A contribution from Simon Tribelhorn Director of the Liechtenstein Bankers Association
A scorching summer is no longer just a weather phenomenon – it has become a symbol of the changing climate. The fight against climate change is a monumental challenge that affects everyone, and finding solutions is essential. Yet, there is no consensus on the right approach. On one side, there are staunch defenders of market forces, while on the other, advocates for strict regulations dominate the debate. The reality is that no single measure will be sufficient; what’s needed is a multifaceted approach. The goal is clear: we must transform the global economy in a way that is efficient, swift, and inclusive.
Developing countries – those with historically weaker political systems and less diversified economies – are in particular need of support to foster sustainable development. These nations must be part of the transformation towards greater energy efficiency and climate resilience if we are to seriously tackle climate change. However, they often lack the necessary financial resources to initiate this transformation. This is where blended finance can play a pivotal role. By combining public and private funds, blended finance creates a path to fund sustainable development projects. There are three key reasons why this approach is both necessary and effective.
1. Fairness
Developing countries often contribute the least to global carbon emissions but suffer the most from the devastating consequences of climate change. Rising sea levels, extreme weather events, and resource scarcity are hitting these regions the hardest. Blended finance offers a way to help those most affected by climate change, ensuring that financial support is directed where it is most needed. It is a matter of global justice that the countries bearing the brunt of climate impacts should receive help in building climate resilience and adapting their economies.
2. Risk Sharing
One of the major advantages of blended finance is its ability to mobilise private capital by using public funds as a catalyst. Public sector involvement can help mitigate risks, making investments that were previously deemed too risky attractive to private investors. This risk-sharing mechanism allows for the development of projects in regions where investment opportunities were previously limited, unlocking critical funds for sustainable initiatives. At the same time, public institutions gain a greater leverage effect, increasing their overall impact.
3. Access to Capital Markets
Many developing countries face significant challenges in accessing international capital markets. Limited creditworthiness and unstable political environments often prevent them from securing the funding necessary for large-scale infrastructure or development projects. Blended finance offers a solution by bridging the gap between these nations and the capital they need. By pooling public and private resources, projects in these regions become financially viable, paving the way for transformative change.
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