Blended finance can help power India’s climate future [Commentary]

Today, India is at a crucial inflection point. As the fastest-growing major economy in the world, it must continue to expand its infrastructure, generate jobs, and improve the quality of life for more than a billion people. At the same time, it is under intensifying pressure to rapidly reduce carbon emissions, protect vulnerable communities from climate impacts, and uphold its global climate commitments. Achieving these twin goals of development and decarbonisation is no longer optional — it is existential.

Already, climate change is affecting everyday life across India. Heat waves are longer and more frequent. Floods and droughts are more severe and less predictable. Rising sea levels are threatening coastal settlements, while erratic monsoons are hitting farmers hard. Several assessments suggest climate-related risks could shave off around 2.6% of India’s GDP annually by 2100 if emissions continue unchecked.

In response, India has laid out an ambitious climate agenda. It has pledged to reach net-zero emissions by 2070, install 500 GW of non-fossil energy capacity by 2030, reduce the emissions intensity of its GDP by 45% by the same year, and meet 50% of its energy needs from non-fossil fuel sources. These targets represent a bold shift toward a cleaner, more sustainable growth trajectory.

But translating these promises into real-world results will require unprecedented levels of investment — particularly in clean energy, resilient infrastructure, low-carbon transport, green manufacturing, and nature-based solutions. According to the Climate Policy Initiative, an independent non-profit research group, India will need more than $10 trillion in investment by 2070 to meet its net-zero goal. That’s roughly three times its current GDP.

Public sector budgets, already strained by development priorities and rising debt, cannot cover even a fraction of this amount. International climate finance, though important, remains fragmented, slow-moving, and far below the levels committed under global frameworks like the Paris Agreement. Private capital, on the other hand, has the scale and speed to meet India’s climate financing needs — but it remains hesitant.

This is where blended finance enters the picture — not as a silver bullet but as a powerful bridge between ambition and action.

Financing the unfinanced

Blended finance refers to the strategic use of concessional public or philanthropic funds to de-risk investments and mobilise larger pools of private capital toward development goals. In the climate context, blended finance can make projects viable that might otherwise be deemed too risky, too small, or too new by commercial investors. It helps crowd in private capital where it is needed most: in early-stage technologies, underserved geographies, and sectors with long-term returns.

In India, this approach is particularly relevant. While sectors like utility-scale solar have become commercially attractive, many other climate-critical areas remain underfinanced. These include rooftop solar, battery storage, e-mobility, energy efficiency in buildings, green hydrogen, and sustainable agriculture. Often, the challenge isn’t the lack of interest — but the lack of a financial structure that makes these opportunities bankable. In simpler terms, these projects often don’t meet the criteria banks and investors look for, such as low risk or predictable returns. As a result, even promising ideas struggle to get funding.

Blended finance solves this by absorbing the early-stage risk through instruments like first-loss capital (the layer of capital that investors commit to a project with the awareness that they would take the first hit in case of declines in asset value or other financial losses), credit guarantees, concessional debt, or technical assistance. For example, a concessional loan to a solar mini-grid project in a remote village may not only improve its credit profile but also signal confidence to commercial investors. A guarantee for an energy-efficiency retrofit program in MSMEs (Micro, Small, and Medium Enterprises) can reduce the perceived risk and help aggregate small investments into a viable portfolio.

India is not starting from scratch. Several pilot initiatives have shown the potential of blended finance to deliver climate and development gains. The Green Growth Equity Fund (GGEF), a public-private partnership anchored by India’s National Investment and Infrastructure Fund and the U.K. government, has attracted private equity into sectors like waste management and distributed solar. The Powering Livelihoods program, supported by philanthropic capital and development agencies, has demonstrated how concessional funding can support women-led clean energy enterprises in rural areas. Multilateral agencies like the World Bank and Asian Development Bank have blended concessional and market-rate loans to scale up renewable energy and green infrastructure.

Yet these efforts remain limited in scale compared to the need. The challenge now is to move from isolated success stories to a systemic shift. Blended finance must become a mainstream strategy for climate investment in India — not a niche experiment.

To achieve this, several steps are crucial.

From vision to viable projects

First, there must be clear and consistent policy signals. Investors need confidence that climate-aligned investments will be supported — not undermined — by future regulations. India’s long-term low emissions development strategy, green hydrogen mission, and proposed carbon market are promising developments. But, translating these into sector-specific guidelines, financial incentives, and predictable timelines is essential.

Second, the pipeline of investable projects must grow. This means supporting institutions at the State and municipal level, as well as entrepreneurs and community organisations, in designing and structuring viable climate projects. Capacity building, technical assistance, and project development facilities are just as important as capital.

Third, India needs a more diverse toolkit of blended finance instruments. Beyond equity and concessional loans, innovative tools such as green guarantees, results-based finance, and securitisation platforms can unlock new areas of investment — especially for smaller or decentralised projects. For instance, a risk-sharing mechanism for electric vehicle financing could catalyse adoption in Tier 2 and Tier 3 cities, where traditional lenders remain cautious.

Fourth, impact measurement must be built into every stage of investment. Investors today — especially those managing ESG and sustainability-linked funds — want to see not just financial returns but clear metrics on emissions reductions, resilience gains, and social inclusion. Developing robust data systems, shared taxonomies, and transparent reporting standards will help align incentives and improve accountability.

Finally, blended finance cannot succeed without strong collaboration. Public sector institutions, private investors, philanthropic foundations, and multilateral banks must work together — combining their risk appetites, expertise, and networks. Philanthropy, in particular, can play a catalytic role. Unlike commercial capital, it is uniquely positioned to take on early-stage risk, fund innovation, and support system-wide change.

India has a remarkable opportunity here. With its entrepreneurial energy, large domestic market, and global leadership on climate platforms like the International Solar Alliance, it can become a model for climate finance innovation. The world is watching. If India can prove that blended finance works — not just on paper but at scale — it can offer a roadmap for other emerging economies grappling with the same challenges.

The stakes could not be higher. Climate change is already altering the rhythm of life in India. The next two decades will determine whether we move toward resilience and sustainability — or remain locked into a cycle of escalating disasters and inequality. Financing this transition is not just an economic imperative — it is a moral one.

Blended finance offers a way forward. It recognises that public funds must work smarter, not just harder. It acknowledges that private capital has a role to play — but needs the right incentives and assurances. Above all, it insists that climate action must be inclusive, equitable, and rooted in the realities of people’s lives.

As we confront the climate challenge, we must be as innovative with our financial tools as we are with our technologies. Blended finance gives us a chance to do just that — to mobilise trillions, not just in the capital, but in the collective will.

The moment to act is now.

The author is a veteran journalist with nearly 35 years of experience in reporting and editing.

Banner image: A thermal power station in Kadapa, Andhra Pradesh. Image by Jay.Jarosz via Wikimedia Commons (CC BY-SA 4.0).