Interview: practitioners on green bonds & blended finance

In 2024, global green bond issuance reached approximately $572 billion, pushing the cumulative outstanding green bond market past the $3 trillion milestone for the first time in history (LSEG, 2025). Meanwhile, climate blended finance deployed $15.5 billion across 84 deals, with institutional investor commitments surging from just $2 million in 2022 to $1.6 billion in 2024 (Convergence, 2024). These figures represent more than market growth—they signal a fundamental shift in how capital flows toward climate solutions. For practitioners navigating this landscape, understanding what works, what fails, and how to evaluate opportunities has never been more critical.

Why It Matters

The climate finance gap remains staggering. The Climate Policy Initiative estimates that annual climate finance needs will reach $8.1–9.0 trillion by 2030, yet current flows hover around $1.9–2.0 trillion annually (CPI, 2024). Green bonds and blended finance structures serve as essential bridges across this chasm, each addressing distinct but complementary market failures.

Green bonds provide a standardized mechanism for channeling private capital toward environmental projects. Their growth reflects increasing investor appetite for climate-aligned assets—Europe alone accounted for 55% of global green bond issuance in 2024, with Germany (€49 billion), France (€41 billion), and the Netherlands (€21 billion) leading the charge (World Bank, 2025). The EU Green Bond Standard, which became fully operational in December 2024, establishes rigorous requirements for use of proceeds, impact reporting, and external verification, setting a global benchmark for transparency.

Blended finance, by contrast, specifically targets the risk-return profiles that deter private investment in developing economies. By deploying concessional capital from development finance institutions (DFIs) and philanthropies as first-loss layers, guarantees, or technical assistance, blended structures can crowd in commercial investors who would otherwise remain on the sidelines. The 2024 data from Convergence shows this approach gaining traction: local private actors in emerging markets now represent 29% of total blended finance investments, up from 17% during 2019–2021.

For EU-focused practitioners—particularly those in policy and compliance roles—understanding these instruments is essential for navigating the evolving regulatory landscape, from the Corporate Sustainability Reporting Directive (CSRD) to the EU Taxonomy alignment requirements.

Key Concepts

Green Bonds: Structure and Standards

A green bond functions like any conventional fixed-income instrument, with one critical distinction: proceeds must be earmarked for eligible environmental projects. The International Capital Market Association's (ICMA) Green Bond Principles provide a voluntary framework organized around four pillars: use of proceeds, project evaluation and selection, management of proceeds, and reporting.

The EU Green Bond Standard introduces legally binding requirements that go beyond voluntary guidelines. Issuers must allocate at least 85% of proceeds to EU Taxonomy-aligned activities, publish a detailed allocation report before and after issuance, and obtain external verification from an ESMA-registered reviewer. This framework addresses longstanding concerns about greenwashing while creating compliance complexity for issuers.

Blended Finance: De-Risking Mechanisms

Blended finance employs several archetypal structures to mobilize private capital:

First-loss tranches: Concessional capital absorbs initial losses, protecting senior investors
Guarantees: DFIs or multilateral development banks provide credit enhancement
Technical assistance: Grants fund project preparation, capacity building, and transaction structuring
Results-based incentives: Payments contingent on achieving specified outcomes

The key metric in blended finance is the mobilization ratio—how much private capital each dollar of concessional funding attracts. Industry benchmarks suggest ratios of 3:1 to 5:1 for well-structured transactions, though achieving these targets in least developed countries (LDCs) remains challenging.

Key Performance Indicators by Sector

KPI	Green Bonds	Blended Finance	Target Range
Mobilization Ratio	N/A	Private capital per concessional $	3:1–5:1
Alignment Rate	% proceeds Taxonomy-aligned	% climate-tagged allocation	>85% (EU GBS)
Additionality Score	Projects funded beyond BAU	Deals that wouldn't occur without concessionality	Qualitative assessment
Carbon Intensity	tCO₂e avoided per €1M invested	tCO₂e avoided per $1M deployed	Sector-specific
Reporting Lag	Months from issuance to impact report	Months from close to outcomes data	<12 months
Default Rate	Issuer default frequency	Deal failure rate	<2% (historical avg)

What's Working

Europe's Regulatory Leadership

The EU Green Bond Standard represents a significant advancement in market integrity. By requiring Taxonomy alignment and ESMA-supervised verification, the standard addresses the credibility gap that has plagued voluntary frameworks. Early adoption among sovereign issuers—including Germany's €12 billion green Bund program and France's OAT Verte—demonstrates that stringent requirements need not deter issuance.

Institutional Investor Surge in Blended Finance

Perhaps the most striking development in 2024 was the explosive growth of institutional investor participation in climate blended finance. Commitments jumped from $870 million in 2023 to $1.6 billion in 2024, reflecting improved track records, standardized documentation, and growing familiarity with de-risking structures (Convergence, 2025). Commercial banks added another $2.4 billion, signaling mainstream acceptance of blended approaches.

Municipal Green Bond Innovation

U.S. municipal green bond issuance grew 30% in 2024 even as corporate issuance declined (LSEG, 2025). Cities and utilities are leveraging tax-exempt status and strong credit profiles to fund climate infrastructure at favorable rates. Programs like the C40 Cities Finance Facility have helped build municipal capacity, resulting in successful issuances from metros including Copenhagen, Melbourne, and Mexico City.

East Asia-Pacific Momentum

Climate blended finance in East Asia and the Pacific reached $5.0 billion in 2024, a 77% increase from $1.3 billion in 2023 (Convergence, 2024). Indonesia's Just Energy Transition Partnership (JETP) and similar country-platform approaches are demonstrating how coordinated donor engagement can unlock private capital at scale.

What's Not Working

Least Developed Countries Financing Collapse

The most troubling trend in 2024 was the dramatic decline in blended finance flows to least developed countries—from 23% of deals in 2023 to just 5% in 2024 (Convergence, 2024). Despite being most vulnerable to climate impacts, LDCs face persistent barriers: limited project pipelines, currency risks, small transaction sizes, and high due diligence costs relative to deal value.

Adaptation Finance Shortfall

Climate adaptation received only 13% of blended finance flows in 2024, compared to 64% for mitigation (Convergence, 2025). The UNEP Adaptation Gap Report 2025 estimates that developing countries will need $310–365 billion annually for adaptation by 2035—roughly 12–14 times current international public flows of $26 billion. Adaptation projects often lack the revenue streams that attract private capital, creating structural barriers to blended finance approaches.

U.S. Corporate Green Bond Retreat

U.S. corporate green bond issuance fell approximately 60% in 2024, driven by political headwinds and reduced ESG appetite among some institutional investors (LSEG, 2025). While municipal issuance partially compensated, the decline suggests vulnerability to policy shifts in the world's largest capital market.

Greenwashing Persistence

Despite improved standards, greenwashing concerns persist. A 2024 analysis found that nearly 20% of green bonds reviewed failed to meet basic transparency requirements for use of proceeds disclosure (Environmental Finance, 2024). The gap between voluntary guidelines and enforceable standards remains exploitable.

Key Players

Established Leaders

European Investment Bank (EIB): Pioneered the green bond market in 2007; remains the largest supranational issuer with over €50 billion in green bonds outstanding
IFC (International Finance Corporation): World Bank Group's private sector arm; manages flagship blended finance vehicles including the Managed Co-Lending Portfolio Program (MCPP)
KfW Development Bank: Germany's development bank; issued €10+ billion in green bonds and anchors major blended finance facilities
Asian Development Bank (ADB): Leads regional blended finance initiatives including the ASEAN Catalytic Green Finance Facility
EBRD (European Bank for Reconstruction and Development): Significant green bond issuer and pioneer in transition finance frameworks

Emerging Startups

Mirova SunFunder: Blended finance specialist deploying capital to off-grid solar and clean energy access in Africa
Clarmondial: Swiss firm structuring nature-based solutions investments using blended mechanisms
South Pole: Climate solutions provider with growing green bond advisory and verification services
Kreditanstalt für Wiederaufbau (KfW) Spinoffs: New vehicles focused on scaling Article 9 fund structures
Climate Fund Managers: Joint DFI-private venture managing the Climate Investor franchise for emerging market infrastructure

Key Investors & Funders

Green Climate Fund (GCF): Largest dedicated climate fund globally; significant anchor investor in blended vehicles
Convergence: Non-profit serving as the global network for blended finance; maintains the industry's most comprehensive deal database
MacArthur Foundation: Philanthropic pioneer in catalytic capital and first-loss positions
Amundi: Europe's largest asset manager; operates the Amundi Planet Emerging Green One fund with IFC
BlackRock: Manages significant green bond ETFs and increasingly deploying in blended structures through BGI

Examples

1. Copenhagen's Green Bond Program

Copenhagen has emerged as a municipal green bond leader, issuing multiple tranches totaling over €500 million to fund its 2025 carbon neutrality target. Proceeds have financed district heating conversion, cycling infrastructure, and building retrofits. The city's framework requires annual impact reporting with verified carbon savings—a practice now being replicated across Scandinavian municipalities. Key lesson: Strong political commitment and integrated urban planning enable credible use of proceeds.

2. Indonesia JETP Blended Finance Architecture

Indonesia's $20 billion Just Energy Transition Partnership, announced in 2022 with first transactions closing in 2024, represents the largest country-level blended finance mobilization for energy transition. The structure combines $10 billion in public sector commitments (including from Japan, the U.S., and EU member states) with $10 billion targeted from private investors. Early implementation challenges—including coal plant retirement sequencing and grid integration—offer lessons for subsequent JETP programs in Vietnam and Senegal.

3. Africa Green Bond Initiative

The Africa Green Bond Initiative, supported by IFC and Climate Bonds Initiative, has catalyzed sovereign and corporate issuance across the continent. Nigeria's 2024 green sukuk (Islamic bond) raised $200 million for renewable energy and afforestation projects. Kenya's Acorn Holdings issued the continent's first certified green bond for sustainable student housing. These deals demonstrate that African issuers can access international capital markets when supported by technical assistance for framework development and verification.

Action Checklist

Assess EU Taxonomy alignment of current green bond frameworks and identify gaps requiring remediation before EU GBS adoption
Conduct additionality analysis for blended finance structures to ensure concessional capital deployment meets development mandate
Establish verified impact measurement protocols that meet ICMA, EU GBS, and DFI reporting requirements
Map currency hedging needs and costs for emerging market blended finance exposure; evaluate local currency issuance feasibility
Build relationships with anchor investors (DFIs, GCF, climate-focused asset managers) before launching blended structures
Develop internal capacity for Taxonomy assessment, particularly for activities under technical screening criteria transition
Create pipeline of adaptation-eligible projects that can attract blended finance despite revenue model constraints

FAQ

Q: What distinguishes a green bond from a sustainability-linked bond? A: Green bonds earmark proceeds for specific environmental projects—the issuer commits to using funds for defined eligible activities. Sustainability-linked bonds (SLBs) tie the coupon rate to the issuer's overall ESG performance against key performance indicators, regardless of how proceeds are used. Green bonds offer transparency on use of funds; SLBs provide flexibility but require robust target-setting to avoid controversy.

Q: How do we evaluate blended finance additionality? A: Additionality assessment examines whether a transaction would have occurred without concessional capital. Strong evidence includes: commercial investors confirming they would not have participated at the offered terms; demonstrated pricing gaps between project risk and market risk appetite; and documented market failures specific to the geography or sector. Weak additionality claims often feature mature technologies in investment-grade markets where commercial capital is readily available.

Q: What verification requirements apply under the EU Green Bond Standard? A: EU GBS requires external review by an ESMA-registered verifier at three stages: pre-issuance (framework review), allocation reporting (confirming proceeds deployment), and impact reporting (measuring environmental outcomes). The standard mandates that at least 85% of proceeds align with EU Taxonomy technical screening criteria, with flexibility provisions for long-dated bonds where Taxonomy criteria may evolve.

Q: How can blended finance better reach least developed countries? A: Addressing LDC access requires: (1) aggregation facilities that bundle small projects into investable scale; (2) standardized documentation reducing transaction costs; (3) local currency solutions mitigating FX risk; (4) project preparation grants covering early-stage development costs; and (5) longer tenor concessional capital matching infrastructure asset lives. Country platforms coordinating multiple donors around national climate plans show promise.

Q: What is the expected growth trajectory for green bonds through 2030? A: Moody's forecasts green bond issuance reaching approximately $620 billion in 2025, with total GSSS (green, social, sustainability, and sustainability-linked) bonds steady at around $1 trillion (Moody's, 2025). Longer-term projections from Allied Market Research suggest the green bond market could reach $1.56 trillion annually by 2033, representing a 10.1% CAGR from 2024. Growth drivers include regulatory mandates, net-zero portfolio targets, and expanding Taxonomy frameworks globally.

Sources

World Bank Treasury. (2025). Labeled Sustainable Bonds Market Update – February 2025. Washington, DC: World Bank Group.
Convergence. (2024). State of Blended Finance 2024: Climate Edition. Toronto: Convergence Blended Finance.
Convergence. (2025). State of Climate Blended Finance 2025. Toronto: Convergence Blended Finance.
LSEG. (2025). Green debt market passes $3 trillion milestone. London Stock Exchange Group Insights.
Climate Policy Initiative. (2024). Global Landscape of Climate Finance 2024. San Francisco: CPI.
UNEP. (2025). Adaptation Gap Report 2025. Nairobi: United Nations Environment Programme.
IFC-Amundi. (2025). Emerging Market Green Bonds 2024. Washington, DC: International Finance Corporation.
Moody's Ratings. (2025). 2025 Sustainable Finance Outlook. New York: Moody's Corporation.