As the world accelerates efforts towards its climate goals, a persistent question remains unanswered: where will the money come from?
According to the OECD and Climate Policy Initiative, emerging markets and developing economies will require more than US $2.5 trillion annually through 2030 to meet climate and Sustainable Development Goals (SDG) commitments.
Yet traditional funding sources such as multilateral aid, national budgets, or ESG capital are far from sufficient. This is where blended finance enters the picture, not as a silver bullet but as one of the promising mechanisms to unlock scale, share risk, and catalyze cross-sector collaboration.
Blended finance refers to the strategic use of public or philanthropic capital to mobilize private investment into socially beneficial projects. Think of it as catalytic capital that uses guarantees, first-loss layers, or concessional debt to make climate and development investments more attractive to commercial investors. In its ideal form, it de-risks innovation without distorting markets, striking a balance between impact and financial returns.
While the concept is not new, in 2025 it is being reimagined. From green infrastructure to electric mobility, sustainable agriculture to carbon markets, Blended Finance 2.0 is not just about attracting capital- it is about structuring it for long-term systemic change.
The biggest challenge in sustainable development finance is risk asymmetry. Many climate-aligned investments, such as solar mini-grids in rural India or regenerative farming in sub-Saharan Africa, carry perceived or real risks that deter commercial lenders: limited credit histories, policy uncertainty, long payback periods, or underdeveloped exit routes.
Public capital alone cannot fill this gap. But when blended strategically with private capital, it can lower the risk-return threshold, making these projects viable for a wider range of investors, including pension funds, development finance institutions (DFIs), and sovereign wealth funds.
Blended finance thus creates a win-win: public capital achieves development impact while private capital earns risk-adjusted returns. It also promotes better alignment between investment design and development priorities, focusing on local resilience, inclusivity, and long-term co-benefits.
India has emerged as a vibrant testing ground for blended finance structures, particularly across green infrastructure and social development sectors. Flagship programmes such as PM-KUSUM (for solarizing agriculture), the National Bio-Energy Mission, and urban transport electrification initiatives have successfully adopted blended models involving government subsidies, World Bank loans, and private EPC partnerships.
Institutions such as the Green Climate Fund (GCF) and the International Solar Alliance (ISA) have further channelled blended finance into Indian solar parks, rooftop solar projects, and electric bus systems, while domestic NBFCs like IREDA and SIDBI have played a crucial role in on-lending concessional credit lines to smaller borrowers in underserved markets.
More recently, India’s sustainable finance ecosystem has evolved rapidly. In March 2025, a joint workshop by the Organisation for Economic Co-operation and Development (OECD), Bureau of Energy Efficiency (BEE), and multilateral partners highlighted new de-risking instruments, including energy-savings insurance, concessional capital layers, and currency-risk buffers to unlock private capital for large-scale energy-efficiency projects across India.
Simultaneously, a 2025 report by CRISIL projects that India’s green investments will rise fivefold to ₹31 lakh crore (≈ US $3.8 trillion) by 2030, underscoring the urgency of expanding blended public-private structures, risk-sharing facilities, and technical assistance platforms to sustain the momentum.
These developments signal a maturing blended finance landscape in India. One that treats catalytic capital not as philanthropy but as a strategic financial architecture designed to mobilize institutional investors toward renewable energy, energy efficiency, and nature-based solutions.
Blended Finance 1.0 was often project-specific and donor-driven, limited in scale and replication. In contrast, Blended Finance 2.0 is about building enabling ecosystems. This means not just funding a solar park, but creating regulatory frameworks, risk-sharing facilities, and carbon pricing signals that enable multiple similar projects to flourish across regions.
It also involves integrating climate metrics into broader financial systems. For instance, green taxonomy-aligned blended funds can help standardize definitions and reporting, boosting investor confidence. Similarly, integrating ESG factors into sovereign credit assessments can incentivize governments to design climate-aligned PPPs more effectively.
Technology is reshaping the field, too. AI-driven risk analytics, digital finance platforms, and climate data portals are making it easier to evaluate and monitor impact at scale, addressing one of the long-standing criticisms of blended finance: lack of transparency and clarity on outcomes.
To strengthen the ecosystem of professionals capable of deploying blended finance and leading sustainability transitions, higher education institutions are stepping in. One notable example is IIM Kashipur, which has launched an Executive Programme in Net Zero Strategy & Sustainability Leadership in collaboration with evACAD
The 11-month program is tailored for working professionals with at least two years of experience. It combines live online learning, self-paced modules, and a two-day campus immersion at IIM Kashipur.
Key highlights:
By nurturing sustainability-literate professionals, IIM Kashipur is directly addressing one of the key gaps in the blended finance ecosystem: the shortage of leaders who can align climate finance, policy, and business strategy to drive systemic change.
In a world defined by climate urgency and fiscal constraint, blended finance is not a luxury; it is a necessity. To realize its potential, we must move from pilot projects to platforms, from donor dependence to market alignment, and from ad hoc interventions to institutional innovation.
Blended Finance 2.0 is about building resilient, investable ecosystems where capital is not just deployed but multiplied. Where public funds lay the foundation, private capital builds the future, and professionals lead with a sustainability mindset.
The climate transition will ultimately be won or lost in the capital markets. With the right architecture and with trained professionals, blended finance can be the bridge that gets us there.
%20(1).png)
.webp)
