Rethinking Blended Finance: Lessons for Philanthropy and Development Practice

From Funding Gaps to Questions of Investability

I found intriguing articles written by Jens Christiansen, “Fixing Fictions through Blended Finance: The Entrepreneurial Ensemble and Risk Interpretation in the Blue Economy,” and Julian Rode et al., “Why ‘Blended Finance’ Could Help Transitions to Sustainable Landscapes: Lessons from the Unlocking Forest Finance Project,” that pushed me to rethink blended finance in a much more critical and realistic way. Before reading them, I saw blended finance as a creative solution for mobilizing capital to achieve social and environmental goals. Now I see it as a conditional tool that only works in specific contexts.

What stood out to me most is that the problem is often not just a lack of funding. The problem often lies in projects being too uncertain, too risky, too small-scale, or too institutionally weak to attract investors. Christiansen illustrates this with marine conservation in the Blue Economy, while Rode and his co-authors demonstrate it with a sustainable landscape project in Brazil and Peru.

Constructing Investability: Christiansen on Risk, Uncertainty, and Market Formation

Christiansen’s article caught my attention with the idea that blended finance not only moves capital but also builds investability. In the Blue Economy, marine conservation projects face significant uncertainty due to a lack of data, benchmarks, and accepted methods for pricing risk. Blended finance helps “fix investors’ fictional expectations” by using concessional, philanthropic, and development capital to make projects appear investable through structuring, modeling, and narrative.

However, blended finance may not resolve uncertainty but rather mask it, making it seem calculable. This shows that blended finance is not a neutral technical tool but part of the process of making projects appear credible to investors. Blended structures can send a negative signal by implying a project is not commercially viable on its own, while also making investments more complex and less liquid.

Critics argue that blended finance can become a technical fix that preserves faith in market-based environmental governance while failing to address the market’s structural weaknesses. In that sense, blended finance may preserve the illusion that markets will eventually solve environmental challenges. This criticism questions whether blended finance is always used for impact or sometimes used to maintain belief in a market solution that remains fragile.

The Limits of the Investment Case: Insights from the Unlocking Forest Finance Project

If Christiansen explains how investability is constructed, Rode and his co-authors test that logic in practice. Their article is useful because it neither rejects nor endorses blended finance, but shows that the investment case for sustainability projects is often weaker than expected. Their first lesson is especially striking, where financial returns from sustainable land-use activities are often overestimated. Financial returns from sustainable land-use activities are often overestimated, with many projects facing high risks, high transaction costs, long payback periods, and limited scalability.

This reveals a gap between what sustainable projects can offer and what investors expect. Investors prefer simple labels, trusted certification, scale, and a track record, but actual projects are small-scale, early-stage, and institutionally complex. This reveals a gap between what sustainable projects can offer and what investors expect.

Rode and his co-authors still recognize the potential of blended finance to bring together public, philanthropic, and commercial actors. However, they also highlight an important trade-off. However, they also highlight a trade-off: non-revenue-generating conservation activities were dropped because they weakened the financial case. This suggests that once the investment case becomes the main filter, activities with high social or environmental value may be sidelined if they are not financially attractive enough.

Reflection for Current Project Work

These readings remind me not to assume blended finance is the answer, but to first assess whether the project is too early-stage, lacks a track record, or faces technical, regulatory, or institutional barriers. Christiansen helped me think more critically about framing uncertainty, while Rode et al. made practical barriers clearer. 

Philanthropy is most useful when it plays a catalytic role through proof-of-concept, technical assistance, monitoring, and absorbing early-stage risk. Philanthropy should not be used to make a weak project look investable. The biggest lesson for my work is that blended finance should not be a default solution, but a response to a serious diagnosis of the project's actual barriers and the roles of philanthropy, public support, and private capital.

Bibliography

Christiansen, J. (2021, February 5). Fixing fictions through blended finance: The entrepreneurial ensemble and risk interpretation in the Blue Economy. Retrieved from Geoforum 120 (2021) 93–102: https://doi.org/10.1016/j.geoforum.2021.01.013

Rode, J., Pinzon, A., Stabile, M. C., Pirker, J., Bauch, S., Iribarrem, A., Orihuela, C. E. (2019, April 5). Why ‘blended finance’ could help transitions to sustainable landscapes: Lessons from the Unlocking Forest Finance project. Retrieved from Ecosystem Services 37 (2019) 100917: https://doi.org/10.1016/j.ecoser.2019.100917