see Figure 2 below) shows a clear imbalance between pure mitigation versus adaption flows, the former attracting $33.4 billion and the latter attracting only $3.8 billion.

One way to increase adaptation financing is to better incorporate adaptation goals into broader investment themes. In all climate investments captured by the Convergence HDD, hybrid investments (combinations of mitigation and adaption) represent under one-third of total climate financing. There are opportunities to consider adaptation in other investment cross-sections, such as non-energy related infrastructure projects. As discussed during the 2023 San Giorgio CPI meetings, another way is to create a standardized metric that allows progress to be measured, like how carbon dioxide equivalent is used for mitigation. Also discussed was the possibility of using existing successful structures, such as energy service companies (ESCOs), as a model for adaptation initiatives. ESCOs have proven to be an effective method of encouraging energy savings; they may provide inspiration to search for adaptation solutions.

Key Takeaways

In revisiting the 2022 State of Blended Finance and comparing it to other data sources, there are some key takeaways in how we look at climate finance flows.

• While climate deal count increased on average from 2016-2018 to 2019-2021, average deal size shrank, partly due to private investors investing in smaller renewable energy projects on average, and the size of their investment commitments to these projects also falling on average.
• Market trends in the HDD differ from those in the OECD and CPI reports, which show climate financing flows increasing annually, possibly because of the narrower regional focus and the exclusion of climate transactions without a concessional component in the HDD.
• The data sources agree on the under-representation of adaptation financing. Increasing adaption finance may be possible by better incorporating adaptation goals into broader investment themes and creating a standardized metric to measure progress.

Current estimates place the global annual investment required to meet the climate goals set out by the Paris Agreement at $5 trillion, with at least $1.6 trillion required per year in developing countries alone. To meet the challenge of climate change head-on, we need a greater commitment to climate financing and a continuous willingness to provide concessional financing in a way that benefits developing countries. By analyzing different markets and factors within climate deals, we can better understand where there are gaps and where there are opportunities. No one data set can provide a comprehensive outlook, but each can tell us something different about how we, as a collective, can better direct our funding to meet the climate change challenge.

1. For an overview of the available climate investment data within the Convergence HDD as of October 2022, refer to Figure 2.
2. Indicator 7.a.1 measures international financial flows to developing countries in support of clean energy research and development and renewable energy production, including in hybrid systems.
3. Transactions were considered climate-focused based on their alignment to select SDGs: SDG 7 (Clean Energy), SDG 11 (Sustainable Cities), SDG 13 (Climate Action), SDG 14 (Life Below Water) and SDG 15 (Life on Land). Note the data presented in Figure 1 is updated as of June 2023 and therefore does not exactly align with the data presented in the 2022 State of Blended Finance.