Harnessing ‘Blended Finance’ to Further Advance the SDGs

AUTHOR: Simon Tribelhorn CEO, Liechtenstein Bankers Association (LBA)

The word ‘sustainability’ may be overused or have become a buzzword and climate change may have disappeared from the headlines. In the long term, the WEF Global Risk Report rightly sees climate change as one of the greatest challenges facing humanity. Events such as the flood of the century in Valencia or the devastating bushfires in Los Angeles cannot, with the best will in the world, be dismissed as mere weather phenomena. Experts have long warned against underestimating such extreme events. Significantly more investment is needed in the short-term prevention of such disasters. At the same time, we must not leave the path towards ‘net zero’. This is the only way to ensure that such events no longer occur so frequently in the distant future. In both cases, the solution requires increased international cooperation. However, the current trend towards fragmentation of the global community is making this path more difficult. Multilateral institutions are being weakened and national, short-term interests are taking centre stage.

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.

Can We Afford Not to Invest in the Global South?

The question we must ask ourselves is: Can we afford not to invest in the Global South? The consequences of neglecting this vital region of the world could be disastrous—not only for those living in these countries but for the entire global economy and the planet as a whole. If developing countries are left behind in the transition to a lowcarbon, climate-resilient economy, the repercussions will ripple far beyond their borders.

The Global South is home to some of the world’s fastest-growing populations and most vulnerable ecosystems. Without adequate investment in sustainable development, these regions risk falling further into poverty, suffering from more frequent and severe climate disasters, and contributing to global instability. Failing to act could lead to a vicious cycle of environmental degradation, mass displacement, and economic hardship, which could destabilise both local and international markets. In a globally interconnected world, the impacts of climate change and underdevelopment

Overcoming Challenges in Scaling Blended Finance

WITHOUT ADEQUATE INVESTMENT IN SUSTAINABLE DEVELOPMENT, THESE REGIONS RISK FALLING FURTHER INTO POVERTY, SUFFERING FROM MORE FREQUENT AND SEVERE CLIMATE DISASTERS, AND CONTRIBUTING TO GLOBAL INSTABILITY.

in one region will inevitably affect others, including wealthier nations. From a purely economic perspective, the costs of inaction could far outweigh the costs of investing in sustainable solutions now. As climate risks increase, so too will the financial burden of responding to disasters, rebuilding infrastructure, and addressing the social and economic fallout. By proactively investing in the Global South today, we can prevent these future crises, create new market opportunities, and foster global stability.

Despite its advantages, scaling blended finance comes with its own set of challenges. Lack of expertise in structuring such projects and fears in some developing countries that traditional development aid will be reduced are common concerns. The biggest obstacle, however, is the shortage of well-prepared projects.

So, what can be done? A shift in project planning is needed—one that strikes a better balance between investors’ desire for scalability and returns, and the realities on the ground. Execution risks must be managed carefully, and the focus should be on pragmatic solutions rather than theoretical perfection. In other words, done is better than perfect. For this to happen, we must break away from the siloed thinking that often dominates the investment landscape. Greater collaboration between different investor groups, project developers, and local authorities is crucial. →

→ This is not just about climate change—it applies to financing all 17 of the UN’s Sustainable Development Goals (SDGs). Whether it is clean water, poverty alleviation, or education, blended finance has the potential to create meaningful impact across a wide range of sectors.

The Role of Liechtenstein

Liechtenstein, as international financial centre with a strong track record in development aid and expertise in philanthropic finance, are uniquely positioned to lead the way in blended finance. Both countries have the infrastructure and know-how to significantly contribute to the funding of sustainable development projects, particularly in developing countries. Its role in blended finance allows to make an outsized impact, all while offering competitive, market-based returns for investors and clients.

Blended finance represents a powerful tool in the global fight against climate change and in achieving the broader SDGs. By combining the strengths of public and private sectors, it enables the kind of large-scale investments needed to build a sustainable future.

Liechtenstein is well-placed to drive this effort, ensuring that the global transition to a low-carbon, resilient economy is not only possible but inclusive, equitable, and just.

In conclusion, the need for innovative financial solutions like blended finance has never been more urgent. The complex nature of climate change demands multifaceted responses, and blended finance provides a pathway that addresses the challenge of financing sustainable projects in regions that need it the most. It is a critical tool in the broader strategy to combat climate change and support the achievement of the Sustainable Development Goals, offering a fairer, more effective way to allocate resources and share risks. Now is the time for financial institutions, governments, and private investors to come together and make this a reality. The future depends on it. The question is not whether we can afford to invest in the Global South, but whether we can afford not to. ■

About Liechtenstein Bankers Association (LBA)

The Liechtenstein Bankers Association (LBA) was founded in 1969 and represents the voice of Liechtenstein banks both nationally and internationally. As one of the most significant associations in the country, it plays a crucial role in the ongoing development of the financial centre. The LBA is an active participant in European legislative processes, being a member of important organisations such as the European Banking Federation (EBF), the European Payments Council (EPC), and the European Parliamentary Financial Services Forum (EPFSF). Since 2017, the LBA has also been part of the Public Affairs Council (PAC) with offices in Washington and Brussels, and since 2018, it has been a member of the international network “Financial Centres for Sustainability” (FC4S).

With the Roadmap2025, the LBA has placed even greater emphasis on two critical areas: sustainability and digitalisation. Sustainability remains a key pillar of the strategy, with digitalisation acting as a major enabler of this transformation. Reflecting this focus, in 2021, the LBA became an official supporter of the UN Principles for Responsible Banking and the Net-Zero Banking Alliance, further demonstrating its commitment to sustainable and responsible banking.