Toronto, 30 October 2024 — Today, Convergence, the global network for blended finance, launches its flagship report the State of Blended Finance 2024: Climate Edition.
The report finds that the climate blended finance market saw its highest ever annual financing total in 2023, growing by 120% to $18.3 billion in aggregate investment from $8 billion the year prior.
What is notable is that this increase is coming from the private sector and commercial capital, as the amount of donor capital entering blended finance has stayed constant. The report finds that private sector investment into climate blended finance increased by almost 200% in 2023, in addition to a 60% increase in commercial financing from development finance institutions (DFIs) and multilateral development banks (MDBs).
This was the first year Convergence published two State of Blended Finance reports, one in the spring focused on the entire blended finance market, and the current edition focused on climate. The decision to publish an annual climate edition was in response to investors’ increasing focus on climate and the urgent need for up-to-date data.
“The last edition of the report published this spring found that annual blended finance volumes reached a five-year high of $23 billion,” says Ayesha Bery, Manager at Convergence and a lead author on the report. “Taken together, the findings from the two reports, as well as the presence on a number of very large transactions recently, signal to us that the blended finance market is maturing and that private investors, long reticent, are investing in these structures at volumes never before seen.”
Among private sector investors, financial institutions have been the most consistently engaged in climate blended finance, investing $7.2 billion and $4.2 billion in renewable energy and energy efficiency/emissions reductions respectively in the last three years. The report finds that institutional investors have also played a bigger role in climate blended finance. Over the past three years, 60% of all blended finance deals involving institutional investors have focused on climate initiatives, with financing from institutional investors rebounding sharply to $870 million in 2023, following a significant decline in 2022 and several years of relative stagnation.
“After years of seeing blended finance, and climate blended finance more specifically, fall short of expectations, the findings from this report are heartening. It’s telling us the market is finally getting smarter, more efficient, and bolder with how it uses limited catalytic capital,” says Joan Larrea, CEO at Convergence. “However, we have lost time. Achieving major results will require maintaining this direction, but progressing at a much faster pace.”
While it has been a landmark year for climate blended finance, gaps remain. Climate adaptation continues to be underfunded, lagging behind mitigation, and private sector participation in these projects remains limited. The report noted 32 adaptation blended finance transactions between 2021 and 2023, with a total value of $3.5 billion, compared to 132 blended finance transactions targeting climate mitigation for 2021 to 2023, with a total value of $26 billion..
However, the report finds opportunity to increase financing flows towards adaptation through cross-cutting transactions, which contain both climate adaptation and mitigation components. Convergence has captured 63 cross-cutting blended finance transactions between 2021 and 2023, with a total value of $10 billion. These transactions contain elements that may be more familiar and are seen as less risky to traditional investors. The report finds that the growing maturity of the mitigation market may provide opportunities for blended finance to shift into transactions that bring in elements of adaptation.
The report also focuses on countries’ Nationally Determined Contributions (NDCs), which will be renegotiated in early 2025. At this critical juncture, the report reflects on the challenges to implementing the NDCs and explores how blended finance can support governments in developing economies to create investment plans that can better direct investors to where climate financing is most needed. The report includes case studies on how blended finance has been integrated within NDC implementation in Indonesia, Rwanda, and Belize.
Analysis in the report draws from Convergence’s Historical Deals Database, the largest and most detailed database of historical blended finance transactions, comprising 1,233 blended finance transactions with a total investment of $231 billion.
Read the State of Blended Finance 2024: Climate Edition here.
About Convergence
Convergence is the global network for blended finance. We exist to increase private investment in emerging markets and developing economies to advance the UN Sustainable Development Goals and Paris Agreement.
Our members include private investors looking to diversify their portfolios, businesses seeking capital, as well as public agencies and philanthropic foundations looking to make their funds go further.
Media Contact
Sijia Yi
Head of Communications
Convergence
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