Blended finance deal volume decreased by around 45% in 2022 and by around 55% for climate blended finance, according to the latest annual report from blended finance monitoring group Convergence.

The organisation said this represented a 10-year low for total financing.

Climate blended finance transactions accounted for under 40% of all blended finance deals in 2022, down 10 percentage points compared with each of the previous five years.

“The stark reality is that climate blended finance currently operates well below the threshold demanded by global climate goals,” the report authors wrote.

Blended finance is regularly presented as holding the key to unlocking much-needed climate investment, or at least as being one of the most efficient instruments for doing so. Net zero asset owners, for example, have been trying to encourage the scaling up of blended finance for this reason.

According to Convergence analysts, the theory about blending finance is not holding up because “challenging investment climates in many emerging markets reveal a harsh truth – without enhanced risk-sharing and greater public sector willingness to shoulder potential loses, substantial private flows into these regions remain arduous”.

“Current incentives to attract private capital are proving sluggish and disproportionate to the scale and urgency of the crisis,” it said.

In its report, Convergence said it estimated that to mobilise sufficient private investment for developing countries to reach net zero, over $500bn in concessional capital is needed through 2035 in the energy sector alone.

“Yet concessional flows to climate blended finance deals have stagnated since 2017, showing little sign of an upward trajectory,” it said.

It also highlighted that flows of climate financing from the private sector are declining, from $7.13bn in 2017-19 to $5.87bn in 2000-22.

“Concrete action is urgently needed, and blended finance must be utilised more ambitiously to mobilise private investment at scale into climate solutions tailored to the unique realities of developing countries,” said Joan Larrea, Convergence chief executive officer.

Based in Canada, Convergence curates and maintains what it says is the largest and most detailed database of historical blended finance transactions.

The latest digital edition of IPE’s magazine is now available