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The dangerously optimistic global climate finance agenda: why blended financing and domestic resource mobilization won’t help close the climate finance gap

The global climate finance agenda in its current form is insufficient for tackling climate change and fostering a green transition across the globe. Calls to close the massive climate finance gap that prevents developing countries from accessing much-needed funds often rely on the expectation that domestic resource mobilization and blended finance can help close the gap. In this article, we demonstrate why this expectation seems wildly optimistic and argue that instead of relying on insecure trends, global policy makers should take action by developing policies that grant a bigger role for public money and innovative monetary solutions.

Source: Asian Development Bank is licensed under CC BY 2.0
Source: Asian Development Bank is licensed under CC BY 2.0

Many emerging economies are having a tough time – they are still struggling to recover from the pandemic and simultaneously suffer from unprecedented debt levels and cost-of-living crises. What’s more, the climate crisis is manifesting itself more than ever, and international financial promises to enable a just energy transition across the globe continue to be broken. Meanwhile, the costs of climate mitigation, adaptation, and loss and damage are soaring, which makes it even less likely that these countries will get the climate funding needed to respond adequately to the crisis. As a result, the climate financing gap is widening.

In a response to these developments, the COP26 and COP27 presidencies some months before last year’s November COP27 summit launched an Independent High-Level Expert Group equipped with the task of “scaling up investment and finance to deliver on climate ambition and development goals”. This distinguished group of experts launched their report in November, calling for a “rapid and sustained investment push […] to drive a strong and sustainable recovery out of current and recent crises […] and to deliver on shared development and climate goals.”

The investment push that’s needed relies on domestic resource mobilization and blended finance that together with other financial levers form part of the so-called Grand Match financing strategy. This strategy was proposed by Amar Bhattacharya, Meagan Dooley, Homi Kharas, Charlotte Taylor and Nicholas Stern in a bid to foster a big investment push for emerging markets and developing economies. However, both the total amounts assumed for blended finance (USD 395 billion) and domestic resource mobilization (USD 653 billion) are unlikely to materialize and are unlikely to close the climate finance gap, as we will show.


Blended financing and domestic resource mobilization failing to deliver

As early as 2016, the rising popularity of blended finance as a way to close the global climate finance gap could be observed; in April that year, British weekly newspaper The Economist ran an article called “Trending: blending” that examined “[t]he fad for mixing public, charitable and private money”. In the past few years, the concept of blended finance has gained further traction; key global financial institutions such as the World Bank, IMF, and the G20 have pointed to blended finance as a solution to close the global climate investment gap. For example, during its last spring meeting, the IMF emphasized that its members should “recognize the importance of stepping up climate finance from all sources, including by mobilizing private investment”. Similarly, domestic resource mobilization (DRM), whereby governments channel their own resources towards public goods and services, such as by raising taxes or by improving auditing processes, is viewed as an important climate financing tool.

However, blended finance has not delivered on its promise. Back then, The Economist observed that “few data exist on the scale and success of blended finance”. Now, with more data available, it’s becoming clear that private investments made in low- and middle-income countries through blended finance actually have decreased from USD 150 billion to 100 billion, and between 2019 and 2021, only USD 14 billion was pledged  to poor countries through private channels. Similarly, the mobilization of domestic resources has not held up to its promises — its potential has been overestimated.

These tools are therefore unlikely to sufficiently help close the finance gap that has arisen. And with the current grim global economic outlook, an increasing number of low-income countries are already in debt distress and are increasingly impacted by the loss and damage of climate change itself, thus decreasing their ability to use these tools even more.

In fact, the reliance on these financing mechanisms is dangerously optimistic, as this prevents us from considering the additional sources of finance that are needed to provide climate investments at the scale and time needed. Here’s why:


1.    There is a huge climate finance gap, especially in low-income countries, and it’s becoming bigger, not smaller.

By 2025, if no measures to increase climate funds are taken, the amount of money needed by emerging economies (excluding China) to address the effects of climate change – generally referred to as the climate finance gap – would amount to USD 1 trillion (as estimated in 2022). Lower-income regions such as South Asia and Africa have the largest investment needs (7-14 times and 5-12 times more investment, respectively), but these are not being met. While most of the money needed to close the gap is supposed to be sourced through domestic resource mobilization (USD 653 billion) and private investment, supported by public funding through blended finance (USD 395 billion), in reality, this is not happening.

And the finance gap might be even bigger than we think. For example, in a recent report Oxfam estimates that the annual shortfall for necessary investments in health, education, social protection and tackling climate change in low- and middle-income countries could be as high as USD 3.9 trillion.


  1. Advanced economies are not keeping their promises

Meanwhile, public finance is not contributing sufficiently. In 2009, high-income countries pledged to help fund the energy transition in developing countries by promising to commit USD 100 billion annually. But in 2020, only USD 83 billion had been pledged. What’s worse, to get to this figure, existing development assistance (ODA) money was relabelled as climate finance for developing countries. And only one-third of the funds that have been committed are in the form of grants, which means that debts continue to accumulate due to loans.


  1. Blended finance should be helping funnel private funds to low-income countries, but it’s still mostly public money

 Blended finance[1] has gained the status of a silver bullet. The assumption underlying the belief in the effectiveness of this tool is that public capital investments would lever private investments according to a certain ratio of the ‘blend’. If done properly, investing by blending different financial sources indeed could result in a multiplied number of private investments that could be used to finance climate action.

However, the amount of private money available to match each public dollar is overestimated  – in reality, much less private money is invested, while public funds continue to form the largest share of the total amount. In one report, the IMF for instance expects the ratio of private to public money to be 9:1. In 2020 however, private finance constituted only around 50% of global climate finance, with the rest being public finance. And in low-income regions where climate investments need to increase most strongly, even a public-private ratio of 1:1 is often not tenable. In Sub-Saharan Africa, for example, around 90% of climate finance comes from public sources.


  1. Mobilizing domestic resources requires challenging reforms

The IMF anticipated that emerging economies could raise as much as USD 236 billion in additional taxes by 2025 through domestic resource mobilization. To do this, they would have to implement relevant tax and administrative reforms to tackle their sometimes very low tax rates and high levels of tax exemptions.[2] However, implementing and enforcing these kinds of reforms is challenging. Emerging economies are renowned for administrative capacity constraints that prevent them from addressing tax evasion and keeping avoidance under control. Studies on the projected development of tax-to-GDP ratios in emerging economies show that their tax revenues are expected to only slightly, but not significantly, increase.

Moreover, some international support initiatives have already been in place, such as the Tax Inspectors Without Borders (TIWB) assistance programmes between 2012 and 2020. This has helped raise the tax revenues of these countries by a mere USD 537 million – a figure far below the necessary additional USD 417 billion in domestic resource mobilization estimated in the IHLEG’s report.


  1. Countries are holding on to their money – tightly

Lastly, in response to the Russian invasion of Ukraine and the subsequent spike in inflation levels, a global monetary tightening cycle has begun. This has resulted in capital outflows by the private sector from emerging economies, which is bound to substantially hinder these countries’ economic growth. It has already been shown that the simultaneous monetary and fiscal tightening policies across the globe impact developing countries and emerging economies disproportionately.

This makes efforts to close the climate finance gap seem even more unrealistic, especially given the high value of the dollar and the outstanding dollar-denominated debt in the Global South. Of the low-income countries eligible for special IMF support, as of 2023, nine are currently in debt distress, while 27 are at a high risk, 26 countries at a moderate risk, and seven countries at low risk of debt distress.


More realism needed if we want to close the gap

The global climate finance gap (excluding China) currently amounts to a stunning 1 trillion until 2025 under the business-as-usual scenario. Promises of the past have not been lived up to while the climate crisis and green energy transition are becoming more urgent every day. Global policy makers seem to rely on domestic resource mobilization and blended finance to close the gap.

However, as this blog post has shown, the empirical success of blended finance remains very limited, while the challenges to boost domestic resource mobilization remain huge. Time is, however, very limited. Instead of relying on insecure trends, global policy makers should act by developing policies that grant a bigger role for public money and innovative monetary solutions.


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ADB (2022). African Economic Outlook 2022. African Development Bank Group. https://www.afdb.org/en/knowledge/publications/african-economic-outlook

Attridge, S. (2022). The potentials and limitations of blended finance. In D. Schoenmaker & U. Volz (Eds.), Scaling Up Sustainable Finance and Investment in the Global South. CEPR Press. https://cepr.org/system/files/publication-files/175477- scaling_up_sustainable_finance_and_investment_in_the_global_south.pdf

Benedek, D., Gemayel, E., Senhadji, A., Tieman, A. (2021). A Post-Pandemic Assessment of the Sustainable Development Goals. IMF Staff Discussion Note. https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2021/04/27/A-Post-Pandemic-Assessment-of-the-Sustainable-Development-Goals-460076

Bhattacharya, A., Dooley, M., & Kharas, H. (2022). Financing a Big Investment Push in Emerging Markets and Developing Countries for Sustainable, Resilient and Inclusive Recovery and Growth. London: Grantham Research Institute on Climate Change and the Environment, and Washington, DC: Brookings Institution. https://www.lse.ac.uk/granthaminstitute/publication/financing-a-big-investment-push-in-emerging-markets-and-developing-economies/

Fenocchietto, R. & Pessino, C. (2013). Understanding Countries’ Tax Effort. IMF Working Paper. https://www.imf.org/external/pubs/ft/wp/2013/wp13244.pdf

Gallagher, K. P., & Kozul-Wright, R. (2021). The case for a new Bretton-Woods. John Wiley & Sons.

Global Infrastructure Facility. (2023). Global Infrastructure Facility. https://www.globalinfrafacility.org/

G20 (2019). G20 Osaka Leaders’ Declaration. G20. https://www.mofa.go.jp/policy/economy/g20_summit/osaka19/en/documents/final_g20_osaka_leaders_declaration.html

Hill, S., Jinjarak, Y., Park, D. (2022). How do Tax Revenues Respond to GDP Growth? Evidence from Developing Asia, 1998–2020. Asian Development Bank. https://www.adb.org/sites/default/files/institutional-document/782851/ado2022bp-tax-revenues-gdp-growth.pdf

IFC (2023). Blended Concessional Finance. International Finance Corporation, World Bank Group. https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/bf

IMF (2023a). Chair’s Statement of Forty-Seventh Meeting of the IMFC. https://www.imf.org/en/News/Articles/2023/04/14/pr23120-chairs-statement-forty-seventh-meeting-of-the-imfc

IMF (2023b). Nigeria’s Tax Revenue Mobilization: Lessons from Successful Revenue Reform Episodes. IMF Country Report No. 23/94. https://www.imf.org/en/Publications/selected-issues-papers/Issues/2023/03/07/Nigerias-Tax-Revenue-Mobilization-Lessons-from-Successful-Revenue-Reform-Episodes-Nigeria-530628

IMF (2023c). List of LIC DSAs for PRGT-Eligible Countries As of February 28, 2023 https://www.imf.org/external/pubs/ft/dsa/dsalist.pdfhttps://www.imf.org/external/pubs/ft/dsa/dsalist.pdf

IMF (2022). Mobilizing Private Climate Financing in Emerging Market and Developing Economies. IMF Staff Climate Notes.

Neil McCulloch (2019). What Nigerians really think about tax. International Centre for Tax and Development – ICTD. https://www.ictd.ac/blog/what-nigerians-really-think-about-tax/

OECD (2018). OECD DAC Blended Finance Principles for Unlocking Commercial Finance for the Sustainable Development Goals. OECD. https://www.oecd.org/dac/financing-sustainable-development/development-finance-topics/OECD-Blended-Finance-Principles.pdf

OECD/UNDP (2020). Tax Inspectors Without Borders Annual Report 2020. OECD/UNDP. http://www.tiwb.org/resources/reports-case-studies/tax-inspectors-without-borders-annual-report-2020.pdf

OECD (2022). Statement by the OECD Secretary-General on climate finance trends to 2020. OECD. https://www.oecd.org/environment/statement-by-the-oecd-secretary-general-on-climate-finance-trends-to-2020.htm#:~:text=29%2F07%2F2022%20%2D%20Climate,increase%20from%202018%20to%202019.

Oxfam (2020). Climate Finance Shadow Report 2020. Assessing progress towards the $100 billion commitment. Oxfam. https://www.oxfam.org/en/research/climate-finance-shadow-report-2020

Oxfam (2023). False Economy: Financial wizardry won’t pay the bill for a fair and sustainable future. Oxfam. https://www.oxfam.org/en/press-releases/oxfam-warns-rich-country-financial-wizardry-puts-their-own-interests-ahead-worlds

Songwe, V., Stern, N., & Bhattacharya, A. (2022). Finance for climate action: Scaling up investment for climate and development. London: Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science. https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2022/11/IHLEG-Finance-for-Climate-Action.pdf

Tett, G. (2022). The flood of green finance must be diverted from the west. Financial Times. https://www.ft.com/content/95c28b9e-7844-4ab7-8401-42d1cca133a8

The Economist (2016). Trending: blending. The Economist. https://www-economist-com.proxy.library.uu.nl/finance-and-economics/2016/04/23/trending-blendingg

UNCTAD (2022). Trade and Development Report 2022. Development prospects in a fractured world. UNCTAD. https://unctad.org/tdr2022

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[1] According to the OECD, blended finance is “‘the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries’, with ‘additional finance’ referring primarily to commercial finance’” (OECD 2018).

[2] In this context, the IHLEG recommends an incremental tax effort of at least 2.7% of EMDEs’ GDP, equal to USD 650 billion, so an additional USD 417 billion by 2025 on top of IMF projections (Bhattacharya et al., 2022).

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

About the authors:


Sara Murawski is a policy advisor and researcher in the field of international trade and investment, finance and European integration. She has worked in the world of journalism, think tanks, NGOs, the Dutch and European Parliament as well as with many activist groups. At Sustainable Finance Lab, Sara is project leader on the project “Changing ‘Fiscal Rules’ and reforming the EU fiscal framework” that tries to shift the debate in the Netherlands from frugal to forward looking. The continuous dialogue with experts, policy officials and local actors in developing her thoughts, output and activities is crucial for her.



Rens van Tilburg is director of the Sustainable Finance Lab at Utrecht University. Rens has experience working in the European and Dutch parliament and as an advisor on innovation policies for the Dutch government.  With the academic think tank the Sustainable Finance Lab Rens has worked extensively on banking, asset management, supervision, public finance and monetary policies. Focusing on financial stability issues and the impact of climate change and biodiversity loss. 




Anna Ghilardi is a research intern at Sustainable Finance Lab. She attained her bachelor’s degree in Economics and Business Economics at Utrecht University, where she wrote her thesis about the impact of previous monetary policy on European house price growth before and during the Covid-19 pandemic. She is now completing a double degree master’s programme in European Governance, a two-year curriculum attended both at University College Dublin, Ireland and Utrecht University. Therefore, she is currently writing her master’s thesis at Sustainable Finance Lab on Poland and Bulgaria’s capacity to single-handedly fund their climate finance gap in view of the European Union’s climate neutrality ambitions.

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New cabinet, new direction? ‘Building blocks’ for new Dutch minister Sigrid Kaag by Linda Johnson

About the author:

DSC01062 (1)Linda Johnson is currently the Executive Secretary at ISS. She has been involved in international relations in higher education since 1988, holding a variety of posts in the field, including Head of International Office, Head of Educational Affairs, Director of an American Study Abroad Programme and Head of International Relations. She speaks and writes regularly on topics pertaining to the internationalisation of higher education and research and on diversity.

Partos* and SAIL**, two umbrella organisations for development knowledge in the Netherlands, presented a number of urgent recommendations to incoming Minister of Foreign Trade and Development Cooperation Sigrid Kaag in December 2017. The two organisations hope to inform the minister’s new policy by means of a number of policy recommendations framed as ‘building blocks’. ISS, as a member of SAIL, co-created the building blocks in line with its vision of ensuring the societal impact of its research and of deepening collaboration with partners in the development sector.

A New Cabinet – and New Opportunities

The Dutch elections of March 2017 resulted in a protacted period of negotiation between Dutch political parties before sufficient agreement was reached for a new coalition government to be formed in October 2017. Incoming Dutch Minister for Foreign Trade and Aid, Sigrid Kaag1, an experienced diplomat and a member of the political party D66, now faces a number of challenges in deciding which direction the Dutch developmental policy will take over the next five years.

Dutch Minister of Foreign Trade and Development Cooperation Sigrid Kaag.

The new policy is expected to be revealed in the coming months. For this reason, SAIL and Partos as platforms representing expertise in the development field, worked together on formulating a document for Minister Kaag that could help shape her new policy. The document highlights six key areas of the Dutch development policy requiring attention: Development Cooperation and Forced Migration; Humanitarian Action; Trade; Shrinking Civic Space and Human Rights; Partner Countries; and Climate Support to Developing Countries.

Development Cooperation and Forced Migration

The new cabinet’s goal is to focus on the prevention of migration and the return of migrants and refugees to their countries of origin. One strategy for doing this is to address the root causes of migration to reduce the number of people seeking refuge in Europe. SAIL and Partos recommend that the government focuses on tackling the root causes of forced migration (as opposed to voluntary migration), such as climate change, exclusion and violence, and argue that the positive aspects of migration should also be acknowledged.

SAIL and Partos recommend the avoidance of conditional aid, which has proven to be ineffective, and underline the fact that the purpose of development cooperation and development aid is to further social and economic development. They also warn that the ‘ring around Europe’, which currently receives most attention, should not prevent a focus on other regions where help is desperately needed.

Humanitarian Action

Partos and SAIL praise the Netherlands for its leadership in taking humanitarian action, but recommended that its aid financing mechanisms should be flexible, independent, unconditional and multi-year in order to better handle the increasing complexity and extent of humanitarian disasters and conflicts. They furthermore stress the importance of ‘localisation’, and stated that the Netherlands’ extensive experience of network governance and localisation should be put to good use. They also reflect on the importance of focusing on gender through providing increased protection to women and children, and the need for attention to be paid to the conditions in camps housing Libyan refugees.


The coalition agreement highlights the government’s desire to further combine trade and aid. SAIL and Partos warn that trade should be an instrument serving development and should not be an aim in itself. They also call for the creation of a good investment climate based on a ‘do-no-harm’ principle in developing countries and for support of local SMEs in developing countries.

Shrinking Civic Space and Human Rights

The coalition agreement emphasises the Netherlands’ support for human rights and its pledge to increase the budget for its human rights fund. Partos and SAIL call for steps to be taken to strengthen civil society to help create the conditions for a well-functioning, free and democratic society in which a sustainable and inclusive economy can flourish.

Partner Countries

The two organisations argue that migration issues should not inform the Netherlands’ choice of its partner countries. Partner relationships should be based on long term cooperation, and on enduring global challenges such as climate change, poverty and population growth.

Climate Support to Developing Countries

The coalition agreement reveals the importance assigned to sustainable development. The new cabinet announced its intention to start a national climate fund, but no concrete financial commitments to this fund have been made as yet. Could this point to lack of commitment?

SAIL and Partos call for a concrete financial commitment to be made in line with the Climate Law for the periods 2020-2025 and 2026-2030, and for financial flows to be targeted towards lower income countries and used for the support of vulnerable groups. Moreover, they recommend that the Netherlands should commit itself to making international funds such as the Green Climate Fund and the Adaptation Fund2 more accessible for developing countries and the organisations combating climate change within them.

Concluding remark

The collaboration between Partos and SAIL was an interesting and highly rewarding learning experience. Scientists, policy-makers and practitioners work together less frequently than they should. Our experience of co-creating the ‘building blocks’ for Minister Kaag made it eminently clear to us that creating spaces in which the worlds of evidence and practice can meet and debate things that matter is very worthwhile indeed. We plan to continue the collaboration and hope that the ‘building blocks’ will be the start of a good conversation with Minister Kaag.


*Partos is the association for development cooperation, with more than 100 Dutch organisations active in the field holding membership to this association.
**SAIL is the platform for international knowledge institutes in The Netherlands, with the ISS as one of the six members.
1Dr. Sylvia Bergh, Associate Professor in Development Management and Governance at the ISS, in 2016 interviewed Minister Sigrid Kaag regarding her work at that time in Syria, where she was a United Nations Special Coordinator for Lebanon (watch the video here).
2The Green Climate Fund is a global fund created to support the efforts of developing countries to respond to the challenge of climate change. The Adaptation Fund is intended to help developing countries to adapt to climate change.