Amundi Study Finds Blended Finance Key to Mobilising Private Development Capital

An Amundi report found blended finance uses public funds to leverage private capital for sustainable development in high-risk emerging markets, but the market remains small and needs standardisation. The findings offer a roadmap for mobilising private capital toward energy and climate transitions in emerging economies like India.

A report from asset manager Amundi highlighted blended finance's role in mobilising capital for sustainable development, using public funds to leverage private money toward social and environmental projects in high-risk emerging markets. The study detailed how structures overcome challenges in attracting institutional investors: credit enhancements like first-loss guarantees de-risk senior tranches, while political risk insurance and specialised instruments mitigate currency risks. Development Finance Institutions strategically absorb higher risks in junior tranches to safeguard senior tranches, maximising leverage ratios for public sponsors.

Institutional investors, Development Finance Institutions, and emerging-market projects are affected. DFIs absorb junior-tranche risk so private investors can achieve market-based, risk-adjusted returns in layered fund structures. Portfolio diversification was shown fundamental for optimal risk-return profiles. Despite proven effectiveness, the blended finance market remained relatively small, with high project customisation limiting replicability. The future hinges on public-private collaboration to agree standardised structures and move blended finance beyond a niche category in sustainable finance.

Public and private stakeholders should collaborate to define and agree optimal, standardised product structures to attract institutional investors at scale, as Amundi's Chief Responsible Investment Officer emphasised. Public sponsors should prioritise maximising leverage ratios and deploying credit enhancements and currency risk mitigation. Emerging markets should leverage blended finance to secure financing for energy and climate transitions, closing the global SDG funding gap through proven layered fund frameworks and public-private alignment.

Key figure — Structural lever: first-loss guarantees and credit enhancements de-risk senior tranches to attract institutional investors