Catalyzing Climate Investment In India With Blended Finance: IFC Report 2023


In a concerted effort to mobilize private sector investment and accelerate development impact in emerging economies like India, the International Finance Corporation (IFC) has released a crucial report on “Blended Finance for Climate Investments in India”. This report serves to provide clarity on blended finance models that can promote diversified capital flows for climate mitigation and adaptation. Moreover, it shares practical examples of projects spanning various sectors such as energy, agriculture, and housing that can serve as replicable models in the Indian context. The IFC is firmly committed to applying the principles and recommendations presented in this report to active investment projects. The goal is to harness the potential of both private and public capital, steering India towards a low-carbon and inclusive development trajectory.


India, like many emerging economies, faces the significant challenge of raising the necessary financial resources for climate mitigation and adaptation. At the recent COP26 summit, India declared ambitious targets to contribute to global decarbonization efforts. As outlined in India’s long-term low-emission development strategy submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in 2022, the country requires tens of billions of dollars by 2050 to ultimately achieve net zero emissions by 2070. Moreover, based on updated Nationally Determined Contributions (NDCs), India’s adaptation finance needs amount to approximately $1 trillion by 2030.


The report delves into innovative financing instruments that have the potential to unlock private-sector climate-related investments. Of particular focus is blended concessional finance for climate, a potent tool to mobilize private investments. The transition to a low-carbon and sustainable economy has become a global mainstream goal. Several nations, including India, have made significant commitments to mitigate climate change. To fulfill India’s COP26 aspirations, Prime Minister Narendra Modi announced the Panchamrit commitments. These include a substantial increase in non-fossil fuel energy capacity to 500 GW by 2030, with 50% of energy requirements to be met from renewable sources. The target also includes a reduction of projected carbon emissions by 1 billion tons by 2030, a 45% reduction in the carbon intensity of the economy by 2030, and the achievement of net-zero carbon emissions by 2070.

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India’s updated NDCs estimate the need for substantial climate finance, potentially tens of trillions of dollars by 2050, to attain its ambitious sustainability objectives. From 2026 to 2030, India will require annual clean energy investments in the range of $253-$263 billion, increasing to $325-$355 billion over the period 2031-2035 to align with sustainable development and climate goals.

The Climate Policy Initiative’s 2022 report indicates that global climate finance increased steadily over the last decade, averaging $653 billion annually. However, investment growth has slowed in recent years, and it is estimated that annual climate finance must increase by 590% to meet internationally agreed climate objectives by 2030. Climate change is one of the most pressing global challenges, and private investment must be substantially directed toward climate financing. However, despite the trillions of dollars committed to these objectives after COP26, scaling up private sector investment in climate objectives has proven challenging.

The Climate Policy Initiative report (2022) points out that approximately $39.1 billion of blended finance was channeled towards climate investments between 2015 and 2020. Most of this funding focuses on mitigation. Blended finance refers to capital from public or philanthropic sources used to increase private sector investment in developing countries. In essence, it serves as a mechanism to catalyze risk-adjusted financing to address critical global challenges.

In summary, blended finance transactions are not one-size-fits-all. The specific instrument used—be it debt, equity, risk-sharing facilities, guarantee products, or performance-based incentives—must be tailored to meet the specific development challenge at hand, such as climate change. The governance systems for allocating blended finance across Development Finance Institutions (DFIs) have increasingly grown more rigorous, with transparency being a key focus. IFC, for instance, has committed to disclosing the estimated concessional level as a percentage of total project costs when deploying concessional resources, ensuring transparency and accountability.

Investments in emerging and frontier markets often do not align with the expectations of commercial investors due to perceived or real risks. Attracting private capital necessitates the management, mitigation, or transfer of these risks from the private sector to donors, including governments or philanthropic funders. Blended finance instruments play a crucial role in addressing the barriers limiting private capital from investing in developing markets or high-impact projects and sectors.

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In India, one of the key hurdles for blended finance is the lack of a mechanism for impact assessment and measurement. This is crucial, as investors are typically only willing to fund what they can measure, preventing impact-washing, where claims of positive social or environmental impact are made without demonstrable evidence.

Blended finance is emerging as a vital tool to incentivize private capital flows and accelerate development impact in India. Public finance is integral to scaling up climate finance, particularly in developed countries. Governments must proactively signal to the private sector and investors for greater adoption of blended finance in the climate space. This requires integration into national priorities to enable blended finance to play a meaningful role in providing the catalytic capital for climate-smart investments and better development outcomes.

Engagement with donors and DFIs is crucial to understanding and facilitating access to existing de-risking instruments. These instruments include first-loss guarantees, subordinated debt, and equity solutions that can reassure investors in the climate space. Creating awareness of climate-related blended finance through dedicated workshops and sessions is vital. Policymakers, government staff, and local financial institutions must adopt the most effective blended finance solutions to mobilize investment at both the project and portfolio levels. Policy and regulatory interventions, such as regulatory sandboxes, can catalyze the scale-up of blended finance solutions.

Mandating the establishment of a Blended Finance Task Force is another critical step in designing a strategy with clear and attainable targets. This task force, co-chaired by the Ministry of Finance and the Ministry of Climate, Forest, and Climate Change, can drive blended finance to achieve climate ambitions. Blended finance solutions are often complex and unique, tailored to the specific needs of each transaction and the private sector’s investment criteria.

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India requires substantial climate finance by 2050 to achieve its ambitious sustainability goals. An estimated US$10.1 trillion will be necessary to reach net-zero emissions by 2070. Public investment alone cannot meet India’s adaptation and mitigation targets. Therefore, the use of financing that can bring in private sector investment is vital to scale climate solutions urgently.

In this context, blended finance, combined with other tools such as advisory and technical assistance, plays a crucial role in addressing the key development challenges in India, including climate and food security. These projects span a range of sectors, such as agritech, energy infrastructure, and affordable green housing. Blended finance investments have grown significantly in the past decade, and the market in India is at a critical inflection point. Collaboration between public, private, and philanthropic capital is crucial, as is aligning with India’s net-zero ambitions and development priorities. With positive regulatory changes for tax exemptions already underway, the IFC’s report underscores the role that IFC can play in increasing blended finance climate investments in India. The collaboration with partners like Canada and the United Kingdom further enhances these endeavors. Leveraging its 20 years of experience in blended finance across the globe, IFC aims to support development challenges and climate solutions in India, bringing together private and public sector funding to catalyze sustainable development.

Please click here to download the full report.

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