NGFS: Globally Coordinated Effort Needed to Unleash Full Potential of Blended Finance

NGFS: Globally Coordinated Effort Needed to Unleash Full Potential of Blended Finance

by December 5, 2023

The Network for Greening the Financial System (NGFS) released a new technical document, focusing on the expansion of blended finance in Emerging Market and Developing Economies (EMDEs) for climate change mitigation and adaptation.

Formed in 2017, the NGFS is a group of 114 central banks and financial supervisors that promotes green finance and develops guidelines for central banks addressing climate change.

This publication aims to tackle major obstacles in scaling up blended finance in these regions, highlighting successful examples where private capital has been effectively integrated into climate financing projects.

The document outlines vital strategies to overcome these barriers. Key among these is the enhancement of climate information systems to improve data quality, comparability, and reliability.

It also stresses the importance of developing a range of viable, standardised projects to attract investment and mitigate risks between investors and developers.

Emphasizing the role of multilateral development banks and development financial institutions, the report suggests these entities should create a conducive environment for blended finance.

Another significant aspect highlighted is the adoption of an ecosystem-of-solutions approach, encouraging partnerships across various stakeholders, including central banks and supervisors. The document underscores the necessity of a globally coordinated effort to pool catalytic funding from diverse donors and finance providers, essential for de-risking projects.

The NGFS based its findings on a comprehensive survey of its members, a thorough literature review, and discussions with key stakeholders in the blended finance sphere.

While the focus remains predominantly on climate mitigation, the NGFS recognises the growing importance of climate adaptation, planning to extend its work to cover these aspects further.

Ravi Menon

Ravi Menon

Ravi Menon, Chair of the NGFS and Managing Director of the Monetary Authority of Singapore said,

“Significant investment in mitigation, adaptation and resilience is needed in EMDEs, which are most impacted by the effects of climate change. We need blended finance to effectively utilise public capital, reduce the risks in marginally bankable projects, and thereby mobilise multiples of private capital to bridge the financing gap needed for the world to get to net zero by 2050. The NGFS Blended Finance Technical Document can play a valuable role to help level up our collective knowledge on what is needed to scale the use of blended finance.”

Fabio Natalucci

Fabio Natalucci

Fabio Natalucci, Drafting Lead of the NGFS Blended Finance Initiative and Deputy Director, International Monetary Fund said,

“Several innovative blended finance projects have demonstrated that with the right levers in place, scaling private climate finance and ultimately investability of EMDEs can be achieved. However, to harness the full potential that blended finance offers, a globally coordinated effort across various stakeholders is required to provide a range of solutions across the entire blended finance ecosystem.”