BLENDED FINANCE: BRIDGING THE GAP IN EMERGING MARKETS IN SUPPORT OF THE SDGS

Amid the widespread global support for the United Nations' Sustainable Development Goals (SDGs), there was an underlying concern among economists and financial advisors in the emerging and frontier markets: public sector and donor funds were stalled, if not regressing, and the funding gap to realize the SDGs was increasing.

- Roberto Hoornweg

The challenge was to incentivize and mobilize private capital, reduce risk-return profiles, and avoid conflicts of interest such as institutions providing commercial financing and managing concessional resources.

In 2002, the European Bank for Reconstruction and Development provided project finance subsidies to multinational funders. Seven years later, a $30 million Clean Technology Fund Renewable Financing Facility was used to finance a 250MW wind project in Mexico. These were early steps in using a mix of public and private capital to support clean energy projects in developing countries.

Today, the term 'blended finance' is much more common, as multilateral institutions and donors invest more official development assistance (ODA) in this way.

Using development finance and philanthropic funds to drive private capital flows to emerging and developing markets is an accepted catalyst that helps to bridge the financing gap and contribute to the SDGs.

Blended finance is being used successfully in sectors including renewable energy infrastructure, urban transport, and agriculture.

The Global Environment Facility-an independent financial organization established in 1991 comprising representatives from 32 constituencies - is a prime example, using blended finance to scale up financing for renewable energy technologies in developing countries.