Following a WAPPP Roundtable on ‘Exploring Blended Finance Approaches for Climate Adaptation’ held on 5 December 2024 with Ayesha Bery, Convergence – Blending Global Finance; Morgan Després, European Climate Foundation; Dr. Amgad El Mahdi, Green Climate Fund; Juan José Febles, European Investment Bank; Lucia Fuselli, Climate Strategy Consulting and WAPPP Energy Chapter Chair; Darian Stibbe, The Partnering Initiative; and Fatima Zohra Rahmoun, PPP Unit, Morocco and Executive Member, WAPPP, this article aims to inspire further dialogue and action among policymakers, private investors, and philanthropic leaders. We believe that together, we can unlock the full potential of blended finance and build a resilient, equitable future for all.
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As the world grapples with the escalating impacts of climate change, the need for innovative financing mechanisms to support climate adaptation has never been more critical. Blended finance, a model that strategically combines public, private, and philanthropic resources, has emerged as a powerful tool for advancing climate adaptation efforts. This approach is particularly vital for projects that lack clear revenue streams, often making them less attractive to traditional investors. Moreover, philanthropy plays a catalytic role in this landscape, driving systemic change and fostering resilience in vulnerable communities.
Blended Finance: A Pathway to Climate Resilience
Blended finance addresses the inherent challenges of climate adaptation by de-risking projects and unlocking private investment. It achieves this by leveraging concessional capital—grants, low-interest loans, or guarantees—to bridge the gap between public and private sector expectations. The mechanism is particularly effective in adaptation projects, often involving long-term, non-commercial benefits.
Recent trends indicate a growing focus on adaptation within blended finance, albeit still trailing behind mitigation efforts. In 2023, adaptation projects constituted a smaller share of climate finance, yet they demonstrated innovative applications such as debt-for-nature swaps and nature-based solutions. These models align climate adaptation goals with conservation and sustainable development, showcasing the potential of blended finance to create co-benefits across sectors.
Challenges and Opportunities in Adaptation Financing
Despite its promise, blended finance for adaptation faces several challenges:
1. Pipeline Development: Adaptation projects require strong coordination among national and local governments, private stakeholders, and civil society to build scalable, investable opportunities.
2. Capacity Building: Many vulnerable countries lack the institutional and technical capacity to design and implement complex financial mechanisms.
3. Perception of Risk: Adaptation projects, often perceived as less profitable, need innovative financial structuring to attract private capital.
Addressing these barriers requires a multi-stakeholder approach, combining technical assistance, knowledge sharing, and policy alignment to create an enabling environment for investment.
The Transformative Role of Philanthropy
Philanthropic organizations have emerged as key players in blended finance for climate adaptation. Their contributions extend beyond funding, driving systemic change through de-risking investments, fostering innovation, and ensuring project design and implementation equity.
1. De-Risking Investments: Philanthropy absorbs early-stage risks, making adaptation projects more appealing to private investors. This often involves providing technical assistance grants, feasibility studies, and initial structuring support.
2. Focus on Adaptation: Unlike other financiers who prioritize mitigation, philanthropic efforts concentrate heavily on adaptation and cross-cutting projects, ensuring these critical areas receive the attention they deserve.
3. Catalyzing Systemic Change: Philanthropy convenes diverse stakeholders, from governments to private companies, creating platforms for collaboration and driving system-level transformations. This includes fostering innovation, supporting policy reforms, and ensuring the voices of vulnerable communities are central to decision-making.
4. Scaling Impact: Although philanthropy currently represents a small share of blended finance contributions (approximately 15%), its potential to fill funding gaps left by declining official development assistance is significant.
Real-World Applications of Blended Finance
Several examples illustrate the power of blended finance in advancing climate adaptation:
• Ecuador’s Debt-for-Nature Swap: This initiative repurposed national debt into funds for conservation, backed by guarantees from development finance institutions.
• Morocco’s Irrigation PPP Project: A partnership between the government and private sector created sustainable irrigation systems, integrating concessional loans, equity contributions, and farmer participation.
• Lighthouse Projects: Efforts like greening guarantees in Europe highlight the role of philanthropic and public funding in developing scalable models for adaptation.
Scaling Solutions for a Resilient Future
The success of blended finance and philanthropy in climate adaptation underscores the importance of collaborative approaches to tackling climate challenges. By leveraging concessional capital and systemic innovation, these mechanisms create pathways for scaling solutions that enhance resilience and protect the most vulnerable communities. As adaptation needs continue to grow, the strategic alignment of public, private, and philanthropic resources will be crucial in building a sustainable, climate-resilient future.
Examples that Lead the Way
The Green Climate Fund (GCF) is a critical player in the global effort to address climate change, particularly in climate adaptation. As the largest multilateral climate fund, GCF focuses on mobilizing finance for developing countries, emphasizing fostering resilience and reducing vulnerabilities to climate impacts. The GCF combines quality finance to de-risk the project, strategic planning, and framework practices around this finance.
The European Climate Foundation (ECF) supports the coalition of countries driven by France, Kenya, and Barbados, the so-called Global Solidarity Levies. The objective of this coalition is to find a way to agree on levies that would apply to polluting, highly emitting industries, aviation, shipping, and oil and gas, which could generate additional public resources needed to support adaptation and resilience. As an example, a $50 fee or levy on every business class aviation ticket worldwide would generate $50 billion a year.
The ECF is also collaborating with the German Ministries of Foreign Affairs and Environment on initiatives related to guarantees within the Green Guarantee Group.
In early December 2024, the European Investment Bank (EIB) issued $150 milion in guarantees for the first ‘debt-for-climate-resilience operation’, which was launched in Barbados on 2 December 2024.
Call to Action
To maximize the impact of blended finance and philanthropy, stakeholders must prioritize:
– Increasing concessional capital for adaptation projects
– Strengthening institutional capacities in vulnerable countries
– Enhancing cross-sectoral collaboration to align goals and resources
Blended finance is not just a funding mechanism, it is a beacon of hope for communities facing the brunt of climate change. With philanthropy as a catalytic force, this approach has the potential to transform adaptation challenges into opportunities for inclusive and sustainable growth.
