Blended Finance: An approach to meeting the financing needs of the UN Sustainable Development Goals

Although Latin America and the Caribbean (LAC region) have already mobilised nearly USD 19.7 billion towards the UN Sustainable Development Goals (SDGs), a significant financing gap remains.
“In this context, blended finance instruments present a promising approach to close this gap, while improving the risk-returnaccording to the authors profile for investors” says Michael König-Sykorova, Senior Project Manager at the Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance and co-author of the policy brief. 

In the policy brief titled “Blended Finance: A Capital-Catalyzing Tool for Financing SDGs in Latin America and the Caribbean (LAC)”, researchers from Impacta Sustainable Finance (Brazil), Frankfurt School of Finance and Management (Germany) and Din4mo (Brazil) explore two case studies to identify the main financing barriers towards the UN SGDs in the LAC region, and present actionable policy recommendations for the T20 consortium on how to accelerate the issuance of green and sustainable finance instruments. These recommendations target the structuring and issuance of different blended finance mechanisms, and the replication of green bond structuring programs in line with internationally recognised standards.

Based on information gathered through interviews with LAGreen and FundoVale, the policy brief identifies the following crucial challenges that limit the effectiveness of blended finance in LAC:

1. Regulatory Gaps: Inefficiencies due to incomplete regulatory frameworks.
2. Operational Complexity: Coordination issues arising from the involvement of multiple stakeholders.
3. Technical Barriers: Information asymmetries between stakeholders.
4. Market-Based Limitations: Underdeveloped markets and infrastructure in the region.

To overcome the identified challenges, the report provides these actionable policy recommendations:

• Regulatory: Introduce tax exemptions for climate and social impact projects, and streamline regulations to allow a blend of market capital and grants.
• Technical: Standardise financial instruments and disseminate best practices in asset pricing and risk management.
• Operational: Create financial compensation mechanisms and foster knowledge-sharing among public and private stakeholders.
• Market-Based: Integrate blended finance into national development plans and sectoral strategies to develop emerging markets.

The policy brief was selected by Task Force 03 of the G20 Brasil 2024 to inform policy making among participating countries, which underscores the high relevance and impact potential of the report.

Access to the full policy brief is provided here.