Ukraine among top countries for climate blended finance deals for the first time

Ukraine had the second highest number of climate-focused blended finance deals in the world last year – entering the top 10 countries with the most significant  activity for this type of transaction for the first time, according to new research.

With nine blended finance deals focused on climate action, totalling US$1.4bn, Ukraine was second only to Nigeria, which attracted 10 deals worth US$1.5bn, according to the latest State of Climate Blended Finance report published this week by global network Convergence. 

As Ukraine has been fighting against Russian invasion since 2022, climate blended finance – the term that the report uses – was part of a broader effort from funders to support the country’s resilience and recovery, “positioning blended finance as a form of crisis financing”, according to the researchers.

Official development assistance in blended finance is being asked to stretch across more objectives

Most of the deals were arrangements between financial institutions and development finance institutions and multilateral development banks. The concessional capital came mainly from the European Bank for Reconstruction and Development through pools of catalytic capital such as the Resilience and Livelihood Framework, with an objective to help Ukraine sustain critical infrastructure and services while supporting investment in green technology and sustainability. 

Convergence CEO Joan Larrea said this was a “signal that existing official development assistance in blended finance is being asked to stretch across more objectives”.

Retreat from least developed countries

Climate blended finance activity in least developed countries dropped from nearly a quarter of all transactions in 2023 to just 5% in 2024; meanwhile, deals in lower and middle income countries rose from 63% in 2023 to 73% in 2024.

According to Larrea (pictured), this could be “an early signal that the field may be doubling down on where we know blended finance can be most effective”. “Pure aid” should be focused on least developed countries, she wrote, “rather than trying to induce massive investment into [them] on commercial terms”. Lower middle income countries are more suited to commercial expectations and their economy can benefit more from blended finance.

Volumes hold steady, but scale is insufficient

Blended finance is defined by Convergence as an impact investing deal structure where concessional capital (which accepts lower returns or higher risk than a conventional investment) from government-backed or philanthropic sources is used to attract private capital in investments targeting the UN Sustainable Development Goals.

• Read more in our Impact 101: What is blended finance?

Climate finance represents more than two-thirds of the total blended finance market: 70% of all blended finance flows from 2019 to 2024 targeted climate mitigation, adaptation or both, according to the latest data from Convergence.

With US$15.5bn mobilised, 2024 volumes show a drop from 2023 but still grow at a yearly average of 13% between 2019 and 2024. The study shows 84 deals took place in 2024, with the median deal size standing at US$89.5m in 2024, slightly down from 2023.

A small number of “whale deals” (exceeding US$1bn) create volatility in volumes, the researchers note: six such transitions, worth US$8.1bn, were closed in 2023, pushing total volumes up; while only three took place in 2024. Excluding “whale” deals, volumes still rose at a yearly average of 8% between 2019 and 2024.

But the scale of finance mobilised remains insufficient compared with global needs: research from the Independent High-Level Expert Group on Climate Finance estimates US$2.4tn is needed each year to finance climate efforts in developing countries by 2030, rising to US$3.3tn by 2035. The report says “whale” deals demonstrated blended finance could mobilise capital at scale, but their occurrence remains “sporadic” with no clear upward trend – probably due to the complexity and high costs of putting such deals together.

• Read more: Opinion: Why impact investors should share the good news about climate adaptation opportunities 

Barriers to scale include a difficult global economic environment (including trade tensions, persistent inflation, and low growth prospects that steer investors away from developing countries), less catalytic capital available (official development aid dropped 9% in 2024, and is expected to fall by 17% this year), and broader problems in the blended finance market. 

• Read more: Blended finance market should brace for impact of development aid cuts – Convergence warning

Private sector interest

The report shows that institutional investors have dramatically increased their provision of “scale” (commercial rate) capital to climate blended finance deals in recent years, investing US$1.6bn in 2024, similar to 2023 levels, up from an average of US$146m between 2019 and 2022.

While these volumes are infinitesimal by private sector standards, it’s a positive direction

Commercial banks have also shown some appetite, with US$2.4bn worth of investments in 2024. Larrea said: “While these volumes are infinitesimal by private sector standards, it’s a positive direction and something we will be monitoring closely.”

Local investors are also playing an increasingly significant role, representing 29% of private commitments over the 2022-24 period, up from 17% in 2019-21. However, this varies widely according to geographies, with Europe and Central Asia, and Latin America and the Caribbean mobilising over two-thirds of blended capital from local sources, while Sub-Saharan Africa only sources 14% of capital locally.

Top image: Lymanśka solar power plant in the Odessa region, Ukraine. Via Wikimedia Commons.