3 days ago
Blended finance for climate action
It takes policy support, commitment and also money to tackle climate change. For the latter, Thailand needs around 5-7 trillion baht in climate finance to achieve its carbon neutrality and net-zero emissions by 2050 and 2065, respectively. However, that's a target the country is still a long way away from.
Relatively speaking, only 1.7 trillion baht has been spent on climate mitigation efforts between 2018 and May 2025. The picture for climate adaptation funding is much bleaker at only 148 billion baht.
This serious gap in funding was the major talking point during the launch of the 2025 Climate Finance Tracker last month by Climate Finance Network Thailand (CFNT).
Across two panel discussions and two keynote addresses (comprising leading voices from the Thai government, Bank of Thailand, the World Bank, and leading financial and academic institutions), the message was clear: more climate finance is needed, and the mechanisms to raise it must appeal to more investors.
Why is there such a big difference in climate mitigation and adaptation funding? The answer is the private sector. A CFNT presentation on the climate finance landscape shows that it is the biggest contributor to climate mitigation finance, at over half of the 1.7 trillion-baht amount, surpassing contributions from the government and state-owned enterprises. However, adaptation finance is almost solely done by the government, as there is less of a commercial reason to do so.
While funding for mitigation efforts still needs to be increased, it shows the strength of blended finance in action -- namely, the critical role of private investments that support government efforts. So what more can be done to spur more activity, for both mitigation and adaptation outcomes?
Blended finance in a nutshell
According to the OECD, blended finance refers to "the strategic use of development finance for the mobilisation of additional finance towards sustainable development", with the additional finance largely referring to funding from commercial sources. When looking through the lens of climate finance, blended finance can help to strategically meld funding from the public sector (like the government), multilateral development finance institutions (MDFIs), and philanthropic organisations with private capital to spur investments in climate activities, especially in developing countries where such financing can be considered 'risky'.
This risk aspect is important to understand how blended finance works. Commercial and private investors typically deem investments into climate mitigation -- and even more so, adaptation -- activities to be financially unviable and something that would not generate returns.
So, blended finance puts the burden of risk on governments, MDFIs, and philanthropies to make climate financing more viable and enticing to the private sector (for example, corporations or commercial financial institutions). It can also be seen as a form of concessional capital, whereby such mechanisms can facilitate private funding under terms more favourable than existing market conditions.
The adaptation finance shortfall
Blended finance isn't new. Yet, as noted earlier, much of its activity has been in the climate mitigation space.
There are typically more commercial reasons for private investors to fund climate mitigation. For instance, to help manage supply chain disruption risks caused by climate change, and, in some markets (especially more advanced ones), it is necessary to adhere to state-mandated emissions regulations. There are also reputational reasons in terms of enhancing a brand's image or attracting consumers and investors who are more environmentally conscious. Here, the "carrot" and "stick" are clear.
However, for climate adaptation, only the "stick" is really present, coming in the form of climate impacts clearly causing harm to societal health and well-being. While there are economic losses projected -- of a not-so-insignificant amount of up to 1 trillion baht, according to Unescap estimates -- this is seen as abstract and includes factors well beyond just commercial activities. This is why financing for adaptation pales in comparison to mitigation.
But what sort of blended finance mechanisms can spark more private sector interest in adaptation funding? Here are a few:
Guarantees
This mechanism utilises capital from public or philanthropic sources to absorb some of the risk associated with climate-related investments. For private investors, such guarantees can reduce the potential for loss and encourage them to take part in projects that address climate change.
Examples include first-loss guarantees, whereby the guarantor absorbs the initial losses, making the project more appealing to other investors. There are also partial credit guarantees, which can cover some of the potential losses to reduce overall private investor risk. Meanwhile, green guarantees refer to specific guarantee types that focus on climate-related projects, often used to support the issuance of green bonds.
Grants
Essentially, these are funds given without any expectation of returns. They often come from MDFIs (such as the World Bank and Asian Development Bank) and philanthropies, and are typically used to jumpstart projects.
They are usually supplemented with research and capacity development via technical assistance.
Preferably, this assistance should be provided for the entire duration of the project being funded, from the initial planning stages to ensuring that it can be operated and monitored in the long run.
Subordinated debts
A financing mechanism where the lender agrees to be repaid after other, senior creditors in case of a default.
The subordinate debt, in this context, is considered "junior" to other, senior debt, meaning it is repaid only after senior debt holders are fully paid.
Still some way to go
Blended finance can help alleviate the concerns of private investors while also allowing different types of investors with different risk appetites to work together for a common goal.
That's not to say it isn't growing; the World Bank stated that private sector investment in blended finance for climate action grew by 200% in 2023. However, more needs to be done, and time's running out -- we need to address critical areas of climate adaptation before it's too late.
Currently, many promising climate adaptation projects in Thailand (such as sustainable water infrastructure, urban resilience, and sustainable agriculture) are conceived and carried out by government officials, civil society and philanthropic organisations, or even local communities.
Yet, the barriers to improving the projects' effectiveness and scaling them up include the lack of technical skills -- especially when creating and maintaining monitoring systems to measure and report outcomes. These groups also require better financial knowledge, namely when securing loans and managing climate adaptation finances. This is a gap that can be capably filled by Thailand's well-developed and sophisticated private sector and private financial institutions, yet their involvement has been close to non-existent.
Hence, adaptation finance should be viewed as not expenses, but as worthwhile investments, as its purpose is to help avoid or reduce climate change's social and economic impacts.
The effects of climate change do not discriminate. At the end of the day, they will come for all of us.
