Blended finance is evolving from a fragmented, project-specific approach into a comprehensive, fund-level model designed to scale impact and attract diverse stakeholders.

Temasek’s Head of Financial Services, Connie Chan, noted how catalytic debt is emerging as a key frontier in blended finance.

“In emerging markets, we’ve seen a growing number of blended finance equity funds focusing on the project development phase. However, there’s been significantly less attention on the debt side,” said Chan at a recent panel discussion at COP29 in Azerbaijan.

COP29 refers to the 2024 United Nations Climate Change Conference being held in Baku between November 11 and 22.

According to Chan, once projects move beyond the development equity stage, they often still need financing—often requiring concessional capital—to become fully viable.

“There’s a real opportunity to explore catalytic debt, building on the successes we’ve seen with catalytic equity to bridge this gap,” she added.

This shift is exemplified through Temasek’s partnership with the Singapore government under the Green Infrastructure Program (GIP), a key initiative within the Financing Asia’s Transition Partnership (FAST-P).

The GIP addresses financing gaps for marginally bankable green and sustainable infrastructure projects by leveraging blended finance models that combine concessional capital with commercial investment, with a particular focus on debt solutions like green and sustainability-linked loans.

The program aims to attract larger capital pools for projects, spanning both debt and equity, through a scalable and replicable framework across regions and sectors.

“It’s about creating a model that others can replicate and scale,” said Chan.

“We’ve seen a lot of fragmentation in emerging markets, with bespoke, one-off projects dominating the landscape. Scaling requires system-level solutions—fund-level or entity-level approaches,” she added.

DRIVING PRIVATE SECTOR ENGAGEMENT

For blended finance to reach its full potential, systemic innovations are crucial.

Chan highlighted the importance of data transparency in building investor confidence.

“If we want concessional capital to be recognised as an asset class, we need robust data on performance and impact,” she said.

As more success stories emerge data becomes more available, Chan hopes it will encourage broader investment in blended finance, scaling it up for greater impact.

Given that most blended finance capital comes from concessional sources, Chan emphasised that the private sector must find creative ways to participate.

She pointed to a recent initiative where Temasek launched a $75 million (S$100 million) commitment for concessional capital dedicated to climate action.

While providing concessional capital falls outside Temasek’s traditional mandate as a commercial investor, Chan sees this as a new approach.

“For the past 20 years, as part of our normal course, we’ve set aside funds for community good whenever we have net positive returns above our cost of capital,” she said.

“This approach mirrors how corporates allocate a portion of their profits to charitable causes. However, this year marks the first time Temasek has earmarked such funds specifically for climate action,” she said.

“We really encourage the private sector to think creatively about how they can contribute, as the gap is large and there’s simply not enough concessional capital available,” Chan emphasised.

THE ROLE OF PHILANTHROPHY

Speaking on the same panel, Elizabeth Yee, executive vice president at The Rockefeller Foundation, emphasised the need for innovative capital deployment to close the global finance gap.

She noted that while there are 260,000 foundations contributing $150 billion annually, this is far from the trillions required.

“Philanthropy can play a catalytic role, but we need other sources of finance,” Yee said.

She also highlighted the Foundation’s commitment to emerging markets, where many countries are grappling with unsustainable debt burdens, spending more on debt service than on health and education.

In addressing this issue, Yee called for deploying philanthropic capital as first-loss guarantees and junior equity to attract private sector investment, particularly in sectors like energy.

“By using our capital flexibly, as first-loss guarantees and for procurement support, we can drive down costs and make green energy more accessible,” Yee said.