Blended finance is a new and key mechanism for mobilizing private investment in support of sustainable development and climate action/finance. It uses concessional capital from public and philanthropic sources to reduce risk in transactions and attract commercial finance, thereby addressing investment gaps in emerging markets and developing economies. In recent years, a variety of such blended finance platforms have been established, including global convening networks, multilateral development banks (MDBs), development finance institutions (DFIs), thematic climate and nature funds, regional and national blended finance facilities, and green banks. These initiatives focus on directing capital to address challenges across sectors, including climate adaptation and mitigation, infrastructure and energy transition, nature and biodiversity conservation, support for small and medium-sized enterprises (SMEs), inclusive growth, and regional economic transformation.
In 2023, for instance, the Monetary Authority of Singapore (MAS) launched FAST-P (Financing Asia’s Transition Partnership) to finance green and transition projects in Asia. Additionally, the recent announcement, made on September 8, 2025, of securing nearly US$510 million in committed blended capital through the Green Investments Partnership (GIP), reflects a substantial shift toward leveraging catalytic public and philanthropic capital to mobilize institutional and private investments. It also reaffirms MAS’s strong commitment to mobilizing blended financing with external support, such as the Australian Government through Export Finance Australia and the EU, as part of its Global Gateway strategy, which contributed to the GIP. It is an excellent step towards the initial target of mobilizing up to US$5 billion for Asia’s decarbonization and, in turn, the growth of a greener economy.
The industry’s focus now extends beyond the climate finance goal to “how” to mobilize additional investments through cross-regional collaboration, along with blended financing commitments that span regional boundaries. Cross-sector blended financing and cross-regional support play a crucial role in unlocking private capital. By enabling such financing and capitalizing on opportunities, especially in Asian markets, governments, financial institutions, and investors can tackle climate challenges while promoting sustainable economic growth.
Despite the many industry-blending finance initiatives, within academia, only a few blended financing research programs exist that aim to lead and promote collaboration, research, and educational exchanges among institutions. Several studies offer comprehensive, comparative literature reviews of the roles of MDBs (McHugh, 2021), specific policies (Bhandary et al., 2021; De Haas, 2024), and DFIs (see, e.g., Ellalee, 2024; Léon, 2025) in mobilizing private sector finance. For instance, McHugh (2021) highlights that MDBs’ participation, risk appetite, and development finance mitigation influence pricing and credit availability. Bhandary et al. (2021) provide the strongest empirical support for climate finance policies, such as feed-in tariffs, tax credits, loan guarantees, and national development banks; however, their effectiveness is criterion-dependent. The academic evidence, instead, remains limited on national climate funds, targeted lending, disclosure, and green bonds. Recently, a review of public polices’ effectiveness for external financing reconfirms their context-dependent variation and limited evidence, especially for public lending through private lenders, subsidized credit, and export credit agencies (De Haas, 2024).
Further, DFIs are typically more active in mature and emerging markets, are often associated with larger firms, and exhibit limited risk appetite. This behavior differs from the expectation of engaging more in long-term, high-risk, socially beneficial, and financially viable projects, for which evidence is scarce (Ellalee, 2024). In practice, these institutions provide few concessions and often combine risk-management tools (e.g., first-loss guarantees, currency hedges, results-based payments) with non-financial support and co-financing to mobilize private capital (Flammer et al., 2025; Léon, 2025). For example, evidence from IFC deal-level analysis indicates that concessionality is higher for projects with greater sustainability impacts, and in countries with higher political risk and information asymmetries. In such contexts, agreements more frequently incorporate risk-management provisions—patterns consistent with purposeful targeting rather than indiscriminate subsidy (Flammer et al., 2025). Examining government-funded green banks, Rizzi et al. (2025) document an increase in climate-tech venture capital activity following loan issuance, consistent with catalytic effects. However, additional research on co-financing projects at environmental multilateral funds points to potential inefficiencies. Specifically, projects with higher co-financing ratios tend to deliver smaller emission reductions per gross dollar spent, suggesting a tension between “mobilization” metrics and environmental performance (Kotchen and Vogt, 2025).
Taken together, the overall academic evidence on blended finance research remains limited, with numerous reports and case studies, but a notable lack of rigorous studies in this area (Bertzky et al., 2020). To enhance climate finance investments, it is essential to deepen academic understanding of blended financing and to encourage more industry initiatives. Initiatives like the one undertaken by MAS could potentially inspire and encourage other countries and regions to establish similar platforms and funds, uniting efforts toward a common goal.
References:
- Bertzky, M., Doswald, N., Fernández de Velasco, G., Gotz, G., Habbel, V., Orth, M., Richter, J., Rocío Pérez, J.J., Sánchez Torrente, L. and Harten, S., 2020. The state of the evidence on blended finance for sustainable development: An evidence gap map. Working Paper.
- McHugh, C.A., 2021. Mobilising private funding of development finance. The Journal of Development Studies, 57(12), pp.1979-2001.
- Bhandary, R.R., Gallagher, K.S., and Zhang, F., 2021. Climate finance policy in practice: A review of the evidence. Climate Policy, 21(4), pp.529-545.
- De Haas, R. and González-Uribe, J., 2024. Public policies for private finance. Annual Review of Financial Economics, 17.
- Ellalee, H., 2024. Exploring the role of development finance institutions in developing nations. Working Paper.
- Léon, F., 2025. Development finance institutions in developing countries: A literature review. Clermont-Ferrand: Fondation pour les Études et Recherches sur le Développement International (FERDI). Report.
- Fammer, C., Giroux, T. & Heal, G.M., 2025. Blended finance. Working Paper.
- Rizzi, C., Xu, S., and Yoo, P., 2025. Government-funded green banks: Catalysts for the green transition. Working Paper.
- Kotchen, M.J. and Vogt, A., 2025. Is the emphasis on cofinancing good for environmental multilateral funds?. World Development, 187, p.106-831.
Dr Marinela Adriana Finta, Senior Research Fellow, Singapore Green Finance Centre