2024: Asia’s Blended Finance Boom | ESG Takes the Lead

Lucas Cacioli writes for Asian Investor that blended finance is gaining momentum in Asia as a way to fund sustainable development projects. Combining public and philanthropic funding with private capital, blended finance has been adopted in proof-of-concept pilots and in the project-preparation stage, specifically in the climate space and on social topics like education and health in South Asia and Southeast Asia. Key stakeholders in Asia are interested in blended finance, due to the region’s high concentrations of middle-income countries, where significant social and environmental impact can be achieved with a manageable level of risk. However, scaling up this approach requires addressing key challenges around awareness, policy incentives, and aggregating deals to mobilize capital at scale. To unlock the potential of blended finance, there needs to be increased collaboration between public, private, and philanthropic partners, as well as raising awareness through more education and sharing of best practices. Gao also proposed that governments introduce targeted incentives enabling blended finance and remove obstacles to encourage participants to make return-generating financial investments. Fragmented deals and instruments can hinder large-scale institutional investment, so more aggregating of blended finance projects by development finance institutions and commercial institutions is needed. Blended finance solutions must be tailored to local investor types, policy environments, time horizons, and asset classes in Asia. The most significant challenge addressed by blended finance in Asia is the high cost of capital for projects in emerging and frontier markets. Blended finance can also help finance the early decommissioning of coal-related assets and produce significant risk-adjusted returns for investors. The true measure of blended finance’s efficacy is its ability to leverage commercial investment, remedy market shortcomings, and produce significant risk-adjusted returns, said Gao. While common metrics can be used to assess impact, it will be helpful for Asian stakeholders to refine and adopt clearer taxonomy and standards based on the Asian context.