In Short : The utilization of blended finance in climate initiatives raises concerns about perpetuating climate colonialism. This financing approach, which combines public and private funds for sustainable projects, may inadvertently reinforce power imbalances and inequities in addressing climate issues, potentially disadvantaging vulnerable regions and communities.
In Detail : ‘Blended finance’ took centre stage at Cop28, with the Green Climate Fund among its supporters. But there are still major problems with the concept that must be addressed before considering any further expansion.
Blended finance is a combination of public concessional finance (i.e. with more generous terms than the market) with private or public resources. The the aim of it is to ‘mobilise’ development finance from other actors.
But, as Eurodad’s new joint report with ActionAid shows, it can perpetuate climate coloniality through the extraction of renewable resources from the global south to power Green New Deals in the global north.
Financial actors outside of recipient countries are favoured in these projects. The largest recipients of blended finance for climate action have been corporates and project developers, who got four-fifths of the finance throughout between 2019 and 2021.
A report by Follow the Money shows that big climate-based funds from the global north charge extractive commissions in countries which are in dire need of resources, further impoverishing their economies.
The high salaries and commissions of such funds are a problematic example of who is actually profiting from the emerging privatised green climate agenda in global south countries.
New debt
Furthermore, blended finance often brings new debt, which needs to be repaid, even if the beneficiaries are provided with softer terms than purely commercial loans.
This can contribute towards recipient countries’ indebtedness. A lack of transparency around projects, and poor accountability to the communities they are supposed to serve, are also pressing problems.
Another issue is the limited amount of private finance currently mobilised by blended finance.
In 2021, Development Finance Institutions financed long-term projects totalling US$13 billion supported by blended concessional finance.
Of this, the total volume of private finance mobilised was approximately US$5 billion, while the rest was either from the institutions’ own-account ($5 billion) or from other public sources.
Zambian example
Many of these issues were evident in Zambia’s Scaling Solar programme, an initiative launched in 2015 by the International Finance Corporation (IFC) – the World Bank Group’s private sector arm.
To implement a solar energy project in the country, the investors received subsidies which ultimately raised the project’s costs to the public.
In fact, estimates show that around US$3.50 of public international finance was used to attract each dollar of private finance.
If governments are to continue promoting blended climate finance, they need to ensure that public money could not have achieved better impacts if spent in alternative, cost effective ways. Improvements to transparency are also crucial.
Ultimately, climate change has been caused by the global north’s extraction and exploitation of natural resources. Blended finance must not be seen as a substitute for delivering on existing climate finance commitments and reducing emissions in the global north.