The world is struggling to mobilise enough private capital to close a US$4.3 trillion development funding gap, leaving climate goals and emerging economies underfunded.
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Blended finance, which refers to the combination of public, private and philanthropic capital to fund sustainable development in emerging markets, has long been touted as a solution but appears unable to reach its promised potential in its current form.
A recent report by blended finance network Convergence showed that while annual blended finance flows have risen since 2020, they declined to US$18.3 billion in 2024 from US$23.1 billion in 2023. The number of annual deals has trended downwards since 2022.
“Blended finance so far has not lived up to our expectations,” said German state secretary for economic cooperation and development Niels Annen at the Hamburg Sustainability Conference earlier this week.
On a panel moderated by Eco-Business founder Jessica Cheam, Annen and other industry leaders discussed gaps in the current blended finance ecosystem, which include a lack of standardised practices and frameworks.
“Over the last 10 years, we have been testing out new products, new tools,” said Patricia Victoria Peña, associate assistant deputy minister for international assistance partnerships at Global Affairs Canada. “Those have been great because they’ve had a demonstration effect, but they’ve also been sub-optimal because every time we did something, it was the first time; we had to start from scratch.”
She added, “The way to be more impactful is to come up with more standardised approaches, to come up with common tools… to build products and tools that facilitate [easier] investment.”
To that end, the governments of Germany, Canada, Denmark, France, the United Kingdom and South Africa, alongside institutional investors such as Allianz, AXA, CDPQ and Zurich Insurance Group are leveraging their multistakeholder platform to form a new company, aimed at designing and implementing blended finance vehicles.
The platform, which was initially launched at last year’s Hamburg Sustainability Conference and named the Hamburg Sustainability Platform (HSP), has been rebranded to Scaling Capital for Sustainable Development (SCALED). It aims to transform the fragmented blended finance market through standardised tools, centralised capital formation and stronger public-private collaboration.
SCALED aims to launch its new company by the end of 2025. Martin Ewald, who led HSP and will continue leading SCALED, said that the company is the first of its kind, and will work on “the structuring of blended finance investment vehicles in cooperation with the partners of the initiative”. In addition to the state actors and insurers mentioned above, it will also leverage development banks, asset managers and other interested investors.
“We will be a specialised transmission box between public and private investors, and by doing so, we [can] enable faster, more efficient and larger investments within blended finance,” said Ewald.
Describing the partnership as unique, Peña said the platform’s members have “set aside some of our personal politics to make sure that we can do the right thing together.”
Convenors of the Hamburg Sustainability Platform (HSP) - now renamed Scaling Capital for Sustainable Development, or SCALED - reaffirm their support for the initiative to transform the fragmented blended finance at the 2025 Hamburg Sustainability Conference in Hamburg, Germany. Image: Hamburg Sustainability Conference
Filling the sustainable investment shortfall
According to UN Trade and Development, the annual investment gap for achieving the Sustainable Development Goals (SDGs) in developing countries now stands at US$4.3 trillion, with US$2.5 trillion needed annually for climate mitigation and adaptation alone.
This massive shortfall exists in a world where global wealth exceeds US$430 trillion, making the SDG financing gap equivalent to less than one per cent of total financial assets.
Public contributions are also declining. According to preliminary data from the Organisation for Economic Co-operation and Development (OECD), global official development assistance and aid fell by 7.1 per cent in real terms in 2024 compared to 2023 – the first decrease after five consecutive years of growth. The drop reinforces the need to mobilise private capital more effectively and urgently.
Institutional investors emphasised the need for predictability and reduced transaction costs to accelerate blended finance.
“It’s a question of fixing the financial plumbing,” said Vito Dellerba, managing director of sustainable investing at global investment group CDPQ. “A lack of standardisation creates markets that are opaque. The inability to see through simple, predictable structures creates difficulty for investors to be able to discern one structure from another.”
Florence Roche, head of responsible investments at global insurer AXA Group, said that scale is also essential. “The sheer size of financing needs in emerging markets and developing countries is calling for an acceleration in mobilising private capital,” she said.
Danielle Brassel, head of responsible investment at Zurich Insurance Group, highlighted the inefficiencies created by inconsistent standards. “The lack of consistent standards creates unnecessary complexity and risk, hindering our ability to allocate capital efficiently.”
Beyond its technical structure, the strength of SCALED lies in its inclusive architecture, noted Anna Sophie Herken, managing director of GIZ. “This work requires different stakeholders from the public sector, the private sector, philanthropies, and from local to international levels to work together, because each of them brings a unique expertise and experience,” she said.
It is currently unclear how SCALED’s new company will be structured and where it will be domiciled, given the multiple state governments involved in the platform. At the time of writing, Eco-Business’ has yet to receive a response from SCALED on these questions.
