‘Too risky.’ Not too long ago, this was the usual response from investors to green infrastructure projects in Asia's developing markets.

Today, the conversation has moved along to: ‘How can we participate?’ or ‘Where else can we go?’ The remarkable change in sentiment is no accident. It is the result of a deliberate, strategic shift that the Asian Development Bank had set out – first, to integrate climate solutions in all aspects of our work, thereby becoming the climate bank for Asia Pacific; and second, to work with the private sector in financing sustainable development.

Blended finance is one tool we have to integrate climate solutions and catalyse private sector development. Since 2012, ADB’s blended finance activities have supported more than 50 projects across various sectors throughout our developing member countries, with a strong focus on renewable energy, energy efficiency and transport electrification. ADB has made blended finance commitments worth over $800m, helping to catalyse projects worth nearly $10bn. These efforts highlight how multilateral development banks are contributing to sustainable development.

Today's successful blended finance structures require a sophisticated mix of technical expertise, policy engagement and, most of all, financial innovation.

Anatomy of a market-making deal

Sustainable projects such as the nearly $1bn Monsoon wind power project in Laos are a prime example of this sophisticated blend in practice. Its goal to export and sell electricity into neighbouring Vietnam made it Asia’s first cross-border wind project and, at time of financing in 2023, the largest wind power project in southeast Asia at 600 megawatts.

The project faced a number of challenges, including risks related to the power purchase agreement, construction concerns and investors’ apprehension regarding Laos’ macroeconomic situation. A key risk the project faced was the buyer’s ability to curtail power output from the project without compensation, making the long-term revenue available less certain for debt servicing. Conventional wisdom suggested the project couldn't be done but, with ADB as the lead arranger, $60m in concessional finance was structured to reduce the financial risks for investors.

The blended finance package was designed to address the curtailment risk in two ways. First, $30m was provided with lower interest rate and longer tenor as senior debt to mitigate the effects of ordinary curtailment. Second, an additional $30m to fund a cash reserve was carved out to mitigate extreme curtailment. The concessional funding acted as a risk buffer, absorbing some of the uncertainties that make private investors hesitate.

We recognised that de-risking was essential to attract other lenders. The initial $60m package provided the foundation to attract further private capital, ultimately raising nearly 15 times that amount in investment (both debt and equity) into the project, including $250m of commercial bank debt. Eventually, it became a bankable project.

ADB’s local knowledge of and engagement with the governments of Laos and Vietnam were essential in helping the clients understand potential political and regulatory risks throughout the financing.

For other projects, ADB offers expertise in project planning and implementation, ensuring that the initiative met international standards and operated efficiently. We also occasionally work with governments to promote supportive policies and regulatory frameworks.

No one can do it alone

It’s no secret that the infrastructure investment needs of developing Asia Pacific are massive, estimated at around $1.7tn annually until 2030. While fiscal reforms could bridge up to 40% of that gap, it is down to the private sector to fill in the rest.

Blended finance, as part of a toolkit of innovative instruments, is a key piece of the puzzle. When paired with green bonds, guarantees, local currency financing and sustainability-linked loans, it doesn't just fill funding gaps – it also creates new markets. We're seeing projects that have started with blended finance now accessing commercial markets on their own, while deals that were once deemed ‘unbankable’ are attracting mainstream investors.

And therein lies the challenge – and opportunity – for MDBs. To truly catalyse private investment at scale, we need to evolve. We need to build stronger partnerships, both among MDBs and with the private sector, to drive greater levels of co-financing. We need to become ecosystem builders, bringing together governments, private investors and development partners to create sustainable markets for green infrastructure.

Because in the race to finance Asia's green transition, we don't just need more money – we need smarter money, deployed faster and more effectively than ever before.